    [Senate Hearing 109-1128]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 109-1128

         S. 2686, THE COMMUNICATIONS, CONSUMER'S CHOICE, AND BROADBAND
                        DEPLOYMENT ACT OF 2006 (PART I)
    =======================================================================

                                    HEARING

                                   before the

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 18, 2006

                                   __________

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

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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

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

                                  ----------
                                                                       Page
    Hearing held on May 18, 2006.....................................     1
    Statement of Senator Boxer.......................................    13
        Prepared statement...........................................    13
    Statement of Senator Burns.......................................     5
    Statement of Senator DeMint......................................     6
    Statement of Senator Dorgan......................................    11
    Statement of Senator Ensign......................................     7
    Statement of Senator Inouye......................................     4
    Statement of Senator Lautenberg..................................    10
    Statement of Senator Bill Nelson.................................     9
    Statement of Senator E. Benjamin Nelson..........................     9
    Statement of Senator Pryor.......................................     6
    Statement of Senator Smith.......................................    63
        Prepared statement...........................................    63
    Statement of Senator Stevens.....................................     1
    Statement of Senator Sununu......................................    15

                                   Witnesses

    Bloomfield, Shirley A., Vice President, Government Affairs and
      Association Services, National Telecommunications Cooperative
      Association....................................................    67
        Prepared statement...........................................    69
    Guido, Hon. Michael A., Mayor, Dearborn Michigan; Vice President,
      U.S. Conference of Mayors (USCM)...............................    31
        Prepared statement...........................................    32
    Johnson, Julia L., Chairperson, Video Access Alliance............    38
        Prepared statement...........................................    40
    Kimmelman, Gene, Vice President, Federal and International
      Affairs, Consumers Union.......................................    42
        Prepared statement...........................................    44
    Largent, Hon. Steve, President/Chief Executive Officer, CTIA--The
      Wireless Association'...............................    80
        Prepared statement...........................................    82
    McClelland, Philip, Senior Assistant Consumer Advocate, Office of
      Consumer Advocate; on behalf of the National Association of
      State Utility Consumer Advocates (NASUCA)......................    91
        Prepared statement...........................................    92
    McCormick, Jr., Walter B., President/CEO, United States Telecom
      Association (USTelecom)........................................    27
        Prepared statement...........................................    29
    McSlarrow, Kyle, President/CEO, National Cable &
      Telecommunications Association (NCTA)..........................    16
        Prepared statement...........................................    17
    Read, Joslyn, Chairman of the Board, Satellite Industry
      Association (SIA)..............................................    85
        Prepared statement...........................................    87

                                    Appendix

    Lopez, Keali 'i S., President/CEO, `Olelo Community Television,
      letter, dated May 18, 2006, to Hon. Daniel K. Inouye...........   103
    Pringle, Hon. Curt, Mayor, City of Anaheim, prepared statement...   107
    St. John-Crane, Suzanne, Executive Director, Community Media
      Access Partnership (CMAP); on Behalf of The Alliance for
      Community Media, prepared statement............................   103

         S. 2686, THE COMMUNICATIONS, CONSUMER'S CHOICE, AND BROADBAND
                        DEPLOYMENT ACT OF 2006 (PART I)

                                  ----------

                             THURSDAY, MAY 18, 2006

                                           U.S. Senate,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:15 a.m. in
    room SD-106, 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. Since we do have two panels today, I would
    like to make--I have sort of a long opening statement, I think
    my colleague does, too, on this bill.
        This marks the first of two hearings on S. 2686, the
    Communications Act Reform Bill that Senator Inouye and I
    introduced a little more than 2 weeks ago. The first title is
    the Call Home Act, providing assistance to our troops deployed
    overseas. And it's now approaching 50 co-sponsors, with more
    than half of our Committee cosponsoring this bill.
        The second title is the Interoperability Title, largely an
    effort that Dan and I began last fall in the reconciliation
    bill in which our committee voted to dedicate $1 billion for
    interoperable communications equipment for first responders.
    And this comes from the spectrum proceeds of future auctions.
    Because of the Byrd Rule, the authorization language in how the
    money was to be spent was deleted from the final package, and
    Title II of this bill provides how it is to be expended.
        Senator McCain was instrumental in developing that
    proposal, along with Senator Inouye, who proposed the idea of a
    strategic technology reserve for every State. His concept has
    been hailed by Governors nationwide. Senators Lott, Vitter, and
    Bill Nelson also provided valuable input after their firsthand
    experience at and during the response arising from Hurricane
    Katrina.
        Senator Kerry has had some additional refinements. He will
    propose dealing with redundant networks. And we are committed
    to working with him on that effort.
        The USF title is largely patterned after three bills or
    amendments sponsored by Senators Inouye, Burns, Rockefeller,
    Smith, Dorgan, and Snowe, which many of this committee have
    cosponsored, as well as provisions introduced in the House.
        We're particularly grateful to the bipartisan members of
    the so-called Farm Team, including Senators Lott, Nelson, and
    Pryor, whose staffs spent hours discussing the concepts before
    the pen was ever put to paper on the universal service portion.
        Senators Ensign, Rockefeller, and Smith are credited with
    first bringing the franchising reform proposal to our
    Committee, while the House adopted a national franchising
    proposal. The Inouye-Burns principles called for local
    franchises. In an attempt to be consistent with their
    principles, the proposals we drafted maintained local
    involvement in issues from rights-of-way management to PEG
    channels. There are a number of elements in that title that
    still cause Senator Inouye and others some concern, which we
    will attempt to address as we mark up the bill.
        The White Spaces title allowing unlicensed use of vacant TV
    channels for broadband is largely the product of Senators
    Allen, Sununu, and Kerry. Senator McCain and Lautenberg are the
    principal authors of the Municipal Broadband title, which we
    fused with the ideas of Senator Ensign's bill.
        Senator Boxer first initiated the idea of addressing child
    pornography in the bill, and we welcome any additional
    suggestions that members have to that portion.
        It is our hope that we will include a proposal from Senator
    Kerry that has been referred to the Judiciary Committee. I have
    asked to meet with Senator Specter this week to discuss moving
    the Kerry proposal. We're also waiting for additional input
    from the FBI and the Justice Department, and we will talk to
    Senator Specter about those, also.
        The Broadcast Flag proposal was developed by Senators Smith
    and Boxer, and has been endorsed by both the NAB and Motion
    Picture Association. This is an element that is also very
    important to the majority leader.
        And I'll take the credit or blame for the Net neutrality
    section that's in our bill. It'll be the subject of our hearing
    next week. Senator Inouye will chair that hearing, as I must be
    absent that morning. I take credit or blame for that, as I
    said.
        As we laced together proposals made by members of the
    Committee from both sides of the aisle, Senator Inouye and I
    did not agree upon every provision, including my Net neutrality
    language. However, he did join me in cosponsoring the bill to
    begin this dialogue, and I'm grateful to him for that. So that
    everyone knows, we will continue to work in a bipartisan basis
    on this bill.
        Our initial draft, introduced more than 2\1/2\ weeks ago,
    was intended to offer a starting point to stimulate specific
    legislative proposals for improvement from both the members of
    our committee and from industry, cities, and consumers who will
    be affected. It certainly has stimulated discussion, that's for
    sure.
        Overall, the reaction has been very favorable. From my
    point of view, dozens of groups, from the National Association
    of Broadcasters to the U.S. Telecommunications Association, and
    from the rural telephone companies to the Motion Picture
    Association of America, have issued statements supporting
    titles of the bill. First-responders, veterans groups, and
    military support organizations have hailed this bill. Even the
    National Cable Telecommunications Association has made a
    favorable comment about the legislation. At the same time, each
    has offered constructive suggestions for improvement, which we
    intend to review.
        Senator Inouye and I have initiated a dialogue with Members
    of our Committee. At our request, our committee staffs met
    together jointly this week, and last week with every Senator's
    office, Republican and Democrat, alike, on a bipartisan basis.
    They have gone through the bill title by title, seeking
    comments, proposed changes, and constructive criticism.
        Senator Inouye's staff wisely pointed out that some
    members' offices may be reluctant to raise specific concerns in
    front of a large group. Others, like Senator Lott and Sununu,
    have unique concerns on how the USF program would work in a
    rural State served largely by national nonrural companies.
    Still others have concerns about how the Universal Service
    Program would work for farmers in States like Nebraska.
        The DTV title includes specific language on border States
    and possible interference from Canada and Mexico. Senators
    McCain and Hutchison and Boxer are on the southern border, and
    Senators Burns, Dorgan, Snowe, and Cantwell are on the northern
    border, which may have unique issues that need to be addressed.
        Senator Inouye and I have included some specific provisions
    to address issues unique to Alaska and Hawaii because of our
    global position relative to satellite coverage. We will also
    welcome ideas from members on this subject so that programs to
    this bill from Universal Service to franchising work just as
    effectively. They will work effectively on the farm, the ranch,
    the fishing village, or a city, or even in a remote Eskimo
    village or a native Hawaiian island.
        Today, I'm asking our Committee staff to continue to meet
    one on one with the members' offices to discuss the specific
    proposals and how we can craft the bill in a manner that will
    work throughout the Nation. As we continue that dialogue,
    Senator Inouye and I invite each of our colleagues to submit
    written comments on the bill to us. Senator Inouye is preparing
    comments on the measure, which I will review this weekend.
    We've blocked time to discuss his comments in detail at the
    beginning of next week. And we invite our colleagues to do the
    same thing, so we can be able to address each unique concern
    before we get to the markup period.
        Some members have suggested that the draft that was
    circulated was too hard on the cities. And that's probably a
    fair criticism. Our Committee staffs have met with the cities
    who have outlined their concerns in detail. And Senator Inouye
    and I will discuss those issues that they have raised when we
    meet next week, and will attempt to find a middle ground in
    that process as these hearings unfold. And we look forward to
    each of your suggestions today.
        I want to point out, we submitted the bill that's before us
    now as a draft. It is not the final legislation. And we look
    forward to the comments you will make here today.
        Senator Inouye?

                  STATEMENT OF HON. DANIEL K. INOUYE,
                        U.S. SENATOR FROM HAWAII

        Senator Inouye. Thank you very much.
        Historically, communications issues have not been partisan.
    Positions on various issues have tended to reflect the needs of
    members' state and communities they're in. However, whenever we
    consider a bill as complicated and as closely monitored as the
    one before us, partisanship often begins to seep into the
    process, and I believe that we must all commit ourselves to
    avoid such a counterproductive course.
        After more than 40 years in the Senate, the Chairman and I
    are well aware that bipartisanship is the only way to get the
    most difficult legislative tasks accomplished. And the task
    before us is as difficult as they come.
        The key elements of reform in S. 2686 will require
    substantial revision if we are to pass legislation this year.
        On video franchising, the measure must provide a reasonable
    balance that would reaffirm the legitimate interests of local
    governments and support speedy entry on fair terms for new
    video providers. The measure should also affirm the principle
    Senator Burns and I articulated earlier this year. The words
    embedded in the bill do not appear to support that conclusion.
        The draft bill reduces the role of franchise authority to
    filling out four blanks in a form agreement and precludes local
    governments from ensuring the new video operators upgrade their
    systems in a uniform manner that all citizens, not just those
    living on the ``right'' side of the street, can enjoy the
    benefits of competition.
        Finally, while the provisions involving franchising are
    problematic enough, this measure also includes other unrelated
    changes to our communications laws that would eliminate key
    consumer protections regardless of whether new competition
    emerges or not.
        Given these complexities, I am pleased that we have the
    opportunity to discuss these matters with our witnesses this
    morning. I believe we can enact legislation this year if we
    narrow our focus and get serious about what is reasonable and
    what can be accomplished.
        Within the next few days, I hope to share with my
    colleagues some of my ideas as to how we might reach our goals
    in strengthening universal service, preserving network
    neutrality, and promoting greater competition in all
    communication markets.
        The Chairman recognizes both the need for bipartisanship
    and the need for further improvements to the bill. He has made
    very clear his intention to produce a measure that reflects the
    broad consensus of this committee, and I look forward to
    working with him to accomplish this goal.
        And I thank you very much, Mr. Chairman.
        The Chairman. Senator Sununu was first.
        Senator Sununu. I have no formal opening statement. I'm
    happy to let others go ahead and hear from the panel.
        Thank you, Mr. Chairman.
        The Chairman. Senator Burns?

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

        Senator Burns. Mr. Chairman, thank you very much for
    holding this hearing as we get this process underway formally
    to rewrite the--or change some things that we did in 1996.
        I noted your statement there, that the comments and the
    conversations have picked up in the last 2 weeks prior to this
    hearing. And then, I first thought, when we started putting
    this thing together, that this committee should adopt a new
    model. We're not happy until you're not happy. And as we move
    down this--but I noted, and I want to thank you for much for--I
    had a lot of interest in universal service. We--I think we have
    got a--NetUSA is in this bill, and we're very happy about that.
        Rural areas face a little bit--a different challenge than
    we do in more areas, and there are some things that's going on
    in the universal service that I think we should take note of
    because of the changing landscape of the industry.
        The Universal Service Fund remains crucial to rural
    America. The day has not arrived when technology and the free
    market can make affordable communications service available
    everywhere. As Chairman Stevens has so aptly noted in the past,
    the fund is crucial to keeping America on the information--
    rural America, especially--on the information highway, and not
    on the exit ramp.
        Recently, radical changes have taken place in the
    telecommunications industry requiring Congress to take a look
    at revising the Universal Fund to ensure that the law keeps
    pace with its changing landscape. The chairman deserves a lot
    of credit for introducing such a thoughtful and far-reaching
    telecommunications bill. I'm very pleased that most of the
    principles that I set forth earlier this year are addressed
    in--hereto in this piece of legislation, especially in regards
    to video franchising.
        I appreciate my good friend from Hawaii, as we've worked on
    this issue, and what he--and his recommendations and our visits
    have been most fruitful, and, I think, probably will find its
    way to solving that very thorny issue that it's become.
        The goal is to promote competition wherever possible. And I
    am well aware of how competition for video services has grown
    over the past decade. Even in rural Montana, satellite
    competitors, such as DIRECTV and EchoStar. They've had a
    significant impact on the marketplace. Most of--and most of our
    constituents can now choose among three service providers for
    their video programming. Technology has enabled cable companies
    to compete for telephone customers, and telephone companies are
    beginning to compete for cable and satellite television
    customers. You know, in 1996, we tried to get there in that
    1996 bill, and--but then, the industry took a sharp little turn
    there, and we didn't get it done. But I think we can get it
    done this time.
        A study by the GAO put out in March of last year shows that
    cable TV rates are substantially lower, by 15 percent, in
    markets where competition exists. With this in mind, we have
    the opportunity to bring even more competition to the
    marketplace, while, at the same time, ensuring our colleagues
    in local government are able to protect their interests for
    their communities.
        Under existing law, cable operators and telephone companies
    must obtain a franchise from local governments before they can
    provide cable service. The franchising process ensures that
    local governments can continue to manage their rights-of-way.
    By taking franchising rights away from local government, it
    would eliminate them from requiring buildout requirements,
    offering consumer protections, and preventing economic
    redlining, offering their community public, educational, and
    governmental programming.
        But the franchising process must not be permitted to become
    a barrier to entry. Our telecommunications laws are, right
    now--after only 10 years, are outdated, and they're hurting
    some consumers in both large and small markets.
        So, I look forward to these hearings, and I look forward to
    working with the rest of my colleagues on this committee as we
    fashion this piece of legislation. And it is a very important
    piece of legislation for the telecommunications industry in
    this country.
        And I thank the Chairman.
        The Chairman. Senator Pryor?

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

        Senator Pryor. Thank you, Mr. Chairman.
        I really just wanted to say thank you to the Chairman and
    Co-Chairman for all your hard work in this legislation. I know
    that you two have spent hours and hours of time, as well as
    your staffs, countless hours of time in pulling this together.
    I think it's a very good start. Obviously, we need to look at
    it, and I'm sure we'll have some amendments or some suggestions
    as we go through it. But I look forward to working with both of
    you and trying to get this done.
        Thank you.
        The Chairman. Thank you very much.
        Senator DeMint?

                     STATEMENT OF HON. JIM DeMINT,
                    U.S. SENATOR FROM SOUTH CAROLINA

        Senator DeMint. Thank you, Mr. Chairman and Co-Chairman.
        And, Mr. Chairman, as I have expressed to you before, I'm
    very grateful to you and your staff for the leadership that
    you've demonstrated by getting the Communications, Consumer
    Choice, and Broadband Deployment Act put forward.
        I'm very pleased that Senate Bill 2686 streamlines the
    video franchising process. Video franchising laws, while
    important in the early stages of cable TV development, are now
    a troubling monopoly legacy. They allow for excessive State and
    local regulations that are fracturing markets and delaying the
    deployment of new technologies.
        Earlier this week, the South Carolina legislature came one
    step closer to joining the ranks of Texas, Kansas, Indiana, and
    Virginia, passing a bill for statewide video franchising. I
    think the move toward franchise reform at the State level shows
    that something needs to be done here at the Federal level as
    soon as possible.
        I'm less pleased with the Universal Service Fund section of
    the bill, because it expands the USF without addressing the
    needed reforms on the distribution end. I believe that
    universal service subsidies play a critical role in bringing
    communications service to rural, high-cost areas, but in a
    communications industry that is growing more fiercely
    competitive each day, Congress should really struggle to keep
    Universal Service Fund minimum, because, fundamentally, USF has
    been set up to help narrowly defined groups at the expense of
    consumers, as a whole.
        Moreover, the Universal Service Fund price manipulations
    and price averaging distort competition. It doesn't make sense
    to subsidize two companies in a rural area to compete against
    each other.
        Equally problematic is dedicating the subsidy to only one
    favored provider, which makes it highly unlikely that a second
    provider will ever want to compete with the established
    favorite. In either case, universal service subsidies hurt
    rural consumers, because, while they appear to keep prices
    artificially low in rural markets in the short term, they make
    these markets less attractive to new entrants in the long term.
        While the legislation does include some good reforms to
    USF, such as broadening the base of contributions, it does not
    address the existing rate-of-return regulation, which delivers
    no incentives for rural incumbents to provide the best service
    to the customers at the lowest price. In fact, it actually
    discourages efficiency and the deployment of the best
    technology.
        Because of the cost to consumers, as a whole, and the
    economic distortions USF creates, I think it is important that
    Congress not expand it until it is truly reformed. The fund
    should be designed so that each dollar is invested as wisely as
    possible, it is fair to everyone who pays in, and it has an
    effective auditing system in place to promote accountability
    and punish abuse.
        Again, Mr. Chairman, I thank you for bringing this bill
    forward. I yield back.
        The Chairman. Senator Ensign?

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

        Senator Ensign. Thank you, Mr. Chairman. I applaud your
    efforts on this bill and appreciate the co-sponsorship of Co-
    Chairman Inouye.
        I think this is an incredibly important piece of
    legislation. Let me just lay out a few principles.
        Video is what the public is wanting, wanting more choice in
    video, wanting more price competition in video, more services.
    And that really is what is going to drive the broadband
    buildout in the United States. And that's the purpose--the most
    important purpose for me in this legislation is to make America
    more competitive in the world, as far as broadband deployment
    is concerned. And I think that this legislation will go a great
    deal of the way toward encouraging more and more broadband
    buildout. There are a lot of obstacles right now to folks
    getting the financing. If the incentives aren't there, the
    financing won't come. And with 33,000 different local cable
    franchise authorities and different rules, it's very difficult
    for competition to break into the marketplace. And as we're
    seeing the video deployment--I'll use Fallon, Nevada, as a good
    example. A little local community is taking fiber all the way
    to the home in their new builds. Well, what's the incentive for
    them to take fiber all the way to the home? It's so that they
    can take video services, IPTV, to the home to be able to
    compete with the cable companies and the satellite companies.
    And if we're seeing there's an economic incentive for a small
    community to do it, obviously there's going to be an economic
    incentive for the phone companies to compete with satellite,
    cable, and even the power companies. And that's the idea, the
    more competition, the more there is room out there for people
    to improve their networks constantly. Cable has to constantly
    improve their networks. Phone companies, everybody, will have
    to constantly improve the type of services and the type of
    networks that they have.
        Now, Mr. Chairman, the cities have obviously given a lot of
    pushback on the legislation from the beginning, but I think
    that you have addressed two of the major problems that the
    cities had with this bill--first of all, that you guarantee the
    full 5 percent franchise fee that they receive, but you also
    did an additional 1 percent for institutional networks and
    public, educational, and government channels. I think this is
    probably a little too much, on the 1 percent, but certainly the
    cities should be pleased with this piece of the legislation.
        Local governments also need to remember that every customer
    that leaves satellite and switches to this new IPTV service,
    this is new revenues for the cities, because satellite
    customers don't pay the 5 percent franchise fee.
        You've also expanded the powers of local governments to
    manage the rights-of-way by adding the following items the
    cities can require of the carriers: payment of bonds, providing
    security funds, letters of credit, insurance, indemnification,
    penalties for failure to address these issues, and liquidated
    damages for violations.
        By addressing these key concerns from cities, you have
    given them their top asks. I know that there are still some at
    the local level that want to keep their power, that they want
    to keep control. But in today's day and age, we no longer have
    monopolies. In this highly regulatory environment, we need to
    take off that regulation so that market forces can be at play,
    so that consumers, in the end, benefit.
        We focus on the consumers here. What were local cable
    franchise authorities put in place for? They were put in place
    to protect the consumer. There is nothing that protects the
    consumer better than competition. The more competition, the
    better off the consumer is going to be for prices, for service,
    virtually everything that you can think of. And that's what
    this bill does, it brings more competition to the marketplace.
    And that's why I think it is so important that we pass this
    legislation, and that we don't let politics get in the middle
    of delaying this legislation. The sooner that we can get this
    legislation in place, work out the differences between the
    House and the Senate, pass it, and get it signed into law this
    year, I think that America is going to be much better off, and
    we're going to have a lot more network capacity out there, a
    lot more broadband brought to rural communities and across the
    United States.
        And one final comment. While I may have some differences in
    the way that we do this Universal Service Fund, there is no
    question in my mind that this piece of legislation, without the
    Universal Service Fund, would do more for rural customers in
    getting them broadband than all the money you could ever pour
    into the Universal Service Fund.
        So, Mr. Chairman, I appreciate the legislation that's
    before us today. I look forward to hearings on it, and look
    forward to marking up the bill.
        The Chairman. Thank you very much.
        Senator Bill Nelson?

                    STATEMENT OF HON. BILL NELSON,
                       U.S. SENATOR FROM FLORIDA

        Senator Bill Nelson. Thank you, Mr. Chairman. Mr. Chairman,
    I just want to make six points.
        I think it's very necessary that we proceed, in a
    bipartisan fashion, in working together to craft a bill.
        Things have changed significantly since 1996. It's now time
    to spur vigorous competition, lower prices, and broadband
    choices for all, including the rural and the poor.
        Third, it's time for streamlined video franchising. That's
    why I support this.
        Fourth, this bill does well for the telephone companies and
    cable. It tries to strike a level playing field.
        Fifth, this bill does not protect the cities. And that
    concerns me.
        And, sixth and finally, on the Universal Service Fund
    reform, I'm wary of any contribution mechanism that is based on
    phone numbers. That would amount to a regressive tax, and it
    could hurt low-volume users like senior citizens, of which we
    have plenty in my State.
        Thank you, Mr. Chairman.
        The Chairman. We have a few right up here.
        Senator Ben Nelson?

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

        Senator Ben Nelson. Thank you, Mr. Chairman.
        I, too, am pleased that you have scheduled this hearing for
    today, and that these discussions will be on very important
    communications issues that are--must be addressed.
        They're important policy decisions that deserve full
    debate. And, of course, I think these hearings are crucial in
    ensuring that we, as a committee, can, as my colleague from
    Florida said, get bipartisan consensus. If we can develop a
    bipartisan consensus in this committee and get a bill out, then
    we do have an opportunity to get something on the floor. If we
    fail to get something on a bipartisan basis, I don't see how we
    can ever hope to be successful as we move things forward on the
    floor.
        Now, first, as it relates to video franchising, I support
    streamlining the video franchising process so it will encourage
    competition in the video market. I believe it's always in the
    best interest of consumers when we facilitate competition at
    every rational level. And I also believe it's important that we
    facilitate that--as we facilitate it, we provide for local
    control, where it's necessary and reasonable, to protect
    consumers. So, I am concerned about making sure that we do what
    we can to protect local interests.
        And I look forward, today, and others--other discussions--
    to exploring where that balance should be struck with the
    witnesses today. I think there is a question about how you do
    strike that balance.
        And as for universal service, it's obviously an enormously
    important program for my State, and I know for any State that
    has a significant rural population or a particularly broad
    expanse of area. In the past 10 years since the last major
    telecommunications bill was passed, universal service has been
    an important catalyst for deployment of communication
    infrastructure in rural areas of this Nation. It's ensured
    rural access to telephone services at rates similar to urban
    areas, and it's contributed toward making communications
    affordable for schools, libraries, and rural healthcare
    providers. And it must, in fact, continue to do that.
        So, the stability of this Universal Service Fund that's--
    it's being challenged by changes in technology, and we must
    reform the contribution base to ensure its viability.
        So, thank you very much, Mr. Chairman, for holding this
    hearing. I look forward to the testimony and the opportunity to
    learn more from our witnesses.
        Thank you.
        The Chairman. Thank you very much.
        Senator Lautenberg?

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

        Senator Lautenberg. Thanks, Mr. Chairman.
        We are engaged in quite a process here, and I hear my
    colleagues discussing bipartisanship and the interest that we
    have in achieving that kind of a standard. And I agree. But I
    wonder, Mr. Chairman, if, with the timeline that's prescribed
    here now, whether we can get to all parts of this very
    important, and very large, by the way, piece of legislation and
    still maintain a bipartisan spirit.
        And I think it's great that new companies are poised to
    enter the television markets. Competition, it's been said by
    others, is one way to be sure that the consumer can get the
    best price and the best quality.
        Verizon, in my State, has already announced plans to serve
    almost 150 communities. And competition will not only mean the
    lowest rate for consumers, but it'll mean more choices. People
    will be able to get video, voice, and data services from the
    source that best suits their needs. But we shouldn't rush into
    setting up new rules without maintaining a level playing field
    for companies and ensuring the best interest of the consumers.
        The Communications Act required that cable companies must
    be responsive to the needs and interests of the local
    community. And these words might not carry much legal weight,
    but the idea behind them is important--and critical, I think.
    Local governments are usually in the best position to determine
    the specific needs of residents in their communities, and
    especially in matters regarding utilities and services. And we
    need to be careful about usurping local rights, including the
    right to negotiate franchise agreements with television
    providers. Local governments have expressed serious concerns
    with this draft legislation. And we've got to address these
    concerns.
        Companies that are just entering the video market would
    like to circumvent local agreements by signing a national pact,
    but that could give them an unfair advantage over their
    competitors, especially if they're allowed to cherry-pick the
    most lucrative part of the market.
        And I also note that many States are stepping in to create
    statewide franchises. And such legislation appears on the fast
    track in my home State of New Jersey.
        The New Jersey bill, which Verizon supports, would speed
    competition while maintaining local control. It would also
    ensure widespread competition by requiring buildout to the 60
    most densest towns, within 3 years. This statewide bill could
    be more beneficial to my constituents than the Federal bill
    we're presently considering.
        We also, obviously, have in mind the Universal Service
    Fund. The Fund is growing. It stands at $7.1 billion today,
    compared with just $1.7 billion, 9 years ago. So, we've got to
    make sure that this fund doesn't grow out of control. And we
    want to be certain that it remains financially viable. And
    though New Jersey is not considered rural in very much of its
    borders, the fact is that I have supported Essential Air
    Service and other services that are required for communities
    that are at distant places.
        One Universal Service Fund program is especially important
    to my State, and that is the schools and libraries fund,
    otherwise known as the E-Rate Fund. This fund is vital to
    thousands of schools and libraries throughout America. It
    provides discounts for telecom services, internal connections,
    and Internet access, enabling millions of schoolchildren and
    library patrons to gain access to important communications.
        So, I certainly support increased oversight on all of the
    universal service funds. But E-Rate has got to remain a
    national commitment.
        And, Mr. Chairman, once again, I thank you for bringing
    this bill up. But I urge that we have sufficient time to study
    this bill and have a good, honest debate.
        And I thank you very much.
        The Chairman. Senator, I'd point out we've had 15 hearings
    on this bill before this date. This is not the first hearing.
        Senator Dorgan?

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

        Senator Dorgan. Mr. Chairman, thank you very much.
        This is a complicated set of issues, and I think there is
    always, and will always be, a tension between competition and
    concentration. All of my colleagues have talked about
    competition. There is a natural, inevitable tension between
    competition and concentration.
        I was here in 1996 when we rewrote the Telecommunications
    Act. The plum at that point was to allow the regional Bells to
    get into long distance. That was the big plum. Long distance is
    largely now a giveaway item. The proposition was, if we allowed
    them to get into long distance, we would do that on the basis
    that they would compete with each other for the local exchange.
    They didn't have much of an appetite to get involved in
    competition, one to another, so they didn't actively compete in
    the local exchange. And, again, some years later, now long
    distance is pretty much almost given away. Not completely, but
    it doesn't have the value it was described as having 10 years
    ago.
        The major activity in the past 10 years has been merger
    activity. We now come to this table with both cable and also
    the telephone companies--having merged with some very large
    companies. With tens and tens of billions of dollars at stake,
    many of these companies are betting their companies on the
    future. None of us quite know what the future will be, or how
    technology will evolve. The cable companies bring video into
    the home. They now want to bring telephone into the home--
    telephone service. The telephone companies bring telephone
    service into the home. They now want to bring cable into the
    home. Both of them want to have opportunities to steer people
    to the Internet.
        As they do that, my interests are, What is going to best
    incentivize the buildout of broadband, yes, to rural areas? I
    don't share my friend from Nevada's assessment that competition
    will inevitably provide robust opportunities in rural America.
    Didn't happen with electricity. It didn't happen with telephone
    service. Won't happen with broadband buildout.
        The free market system, in my judgment, needs some
    regulation. We need some plans and guidance on how we're going
    to accomplish what our intentions are with this.
        And so, universal service--I'm very interested in rural
    universal service. I'm interested in the competitive forces
    that will build out whatever it can build out. But I know that
    the buildout will always go to where the income stream is most
    generous to support the buildout first. And areas that will
    remain last will become part of the digital divide unless we
    have approaches here in this markup that decide the direction
    that we want and the structure that we want for it, which
    includes some regulation.
        I will be concerned about an issue called ``Internet
    freedom.'' Some call it ``Net neutrality.'' The open
    architecture of the Internet, I think, is very important. And
    we'll have some amendments, I assume, and some discussion,
    about that issue. It's complicated. No question about it. But I
    think Internet freedom is very, very important.
        The universal service issue and the Universal Service Fund
    is very important to me. Senator Smith and I have introduced a
    piece of legislation on that.
        So, there are a lot for us to do here. And I know that the
    stakes are very, very big. I just finished reading a book about
    one company that bet its future, and lost. It actually--its
    name is still around, but--you know, they're--companies are
    making very big wagers on the future. They have about as much
    clarity about the future as we have. We don't know what
    technology is going to exist 5 years from now, or what the
    future's going to hold.
        I was just thinking, in 1998, guys named Larry and Sergey
    actually moved from their dorm room to a garage of a neighbor
    with a garage door opener. That was their--where their business
    moved. That was January 1998. Their business is now worth more
    than General Motors, Ford, and Coca Cola combined, $120
    billion. It's called Google.
        Well, that didn't exist in 1996, when we rewrote the
    Telecommunications Act. I don't know what the future's going to
    be. I think we ought to be legislating, we ought to be thinking
    about this, working on it seriously. I will be someone who
    wants us to go in a methodical, thoughtful way that gets it
    right. I'm much more interested in getting it right than I am
    in speed this summer.
        And so, Mr. Chairman, thank you, and thank the Ranking
    Member, for laying out a series of issues for us to begin
    chewing on. And my hope is that, when we get through with all
    this, we will have advanced the interests of the entire country
    to have better telecommunications, broader access across the
    entire country.
        The Chairman. Senator Boxer?

                   STATEMENT OF HON. BARBARA BOXER,
                      U.S. SENATOR FROM CALIFORNIA

        Senator Boxer. Thank you, Mr. Chairman.
        And I'd like my full statement to be placed in the record,
    and I'll summarize it, if I might.
        The Chairman. Yes, ma'am.
        Senator Boxer. Thank you.
        [The prepared statement of Senator Boxer follows:]

     Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
        Mr. Chairman, thank you for holding this hearing on the
    ``Communications, Consumer's Choice, and Broadband Deployment Act of
    2006.'' It is an aggressive bill that attempts to address many
    contentious communications issues.
        The bill would fundamentally change the way telephone, cable, and
    satellite companies are regulated. And have a tremendous impact on the
    technology and media industries.
        It also would radically alter cities' and municipalities'
    regulatory authority over the distribution of video and broadband
    services in their communities and limit their ability to provide
    consumer protections to their residents.
        Because of the reach of this bill, I am very interested in hearing
    the opinions of the experts on today's panel.
        We are dealing with services that affect the daily lives of every
    American--their telephone, cable television, and Internet access. The
    industries that provide these services are drivers of the U.S. economy.
        Any changes to the way they are regulated should be well thought
    out and based on sound policy choices.
        I have always supported legislation that promotes competition,
    encourages economic growth, and protects consumers. I think that we all
    can agree on those principals.
        Unfortunately, I have serious concerns that the bill as drafted
    will not achieve those goals. I look forward to working with my
    colleagues on the Committee to address the important issues raised in
    the bill.

        Senator Boxer. Mr. Chairman, thank you for holding this
    hearing on Communications, Consumer's Choice, and Broadband Act
    of 2006.
        This is a very aggressive bill. It attempts to address many
    contentious issues that impact all our states. But I have to
    believe, after looking at all the various parts that you deal
    with, it's a tremendous impact on my home state. So, I also
    want to proceed in a deliberate fashion, be very careful that
    we don't have unintended consequences, because the bill would
    fundamentally change the way telephone, cable, and satellite
    companies are regulated. It would also radically alter cities'
    and municipalities' regulatory authority over the distribution
    of video and broadband service, and limit the ability of locals
    to provide consumer protection.
        And I also would like to pick up on something Senator
    Dorgan said. You know, the statement that was made by Senator
    Ensign, I thought quite eloquently, that the way he wants to
    protect consumers is--for competition to rear ahead--is very
    good, in theory. But, in practice, as you look at that, and you
    step over the local communities, it could have a very adverse
    impact. I could tell you this, because we deregulated
    electricity in our State, much to the chagrin of consumers, who
    revolted against what had happened. It did not work out right,
    and it opened up the door to Enron. And, at the end of the day,
    people are just having to cut back on everything else they do
    in life in order to pay for their electricity.
        So, for me, I would be very cautious on this, just as one
    Senator. And I would say, having been a county supervisor when
    I started my career, one of the issues that was the biggest
    issue before us is cable rates. And I will say, if we suddenly
    take all this back, just expect to be flooded with that kind of
    issue, which I don't think belongs here. I think we've got
    other things we need to work on. And I would certainly like to
    say that our local people could handle this issue.
        So, we have a broadcast flag issue, that's also going to be
    considered later, that is very important to the protection of
    intellectual property, very important to my State. Universal
    service, I would agree with Senator Lautenberg on that. And,
    finally, on Net neutrality, if we don't do this right, we're
    going to put a lot of people in the slow lane. As a matter of
    fact, we're going to have a lot of people not able to access
    the Internet. And it's a very unfair system.
        Mr. Chairman, I would say, if we don't do something on Net
    neutrality, it would be akin to you're going to take your car
    onto the highway, you've done it every day, you've got 15
    minutes to get to work, you're blocked from getting on the
    highway, suddenly a car comes behind, and it--all the trucks
    that are blocking the highway part for that car, you think it's
    time for you, and you still can't get on the highway. This is
    a--if we don't do this Net neutrality, I think we're going to
    have a lot of people shut out of that highway.
        And so, I look forward to working with you. I know that
    your staff has been working diligently with ours, and I hope we
    can come to some good conclusion.
        Thank you very much.
        Senator Sununu. Mr. Chairman?
        The Chairman. Well, thank you very much.
        We're going to go to the witnesses now. I would say, again,
    we've had a whole series of hearings on this. We've had--how
    many sessions? On these bills or in this?
        Senator Boxer. No, this bill.
        The Chairman. This bill is----
        Senator Boxer. This is the first hearing on this bill.
        The Chairman. I'm not going to debate it. This bill is a
    composition of the bills we've had hearings on. And, I tell
    you, this Senator is going to see that this bill gets to the
    floor and it passes the Senate. It will do so this year.
        Senator Boxer. Don't you need the votes of the Committee to
    do that?
        The Chairman. I think we'll have them.
        Senator Boxer. Well, good.
        Senator Sununu. Mr. Chairman?
        The Chairman. Yes, sir.
        Senator Sununu. You know, I did not provide any formal
    remarks, but if I might make a couple of quick comments before
    we go to the panel?
        The Chairman. Sure.

                   STATEMENT OF HON. JOHN E. SUNUNU,
                    U.S. SENATOR FROM NEW HAMPSHIRE

        Senator Sununu. I appreciate that. And I very much
    appreciate your determination to work through legislation,
    given some of the differing viewpoints that have been provided.
        I was not here in 1996, but a number of comments have been
    made about that piece of legislation, and I'm a little bit
    confused by them, because what I heard was, ``Well, we didn't
    get it right in 1996.'' It seems to me that the things that
    people are complaining we didn't get right were those very
    provisions of the bill that assume that Congress knew where the
    industry was heading, where technology was heading, and where
    products and services were heading. The discussion was made
    that the big carrot was long distance, because we knew, in
    Congress, that that was of value, that that was the key, to
    competition in the industry, so we made provisions that were
    very specific to providing this one service, and now long
    distance is being given away for free, and we've seen the value
    of bandwidth go to zero.
        But, in response to that realization, my colleagues are
    saying, ``So, what we need to make sure is that we get all of
    the regulations right this time.'' And I think that is a
    complete non sequitur. We don't know where the industry is
    headed, or technologies are headed, or services are headed. For
    that very reason, we should be very careful and reluctant to
    regulate the Internet. We should be very careful and reluctant
    to create technology mandates. There are some in this bill. We
    should be very careful and reluctant to create subsidies that
    subsidize a specific company. It might be in rural America,
    which we all love, but we've got to be careful about
    subsidizing a specific company in rural America, to the
    exclusion of others.
        So, those are the very things we should be most concerned
    about in crafting this legislation. I view that as the lesson,
    to the extent that there is one, of 1996.
        There's some good news in the industry, there's some bad
    news in the industry. I think we should be realistic about it,
    honest about it. We do have tens of millions, effectively
    hundreds of millions, of consumers in the country that do have
    access to broadband. There are over 100 million households in
    this country that do have access to broadband. We want to make
    sure that, where there are shortfalls, that perhaps we do a
    better job. But we need to be very careful about assuming that
    this time Congress is really going to be right about where the
    industry is headed, where technology is headed, where services
    are headed, because if we make that foolish assumption, then we
    won't get this right, we won't pass a good bill, and we'll be
    back here in 5 or 6 years. I'm sure there are some people in
    the room that would love to be back in 4 or 5 or 6 years
    marking up another big telecom bill, but that's not my
    interest.
        Thank you, Mr. Chairman.
        The Chairman. Thank you very much.
        I didn't predict, incidentally, we'd have 100 percent
    support, but I think we'll have bipartisan support.
        Mr. McSlarrow?

              STATEMENT OF KYLE McSLARROW, PRESIDENT/CEO,
         NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION (NCTA)

        Mr. McSlarrow. Mr. Chairman, thank you.
        And let me congratulate you and the Co-Chairman and members
    of the Committee for tackling a comprehensive bill. I know it
    has made it harder, but, speaking for my industry--we're a
    broadband provider, and so our focus is, as the largest
    broadband provider in the United States, obviously, on
    highspeed Internet, cable television, which is obviously the
    origins of the industry, and, increasingly, digital phone,
    where we now have millions of customers, and probably millions
    more over the next couple of years--so, there's almost no part
    of this bill that, in some fashion or another, doesn't touch
    our industry.
        And let me just say, right at the outset, we are very
    grateful for the approach that you've taken. I think this is a
    fair bill. We obviously have some concerns, which I've
    expressed in detail in my written testimony. But we are very
    appreciative that--at least in this draft bill, that you
    recognize that, in terms of the cross-competition that's taking
    place, not just between the Bells and cable, but other
    industries, as well, we need to look at not just video
    competition, but voice competition, as well. We're appreciative
    of the fact that you have made an attempt to provide a level
    playing field on which we can all compete. We're very
    appreciative of that, particularly with Title VI and video--and
    this video service, that you've eliminated or reduced a number
    of regulatory provisions that were unnecessary in this day and
    age. And we appreciate how you tackled the very difficult
    issues regarding the digital transition and Net neutrality.
        Since I'm on the second panel, I'll talk about the
    Universal Service Fund a little bit later, on that panel.
        Just breaking down three issues. And there are many,
    obviously, important issues in this draft bill.
        On video, as I say in the written testimony, there are some
    ideas that we have that we think will get us to a closer
    approximation, to a level playing field, in this day and age.
    And one issue that has been mentioned briefly a couple times is
    this issue of nondiscrimination in the provision of video
    service. You can make an intellectual argument, completely
    coherent argument, that a nondiscrimination provision, in this
    day and age, should not apply. But, in fact, everybody, most of
    the members on the dais, the telephone companies, cable
    industry, other providers, all say that we should have a
    nondiscrimination clause in the provision of video service.
        My point would be that, if it means anything, it has to
    mean something in the context of the community that you're
    taking a look at. Right now, wittingly or not, the bill allows
    new entrants to self-select the franchise area. So, if it's
    small enough, then the nondiscrimination clause becomes an
    illusion. So, my point, really, to you, Mr. Chairman, Mr. Co-
    Chairman, and to members of the Committee, is that we would
    urge you to take a look at that in order to make sure that it
    means something.
        On voice interconnection, I think the draft bill goes a
    long way toward promoting voice competition. We're very
    grateful for that. And we think there are a few tweaks that we
    would recommend--in particular, those circumstances where rural
    telephone companies basically refuse to interconnect with Voice
    over Internet Protocol providers. That's something that I
    think, in terms of promoting competition, as most of the
    members have said today, in rural communities, would be an
    ideal policy outcome.
        And, finally, I know you're going to have a hearing next
    week on it, but it's already come up. Let me just say a few
    words about Net neutrality. In my mind, given where the draft
    bill is right now, this is now the No. 1 issue. And I've been--
    obviously, I've testified before you before on this, and I've
    been on the panels. I think this is a very hard issue--very
    thoughtful people on either side of the issue--you said you
    either deserve credit or blame for the provision. I don't want
    to hurt you here, but I want to give you credit for it. I just
    think this is the kind of issue that is most appropriately
    studied a lot more. Very smart people in the industries, in
    Congress, staff, are trying to grapple with this. I just see no
    possibility that you can legislate on it in a substantive way.
    And I think it's a binary choice. I don't think this is one of
    those issues between no regulation, a little bit of regulation,
    and a lot. I think this is a fundamental stark choice between
    no regulation of the Internet or some regulation of the
    Internet. And our choice, our recommendation to you is to be
    very cautious. The best way to promote investment and
    competition in broadband is to stay away from Net neutrality,
    as it's commonly understood.
        With that, thank you, Mr. Chairman.
        [The prepared statement of Mr. McSlarrow follows:]

             Prepared Statement of Kyle McSlarrow, President/CEO,
             National Cable & Telecommunications Association (NCTA)
        Chairman Stevens, Co-Chairman Inouye and members of the Committee,
    my name is Kyle McSlarrow and I serve as President and CEO of the
    National Cable & Telecommunications Association (NCTA), which is the
    principal trade association representing the cable industry in the
    United States. Its members include cable operators serving more than 90
    percent of the Nation's cable television subscribers, as well as more
    than 200 cable programming networks. NCTA's members also include
    suppliers of equipment and services to the cable industry. The cable
    industry is the Nation's largest broadband provider of high speed
    Internet access after investing $100 billion over ten years to build
    out a two-way interactive network with fiber optic technology. Cable
    companies also provide state-of-the-art digital telephone service to
    millions of American consumers.
        Thank you for inviting me to comment on legislation pending before
    the Committee. I would like to commend Chairman Stevens and Co-Chairman
    Inouye for holding extensive informational hearings and for the
    thoughtful manner in which this legislation was crafted. We appreciate
    your giving the cable industry the opportunity to share its views on a
    wide variety of issues and your willingness to incorporate some of our
    industry's key priorities. In particular, we thank the Chairman and
    Committee staff for taking a close look at Title VI and for limiting
    and in some cases eliminating a number of economic regulations first
    imposed in the 1980s such as rate regulation and leased access that are
    no longer necessary in today's competitive video marketplace. We
    appreciate that the legislation before us moves in a direction of
    enabling all providers to compete on a level playing field in both
    video, and just as importantly, voice services. And while we have
    concerns with some provisions of this bill that address the Universal
    Service Fund, the cable industry supports the Broadband for Unserved
    Areas Account. In addition, we strongly support the very thoughtful
    approaches to difficult issues like net neutrality and the digital
    transition.
    Cable Embraces Competition and Less Regulation
        Mr. Chairman, the cable industry fully embraces, and thrives today
    in, a robust, competitive marketplace. Our consistent policy over
    several decades has been to minimize regulation on us and our
    competitors. The cable industry has never asked Congress for a handout
    and we don't seek to obtain regulatory advantages over our competitors.
    Nor have we opposed efforts designed to lighten regulatory burdens on
    our competitors in order to foster fair competition on a level playing
    field.
        For example, in 1999 the cable industry supported the Satellite
    Home Viewer Improvement Act (SHVIA), which authorized direct broadcast
    satellite (DBS) providers to offer local broadcast signals. DBS
    providers were given ``local-into-local'' authority but were required
    to follow the same rules as cable and other MVPDs when they offered
    local signals. SHVIA established a fair and level playing field for
    multichannel video competition. And as a result, growth in DBS
    subscribership exploded and competition in the multichannel video
    marketplace is thriving. Today, two national DBS providers have
    captured nearly 30 percent of the MVPD marketplace.
        The cable industry did not oppose a key provision of the 1996
    Telecom Act that eliminated rules prohibiting telephone companies from
    offering video service. Rather, we supported that legislation because
    it offered all competitors the ability to enter new markets on fair,
    market-based terms and established a stable deregulatory environment.
    And, more recently, the cable industry supported the efforts of the
    telephone companies to deregulate their high-speed Internet access
    service so that they could compete with all broadband providers on a
    level playing field.
    Franchise Reform Legislation Should Streamline the Process and
            Establish a Level Playing Field
        The legislation pending before this Committee would amend a number
    of existing telecommunications laws, many of which directly affect the
    cable industry, including Title III of S. 2686 which seeks to
    streamline the franchising process for video service providers. As we
    have made clear at prior hearings on this topic, our primary interest
    in franchise reform is to ensure that all competitors in the video
    marketplace compete under the same set of rules, rules that can
    undoubtedly be streamlined in a dynamically competitive marketplace.
        To the extent Congress believes that the franchise process needs to
    be modernized, the cable industry has clearly stated its preferred path
    to reform. We have expressed support for franchise reform that embodies
    the following principles:

       First, in order to expedite entry to market for new
            competitors, we believe that Congress should streamline the
            process by limiting the time that local franchising authorities
            have to consider an application to provide video service.

       Second, it is critical for all providers of video services
            to be treated on a level playing field. An incumbent should
            have the right to opt into any new franchise agreement that has
            better terms and conditions. The government should not pick
            winners and losers in the broadband industry by establishing a
            different set of rules that favor one provider over another.

       Third, local governments should maintain oversight with
            respect to rights-of-way management, meeting community needs
            and interests (including the equitable sharing of any PEG and
            institutional network responsibilities), and enforcement of
            non-discrimination requirements.

        While the legislation under consideration today includes provisions
    that are designed to promote a level playing field, we have some
    concerns regarding how those provisions would be implemented, and we
    believe that changes are necessary in order to ensure that all video
    providers have the opportunity to compete under a streamlined franchise
    process. The bill's anti-discrimination provisions also appear somewhat
    illusory under the current definitions of franchise areas. We would
    like to continue working with the Committee to ensure that all
    neighborhoods benefit from competition.
    The Telephone Companies Have Had a Decade to Enter the Video Market
        In 1996 when Congress lifted the ban on telephone entry into the
    video business, it was a significant change in Federal
    telecommunications policy. For decades, Congress kept the telephone
    companies out of the video business for fear that their monopoly
    control over the local phone market would allow them to exert market
    power in a way that would harm video competition. This threat was based
    on the telephone companies' anticompetitive behavior regarding pole
    attachments and their incentive and ability to shift costs associated
    with video service into their regulated telephone rate base and thereby
    unfairly cross-subsidize their entry into the video business with
    revenues from their telephone monopoly.
        However, Congress lifted the ban in 1996 largely because the 1996
    Telecommunications Act also established rules to promote competition in
    the local voice market. Congress hoped that such competition would
    inhibit the ability of the Bells to use their telephone monopoly to
    enter the video marketplace in an anticompetitive manner.
        The 1996 Act gave the phone companies four options for entering the
    video business and expressly stated that if they chose to enter as a
    cable system, they would be subject to the same requirements of Title
    VI as any other cable operator. At that time, the telephone companies
    didn't complain that the local franchising process was a barrier to
    entry and Congress chose not to eliminate for telephone companies that
    chose to enter the cable business, any of the traditional requirements
    that apply to cable operators, whether they were first to the market or
    last. To the contrary, recognizing that large incumbent telephone
    companies were fully capable of competing vigorously in the video
    marketplace, Congress stipulated that cable operators would be free
    from any remaining rate regulation whenever a telephone company entered
    an operator's franchise area.
        Now a decade later, having made little effort to enter the video
    business, the phone companies are back claiming that they need special
    rules that would allow them to enter the video marketplace in a manner
    that would give them a regulatory advantage over their competitors. It
    is remarkable that Congress would even entertain the Bells' new pleas
    for special favors when the very rationale for allowing the Bell
    companies to enter the video business in the first place has yet to
    materialize--competition in the local voice market. Rather than
    spending the last ten years offering video competition, as they
    promised, they have invested their time and tremendous financial
    resources in the courts and at the FCC attempting to frustrate
    Congressional efforts to promote voice competition. They have
    successfully crushed most of their local voice competitors and
    swallowed their long distance competition. Ten years after the passage
    of the 1996 Telecom Act, the incumbent telephone companies still have a
    vice grip on 85 percent of the local telephone marketplace.
        Meanwhile, during those same ten years, competition to cable
    operators has increased dramatically most notably through the presence
    of two large DBS operators. In stark contrast to the behavior of the
    Bell companies, the cable industry responded to the deregulation of the
    1996 Telecom Act and vibrant competition by investing $100 billion in
    private risk capital to upgrade its facilities with state of the art
    fiber optic technology. The industry made this investment without
    government subsidies and with no guarantee of a return on its
    investment.
        And just as it created a multichannel video service from scratch,
    cable pioneered the residential broadband marketplace, while the
    telephone companies kept DSL technology on the shelf in order to
    preserve their high-priced T1 business service. Cable's innovation and
    risk-taking made cable the Nation's leading broadband provider of high-
    speed Internet access.
        The cable industry has embraced convergence. We have created a
    broadband platform which delivers digital video, high definition
    television, digital telephone service, and an array of additional
    interactive services. As such, we commend the Committee for focusing on
    how best to promote and encourage broadband deployment and adoption and
    avoiding policies that could threaten investment in the upgrades
    necessary to offer the next generation of broadband services.
    New Government Fees Should Not Be Imposed on Broadband Service
        The cable industry strongly supports the goals and purposes of the
    Universal Service Fund (USF). Thus, cable operators that offer VoIP
    services already pay millions of dollars into the current Universal
    Service Fund and we support making that obligation clear in law. In
    addition, cable companies that offer traditional circuit switched
    service pay into the fund exactly the same as all other incumbent and
    competitive local exchange carriers that offer circuit switched
    service. It is further our view that universal service eligibility
    should be technology-neutral such that all facilities-based providers
    of voice services who are willing to meet universal service obligations
    should be eligible to receive universal service distributions.
        We share the concerns of policymakers, industry stakeholders and
    the public that the universal service program, as it stands today, is
    not sustainable. The current USF contribution mechanism, which relies
    on the assessment of interstate telecommunications revenues only,
    virtually guarantees that the fund will continue to shrink. To address
    this problem, the cable industry has long advocated the adoption of a
    mechanism that collects universal service contributions based on
    assigned telephone numbers. This is a simple yet effective reform that
    will sustain the long-term health of this fund while still adapting to
    the evolving technology and economics of voice telephony. Under a
    telephone numbers-based system, all that matters is whether or not the
    service uses a phone number. Adoption of this approach would promote
    competitive neutrality among all voice telephone providers--those who
    offer their services as a replacement for plain old telephone service
    (POTS)--and would avoid assessments on services that only include a
    voice component but are not a substitute for POTS.
        The cable industry is pleased that the legislation introduced by
    Chairman Stevens would give the FCC the option of establishing a
    numbers-based assessment scheme. We would like to work with the
    Committee on language that would give priority to the numbers-based
    option and ensure that future assessments are limited to the kind of
    voice services I described and not extended to broadband and Internet
    services. The imposition of new fees on broadband service at the same
    time policymakers seek to encourage more widespread deployment and
    service penetration would be counter-productive and would raise the
    price of high-speed Internet services for current and potential
    broadband customers. We believe that an appropriately crafted numbers-
    based assessment plan that avoids assessing broadband service will
    raise the revenue necessary to put the Universal Service Fund on solid
    and stable ground.
    Broadband Subsidies Should be Focused Solely on Unserved Areas
        Mr. Chairman, the cable industry shares your desire to ensure that
    all Americans, including those who live in rural communities, have
    access to broadband service. The good news is that broadband deployment
    is accelerating rapidly all across the country. High speed Internet
    access is available in 103 million homes passed by cable, representing
    93 percent of U.S. households.
        The cable industry alone has spent billions to upgrade its
    facilities and deploy broadband services in rural communities. We did
    this without a government mandate and without a government subsidy
    because we wanted to make certain that our customers have the same
    access to advanced digital technology as all Americans. We took the
    risk and invested private capital in order to provide broadband
    services in the communities we serve.
        The cable industry's view is that the government should not use
    Universal Service Funds to subsidize broadband in communities where
    companies are already offering consumers broadband service. It is
    profoundly unfair for the government to subsidize a broadband
    competitor to cable operators, many of which are small rural broadband
    providers that have stepped up to the plate and answered the call to
    help close the digital divide. Furthermore, providing broadband service
    in high cost rural areas is often economically risky. Faced with a
    competitor subsidized by the government could make that risk
    unsustainable. A better use of scarce resources would be to target
    areas where a market-based solution has not developed.
        The Broadband for Unserved Areas Account included in your bill is
    an appropriate approach to promoting broadband deployment in areas
    where it is otherwise uneconomic to do so because it caps the level of
    government funding for facilities-based providers to deploy broadband,
    so as not to drain the Universal Service Fund's limited resources, and
    it specifically targets funds to areas without broadband service.
    However, we urge you to keep in mind that programs designed to
    subsidize private entities to deploy broadband service have the
    potential for abuse and should receive stringent government oversight
    to ensure that government funds are clearly targeted only to areas
    where no one is offering broadband service.
        An example of a well intentioned program that has not lived up to
    its stated purpose of providing funds for broadband deployment in
    unserved areas of the country is the current Rural Utilities Service
    (RUS) broadband loan program. Loan money from this program is being
    used to subsidize cable, phone and other competitors in markets where
    there are already two or more broadband providers. As noted above, this
    type of subsidized competition penalizes private entities serving those
    markets and discourages private investment in rural America. In its
    September 30, 2005 report, the Office of the Inspector General of the
    U.S. Department of Agriculture found that the RUS had failed to
    maintain its intended focus on rural communities without preexisting
    broadband service, questioned whether the Government should be
    providing loans to competing rural providers when many small
    communities might be hard pressed to support even a single company, and
    observed that the RUS, by granting such loans, may be ``creating an
    uneven playing field for preexisting providers operating without
    Government subsidies.''
    Rights and Obligations of VoIP Providers
        We are pleased that your bill includes language that extends to
    VoIP providers the same interconnection rights Congress established in
    1996 to traditional competitive local exchange carriers (CLECs) to
    promote voice competition. The 1996 Telecom Act gave CLECs
    interconnection rights to competitive local exchange carriers so they
    could exchange traffic with the Bells on an economic basis, without
    glitches or delays, in order to promote local voice competition.
    Limiting interconnection and related rights to providers of voice
    services that use traditional circuit-switched technology would ensure
    the Bells retain their market dominance by hampering the introduction
    of cable's digital voice services--the best hope for widespread
    competition in the residential voice market. The bill correctly
    recognizes that any legislative effort to promote competition in
    communications would be incomplete unless it also addressed barriers to
    voice competition, especially where the Bell companies still control 85
    percent of the market. And while this bill provides a solid foundation,
    we recommend changes be made in a few areas including, for instance,
    limiting these rights, duties, and obligations to facilities-based VoIP
    providers, who have made a commitment to deploying their own networks
    and infrastructure, and also urge that rural telephone carriers be
    required to exchange VoIP traffic with telecommunications carriers with
    whom they have existing interconnection agreements.
    The Bill Rightly Avoids Regulating Broadband Internet Services in the
            Name of ``Network Neutrality''
        Cable supports Congress's longstanding policy of leaving the
    Internet unregulated and recognizes that such an approach has been a
    success and has encouraged tens of billions of dollars in investment.
    The cable industry believes that those who call for regulation in the
    name of ``network neutrality'' are offering a solution in search of a
    problem. However, we strongly support this bill's approach which
    requires the FCC to report annually to Congress on what is actually
    taking place in an extremely dynamic and evolving marketplace. We
    believe that FCC oversight of the Internet access marketplace will
    confirm that there is no evidence of harm or market failure to justify
    what amounts to imposing common carrier regulation on broadband
    service.
        With bandwidth usage growing at a rapid pace, continued investment
    will be needed to keep broadband services robust. If broadband
    providers are to continue to make these investments, and if consumers
    are going to be given the levels of services and innovative new
    products and features they desire, all at prices they can afford,
    broadband providers need to have continuing flexibility to develop new
    business models and pricing plans. Network neutrality rules will stifle
    that flexibility and discourage capital investment.
        The broadband marketplace is booming and hotly competitive. No
    real-world problems needing a regulatory solution have been identified.
    The pace of technological development is breathtaking. There can be no
    better circumstances than these to let the marketplace work, let
    companies invest, and let competitors compete.
    Program Access
        Existing program access rules should not be expanded to include
    terrestrially-delivered services or other programming services not
    owned by a multichannel video program distributor. However, to the
    extent Congress believes that cable-owned programming should be covered
    by the existing program access rules, such rules should apply to
    programming owned by any multichannel video programming distributor.
        In 1992, when cable's share of the multichannel video market was 95
    percent, Congress enacted comprehensive program access requirements to
    stimulate competition in the multichannel video marketplace by ensuring
    that cable's competitors had access to programming they viewed as
    critical for their success. The enactment of these rules was a
    significant departure from the generally recognized competition
    principle that exclusivity serves as a pro-competitive tool that
    benefits consumers and provides incentives to cable operators and their
    competitors to invest in the development of unique video services such
    as local and regional programming.
        In enacting these program access rules, Congress consciously and
    correctly exempted terrestrially-delivered cable program networks.
    Congress struck a deliberate balance between ensuring that cable's
    then-fledgling competitors could not be denied sufficient access to
    popular satellite-delivered programming in which cable companies had an
    ownership interest while preserving the pro-competitive benefits of
    exclusivity in order to foster new program networks. Program networks,
    especially local and regional services, are high-risk ventures--some of
    which have failed in recent years. Offering distributors the
    opportunity to be the exclusive source of such programming can be
    essential to attracting investment, promotion, and carriage.
        Today, it is clear that Congress's decision to exempt
    terrestrially-delivered networks has not impeded competition, and
    indeed competition in the multichannel video marketplace is thriving.
    Over the past decade, cable's share of multichannel video customers has
    dropped from 95 percent to 68 percent, and almost 30 million
    subscribers (about 1 in 3) receive their multichannel video programming
    from non-cable providers. Each of the cable industry's two largest
    competitors--DIRECTV and EchoStar--are larger than all but one cable
    company, and the Nation's largest telephone companies are now deploying
    video services. Finally, in the past decade, the percentage of program
    services in which cable companies have a financial interest has
    declined sharply, from 53 percent to 23 percent.
        There is no evidence of any problems with the current program
    access rules or with the multichannel video marketplace. The goal that
    Congress envisioned in 1992, a highly competitive multichannel video
    marketplace, has been reached. In addition, the FCC has found no
    evidence of any abuses of the existing program access rules in general
    and with respect to terrestrial services in particular.
    Specific Issues Raised by the Draft Bill
        While there is much to commend in S. 2686--in particular the
    elimination of unnecessary economic regulation of cable services and
    the absence of a ``net neutrality'' mandate--as with any bill of this
    size and scope there are areas of ambiguity and room for some
    improvements. In this spirit we have identified a variety of specific
    issues raised by the bill. On the franchising side, these issues
    include the creation of two different regulatory schemes--``old'' and
    ``new'' Title VI--for functionally equivalent services and an opt-in
    scheme that ties the regulation of existing cable operators to the
    business decisions of cable's competitors. With respect to universal
    service, the bill appears to require contributions from cable modem
    services in all cases, seemingly deprives VoIP providers of eligibility
    to receive funds, lacks provisions to encourage efficiency in the
    disbursement of money from the rural and high-cost funds, and limits
    auditing safeguards to the e-rate program. We discuss these issues and
    others below. We look forward to working cooperatively with Chairman
    Stevens, Co-Chairman Inouye and all Members of the Committee to address
    these matters.
    Video Franchising
        Role of Local Governments; Prohibition on Discrimination. We have
    consistently said that because each community is unique in demography,
    economics, and geography, local governments are uniquely positioned to
    ensure that video providers meet each community's needs and interests
    in a fair and equitable manner. The Federal Government has neither the
    resources nor the expertise to address these issues. While S. 2686
    prohibits a video service provider from denying service to potential
    subscribers on the basis of race or religion, in addition to income, it
    would deprive franchising authorities of the authority to enforce this
    prohibition, leaving enforcement to the FCC and reducing local
    governments to the status of a complainant. We continue to believe that
    local governments are much better equipped than the FCC to investigate
    and determine instances of discriminatory conduct. We also note that
    franchise revocation is available as a remedy only for making false
    statements to the FCC related to the provision of service in a
    franchise. We would suggest also making false statements to the
    franchise authority grounds for revocation.
        Related to the goal of nondiscrimination is the determination of a
    video service provider's franchise area. Prohibitions on income-, race-
    , or even religion-based discrimination can be rendered meaningless if
    a provider can self-define its franchise area to be just the wealthiest
    communities or the wealthiest neighborhoods in a town. We urge the
    Committee to consider defining franchise area to be the area served by
    existing cable operator or entire geographic area of the franchising
    authority.
        Treating Like Services Alike. While we strongly agree that the
    bill's franchising provisions should apply to all providers of video
    programming that make use of the public rights-of-way, regardless of
    the delivery technology they use, the blanket replacement of the core
    terms ``cable service'' and ``cable operator'' with ``video service''
    and ``video service provider'' could have unintended consequences.
    Must-carry obligations, for instance, apply only to a ``cable operator
    of a cable system. '' Since the bill refers to ``video service
    systems,'' it is unclear whether must-carry would even apply to a
    ``video service provider.'' While this is presumably not the bill's
    intent, it does suggest the kinds of problems that this substitution-
    of-terms approach presents. We believe it is more prudent to retain the
    existing definitions of ``cable service'' and cable operator,'' and
    amend them to make them explicitly technology-neutral. If the Committee
    decides to retain the new definition of ``video service provider,'' it
    should clarify that the exemption for wireless and satellite providers
    applies to those entities only to the extent they are using those
    technologies.
        Treatment of Existing Cable Operators; Opt-In Provisions. While we
    believe that local governments should retain their current role in
    ensuring that all video service providers meet local needs and
    interests, we have also consistently said that economic regulation of
    the cable industry, devised when the video marketplace was far less
    competitive, warrants a comprehensive re-examination. We are therefore
    pleased that S. 2686 gives existing cable operators the benefits of a
    streamlined regulatory framework--``new'' Title VI--in markets where
    new video service providers enter after the date of enactment.
        We are concerned, however, that the bill's opt-in opportunities for
    existing operators are too limited. While there is a ``competition
    trigger,'' for instance, it would not apply in markets where a wireline
    competitor already provides service, or where an existing operator
    faces effective competition from DBS. In these situations, the existing
    operator would remain subject to ``old'' Title VI. Existing providers
    should not be bound by the business decisions of other providers in
    this manner. Opt-in should be allowed for every existing cable
    providers beginning on the date of enactment. All providers should
    compete on a level playing field.
        Clarifications to PEG/INET Support Fee. The bill rewards an
    applicant that is granted a default franchise with exemption from the 1
    percent PEG/INET support fee. While this may provide an incentive for a
    local authority to act on an application, it could penalize competing
    providers by requiring them to offer service under a different fee
    structure. All holders of a streamlined franchise should be required to
    pay the PEG/INET support fee. With regard to that fee, the bill refers
    to an offset against the fee from ``incremental'' operating costs, but
    does not specify which such costs would be included. Any operating
    costs should be allowed as an offset against the fee. The bill also
    does not specifically permit a video service provider to itemize the
    new 1 percent PEG/INET support fee, as cable operators are permitted to
    do today with respect to franchisee fees. This issue should be
    addressed. Finally, the bill should expressly preempt any attempt from
    the franchising authority to require ``voluntary'' PEG and INET support
    above and beyond 1 percent fee.
        Franchise Fees. With regard to the 5 percent franchise fee, we are
    pleased with the effort made by this bill to limit the definition of
    gross revenue on which franchise fees are based. For instance, unlike
    the House bill, S. 2686 does not expressly include advertising revenue
    in the definition of gross revenue. Local ad revenue is projected to
    more than triple over the next ten years from $4.6 billion in 2005 to
    $13.3 billion in 2015. In our view, franchise fees should be closely
    linked with an operator's use of public rights-of-way and management of
    those rights-of-way by a local franchise authority -and not include
    peripheral revenue streams that could result in a windfall for
    franchising authorities. The connection between cable's access to
    rights-of-way and the selling of advertising is attenuated at best, and
    therefore we support the Committee's efforts in limiting the definition
    of gross revenues. To remove any ambiguity on this point, gross
    revenues should be limited to revenues from subscribers.
        Further clarification is also needed to ensure cable operators are
    not required to pay a separate franchise fee assessed on the money they
    collect from subscribers and remit to franchising authorities in
    payment of the franchise fee (a fee on a fee). Consistent with the goal
    of a level playing field, the bill should specify that competing video
    service providers in the same franchise area should pay the same
    franchise fee. Further, the bill should limit the information that a
    State commission can request in a franchise fee audit to only those
    items directly relating to the gross revenues definition, and should
    prohibit requests for corporate financial information not directly
    related to local system's gross revenues.
        Preemption of Local Franchising Authority. Several courts have held
    that in the absence of express Congressional preemption, State and
    localities may have an independent State law basis for imposing
    franchise requirements. If the goal of S. 2686 is a uniform national
    policy, the bill should include express preemption language. Compliance
    with Title VI should be an explicit requirement--but the only
    requirement--for offering video programming service to subscribers.
        Rights-of-Way Management. The bill eliminates the provision in
    current law granting cable operators access to easements dedicated to
    ``comparable uses.'' This provision has been important in enabling
    cable operators to gain access to rights-of-way already being made
    available to gas, water, and electric companies, without having to
    renegotiate easements. This provision should be included in S. 2686,
    and consideration given to expanding what is meant by ``dedicated'' to
    include private agreements as well as public dedications. We also note
    that the bill's cost-based limitation on local permitting fees does not
    clearly apply to other rights-of-way management fees. The cost-based
    standard should be extended to all rights-of-way-related fees, to
    ensure that the fees imposed by the bill are the exclusive ``rent''
    paid for use of the rights-of-way.
        Clarifications To Franchise Application Process. It appears that
    the applicant rather than the franchising authority specifies the
    length of the franchise term. This is clearly an area in which the
    local authority should have input. Further, the bill does not clearly
    address the consequences of an applicant's refusal to accept the terms
    proposed by a franchising authority, and does not impose a deadline on
    a local franchise authority to address the reasons for such refusal.
    One approach for remedying this issue would be to specify that a
    refusal to accept terms is deemed a rejection of the application,
    subject to appeal by the applicant.
        Integrated Set-Top Boxes. To the extent the Committee is going to
    revise Title VI generally, we urge you to repeal the FCC's rule that
    bans integrated set-top boxes (the set-tops leased today with the
    security features embedded in the box) and requires operators to re-
    engineer their set-top boxes to include separate security technology in
    boxes leased beginning in July 2007. At a time when Congress has spoken
    clearly about the need to move to the digital transition for
    broadcasters, the success of that transition is dependent on consumers
    having access to the lowest cost digital converter boxes for both over-
    the-air broadcast and cable services. The set-top box ban is anti-
    consumer and will slow the digital transition.
        Requiring that every operator's leased box have separate security
    will increase lease costs by roughly $2-$3 per box per month. This
    additional cost to consumers is wholly unnecessary. The purpose of the
    rule was to ensure that cable operators would support retail devices
    that used separate security devices (called CableCARDs), the theory
    being that if operators had to make sure the cards worked with their
    own leased boxes, the cards would also be certain to work in retail
    CableCARD-enabled devices. With the FCC's adoption of rules
    implementing the landmark ``Plug and Play'' agreement, requiring cable
    operators to support CableCARD-enabled retail devices, the rationale
    for the integration ban ceased to exist.
        Separate security is used in ``cable ready'' devices sold in retail
    outlets, so that those devices can be made available anywhere in the
    country and used on any operator's system. If a consumer moves, he or
    she simply needs to obtain a CableCARD from his or her new cable
    operator to be used in the device. By contrast, consumers who lease
    their boxes from a cable operator today do not need separate security
    because their leased set-top boxes are used only in their operator's
    system and are returned when the consumer moves. More significantly,
    with or without the integration ban, cable operators have strong
    marketplace incentives to make sure CableCARD-enabled retail devices
    work and receive cable's services in order to compete with DBS, which
    has enjoyed a retail presence for a decade. Congress should repeal the
    ban to ensure that consumers can choose whether to lease a set-top box
    without paying an unnecessary financial penalty for their choice.
        Satellite Services of a Video Service Provider. The bill exempts
    ``satellite carriers'' from the definition of video service provider,
    and therefore from the obligation to pay franchise fees. That exemption
    should not apply to a video service provider who uses satellite to
    avoid its obligation to provide comparable services to all
    neighborhoods in a community. AT&T, for example, has announced its
    intention to use satellite to extend its service offerings to portions
    of its service areas, rather than using its own network. As an
    extension of its wireline service, AT&T's satellite offering should be
    subject to franchise fees to ensure a level playing field with existing
    cable operators in those markets.
        Miscellaneous Issues.  Finally, a number of other provisions in
    Title III of the bill raise concerns:

       Expansion of FCC Authority Over Equipment. The bill proposes
            to delete references to ``cassette'' and to replace ``tape''
            with ``copy'' in existing Section 624A of the Cable Act. This
            would broaden existing law by giving the FCC the authority to
            compel cable operators to accommodate digital DVR functionality
            and copy capabilities. We urge the Committee to reconsider this
            unwarranted expansion of the Commission's powers.

       Shared Headends. S. 2686 prohibits vertically-integrated
            ``video service programming vendors'' from denying access to a
            video service provider solely because that provider uses a
            shared headend. This provision would effectively deprive
            programmers of control over their intellectual property because
            programming is delivered on an ``all or nothing'' basis to all
            systems sharing a headend. We urge the Committee to remove this
            provision of the bill.

       Offset for Telecommunications Service Sales Tax.  New
            Section 622(d)(3) appears to require States to offset the
            franchise fee against any telecommunications sales tax.
            Particularly if this is intended as a dollar-for-dollar offset,
            rather than a percentage-based offset, it could give an unfair
            advantage to the incumbent telephone companies.

       Local Review of Sales and Transfers. S. 2686 repeals the
            provision in existing law that limits local review of cable
            sales and transfers to 120 days, but it does not prohibit such
            review. Without language expressly prohibiting such review, the
            only effect of this language would be to remove the deadline in
            current law.

       Program Access Rights for Multicast Broadcasters. The bill
            removes a provision of existing law, added in 1996, clarifying
            that multicasters are not considered ``multichannel video
            programming distributors'' with rights to demand cable
            programming services under the program access law. Broadcasters
            have the resources to develop their own programming for their
            digital streams. There is no justification to expand the reach
            of the program access law for their benefit.

       Purposes of Title VI. The bill replaces the current purposes
            of Title VI, which include the encouragement of growth and
            development of cable, with single purpose of establishing a
            ``comprehensive Federal legal framework'' for franchising. We
            encourage the Committee to consider additional purposes, such
            as establishment and maintenance of level playing field and an
            appropriate role for local governments.

    Universal Service
        As I explained earlier, the cable industry supports the principles
    underlying the universal service regime, and we agree that universal
    service reform is needed. It is essential, however, that any reform
    address disbursements as well as contributions. The goals of reform
    should be to ensure that contributions are assessed fairly, eligibility
    and distributions are determined equitably, efficiently, and support is
    targeted to the appropriate services. On all three of these objectives,
    the bill represents an important and thoughtful starting point, but
    more work is needed. We stand ready to assist the Committee to make
    sure universal service is put on a fair and firm footing.
        Contributions. Proposed new Section 254(d)(1) requires all
    communications service providers, which would include providers of
    broadband services (at least 200 kilobits per second in one direction),
    to pay into the Universal Service Fund. This provision could be read as
    a mandate to assess contributions on broadband revenues even if the
    Commission otherwise concludes that a numbers-based contribution
    methodology would be sufficient. We strongly urge the Committee to
    eliminate any ambiguity on this point by barring the FCC from imposing
    a contribution requirement based on broadband revenues.
        As noted earlier, the assessment of broadband service revenues
    would impose new fees on broadband service at the same time
    policymakers seek to encourage more widespread deployment and service
    penetration. These new fees would raise the price of broadband for
    current as well as potential broadband customers, and penalize those
    who have worked diligently to deploy broadband to nearly the entire
    nation. The assessment of broadband service is unnecessary to the goal
    of a stable, sufficient and predictable fund.
        Eligibility to Receive Funds. The bill perpetuates several
    requirements that will impede the eligibility of new entrants to
    receive Universal Service Funds, even if they are the most efficient
    provider of basic services. For instance, it retains the existing
    statutory requirement that a recipient must be an ``eligible
    telecommunications carrier'' (ETC), potentially excluding VoIP service
    providers if VoIP is classified as information service. The bill also
    codifies the FCC's existing restrictions on ETC eligibility, including
    the requirement to offer local usage plans comparable to those offered
    by incumbent local exchange carrier (ILEC) in the area and to provide
    equal access to long distance carriers if all other ETCs in area
    relinquish their designations.
        Those ILEC-centric obligations and others, including a requirement
    that the ETC must provide 5-year plan of how support will be used in
    ``every wire center'' for which it seeks designation, skew against
    universal service eligibility for providers with innovative service
    offerings and those whose footprints do not match the service territory
    of the incumbent carriers (just as the Bells argue they should not have
    to provide video service beyond their telephone network footprint).
    Competitors should not have to mimic ILEC service offerings or network
    architecture or geographic coverage to qualify for universal service
    support. Cable telephony providers should be eligible if they offer
    supported services throughout their cable franchise areas, without
    regard to the historical ILEC study area or technology.
        Promoting Efficiency. Any universal service reform effort must
    address the ``demand'' side--distributions--as well as the contribution
    ``supply'' side. In this regard, there must be an attempt to introduce
    more efficiency into the rural and high-cost support mechanisms. As
    competitive options become available to rural consumers, it may be
    possible to cap the existing funds or even reduce them. Congress should
    also consider the possibility of promoting more efficient use of
    Universal Service Funds by establishing a cost benchmark for awarding
    support.
        Finally, while we agree that it is critically important to ensure
    that providers of supported services to consumers in rural and high-
    cost areas have adequate funding, as universal service contributors we
    also believe that funding must be subject to reasonable and regular
    oversight. We note that S. 2686 requires the establishment of
    appropriate fiscal controls and accountability standards for the ``E-
    rate'' programs. These requirements should be applied to the rural and
    high-cost programs as well.
        Targeting Support. The requirement that all Universal Service Fund
    recipients deploy broadband appears to validate--even if indirectly--
    using funds for broadband deployment. Even without a direct broadband
    subsidy from the Universal Service Fund, recipients will have
    additional revenue to spend on broadband because they no longer have to
    self-fund the deployment of their basic services. Cable companies are
    understandably very reluctant to contribute revenues from their own
    broadband services to subsidize their competitors, either directly or
    even by supplying them with fungible resources. The broadband
    prerequisite should be clarified to ensure that recipients do not
    directly use funds intended for basic voice service for broadband
    deployment instead.
        The proposed new broadband account, by contrast, is capped and
    available on a technology-neutral basis only in unserved areas. As
    noted earlier, we are pleased with the more targeted nature of this
    account. Nonetheless, we do not believe it is fair to allow one
    technology--satellite--to obtain subsidies for customer premises
    equipment. If the satellite providers has no other facilities in an
    unserved area, we believe it would make more sense to apply the subsidy
    to offset a subscriber's monthly bill for service than to fund his or
    her purchase of equipment.
    Interconnection
        We support the technology-neutral intent of the interconnection
    provisions of the bill, which extends the rights, duties, and
    obligations of carriers under sections 251 and 252 of the
    Communications Act to VoIP service providers. However, we would suggest
    limiting these rights, duties, and obligations to facilities-based VoIP
    providers, who have made a commitment to deploying their own networks
    and infrastructure. A non-facilities-based provider should not have the
    right to order facilities-based entities on whose networks it rides to
    interconnect at a particular place or manner.
        There are several other interconnection-related issues that the
    Committee should consider addressing in order to ensure that
    facilities-based competitors can compete fairly with the entrenched
    Bell monopolists and other incumbent carriers. First, we strongly urge
    the Committee to address rural telephone carriers' recent refusals to
    exchange VoIP traffic with telecommunications carriers, even though
    they have existing interconnection agreements with those carriers.
    Rural carriers' resistance on this point is depriving rural consumers
    of competitive voice services.
        The bill should also ensure that incumbent local exchange carriers
    have a continuing responsibility to interconnect with other voice
    providers, regardless of whether the ILECs are reclassified as
    information service providers. Finally, the bill needs to include
    effective measures to ensure cost-based pricing for special access and
    transit services. ILECs are often the only suppliers of these critical
    links.
    Video and Audio Flag
        While NCTA has been neutral on whether to codify the FCC's
    broadcast flag rules, if Congress is going to do so we would urge you
    to consider granting the FCC express authorization for the Commission
    to make several modifications to those rules, particularly the ability
    to exempt home networking solutions under control of a multichannel
    video programming distributor from the FCC's certification process for
    output protection technologies. Whatever the merits of requiring
    certification of home networking devices made available at retail,
    there is no need to impose this requirement on equipment under the
    control of a cable operator or other MVPD. In this regard, we note that
    the bill would already permit the transmission of digital broadcast
    signals over a home network. Separately, rather than specify only that
    approved flag technologies be offered on a reasonable and
    nondiscriminatory basis, we would also propose that the bill
    alternatively permit licensing on ``terms of reciprocal non-
    assertion.''
    White Spaces
        We do not oppose the provisions in S. 2686 imposing a deadline on
    the FCC's ``white space'' proceeding. However, we would urge the
    Committee to include language that expressly protects cable equipment
    and systems, and not just broadcasters, from interference by unlicensed
    devices.
    Digital Television
        Mandatory Carriage of All Digital Streams on the Basic Tier. The
    bill requires a cable operator to put all digital signals of a
    broadcaster, not just the primary signal, on the broadcast basic tier.
    Such a requirement would have the perverse effect of discouraging
    voluntary agreements with cable operators to carry additional digital
    programming streams. It is a requirement, moreover, that would appear
    to apply only to existing cable operators, since video service
    providers would not be required to offer a broadcast basic tier. This
    provision should be removed.
        Energy Efficiency Requirement for ``Converter Boxes.''  The bill
    would require the Commission to set energy standards for converter
    boxes. The standards would apply until May 17, 2009. To the extent this
    provision is aimed at all set-top boxes and not just the basic
    converters eligible for the subsidy established by the Deficit
    Reduction Act of 2005, we are concerned that it could hamstring
    technological advances and slow the digital transition. Set-top boxes
    have evolved from simple tuners and descramblers to devices that may
    control multiple functions including digital television capability, a
    conduit to the Internet, program recording capability, storage of
    digital photos, and a platform for electronic games. Imposing energy
    efficiency standards now could limit the features and functionality
    that are built into a set-top device.
        Focusing solely on the energy used by a set-top box also ignores
    the energy savings that these more sophisticated devices can produce.
    For instance, using broadband to telecommute would likely result in
    energy savings that vastly outweigh any additional energy usage by
    including broadband capability in an all-purpose device. Similarly,
    set-top boxes with video recording capability may produce a net energy
    savings as consumers abandon VCRs and other devices. The point is that
    it's too soon to tell where technology may lead us. Set-top box
    designers should have the maximum flexibility to envision the future.
    Conclusion
        As Congress drafts changes to the Telecommunications Act of 1996,
    we urge you to treat like services alike, preferably in a deregulatory
    environment. We will do the rest by raising private risk capital,
    investing in new technology, offering better customer service, creating
    innovative new programming, and competing with other multichannel video
    providers in order to provide consumers with the best voice, video, and
    data services possible.

        The Chairman. Thank you.
        I apologize for not introducing you properly. President and
    Chief Executive Officer of U.S. Telecommunications. No,
    you're--this is Walter McCormick. Mr. McSlarrow is President
    and Chief Executive Officer for National Cable &
    Telecommunications. Pardon me. We thank you for your
    constructive comments.
        Mr. McCormick?

     STATEMENT OF WALTER B. McCORMICK, JR., PRESIDENT/CEO, UNITED
                 STATES TELECOM ASSOCIATION (USTelecom)

        Mr. McCormick. Mr. Chairman, Co-Chairman Inouye, thank you
    very much for the opportunity to appear before you today.
        As I listened to the opening statements, Mr. Chairman, I
    was surprised, and somewhat concerned, by the comments that
    perhaps the Committee's moving too fast. We see here a process
    that has been an extraordinarily comprehensive process, a truly
    extraordinary process, and a result that we think is
    exceptional. After more than a dozen hearings, some of which we
    had the opportunity to participate in, over the course of
    nearly 2 years, you have proposed a comprehensive bill, with
    significant positive implications for all Americans and for the
    American economy. And I would submit to you, Mr. Chairman, to
    the members of the Committee, that a failure to act at this
    time is itself an action, an action that would have very
    negative consequences for the American economy in the 21st
    century and for our consumers.
        As we read this bill, it is a bill that artfully
    incorporates important reforms that have been the subject of
    individual initiatives by virtually every member of this
    committee, initiatives that have been proposed by Senators
    Ensign, McCain, Vitter, DeMint, Rockefeller, Dorgan, Lott,
    Smith, Nelson, Snowe, Pryor, Inouye, and Burns. Indeed, at this
    point, virtually every member of this committee is on record,
    either through cosponsorship of specific legislation or through
    statements of policy made in press conferences or on the floor
    of the U.S. Senate, as being in favor of legislation that would
    provide for video franchising reform and universal service
    reform.
        This bill is consistent with each of these objectives. And
    the vision set forth in this legislation, we believe, would
    provide a solid foundation for our country's continued
    leadership and innovation in the Information Age.
        So, Mr. Chairman, we congratulate you and Co-Chairman
    Inouye for putting together what should be viewed as a real
    consensus package, a package that is broad in its scope and
    bold in its vision. It is a package that recognizes that the
    way in which Americans communicate has changed fundamentally
    since the 1996 Act.
        And, for our members, the opportunity to enter the video
    market is the driving force behind new broadband investment.
    Enhanced networks will carry the commercial and cultural
    traffic of the 21st century information economy. Faster and
    cheaper information flows will enhance productivity and improve
    our ability to secure the homeland. These are all important and
    welcome gains. But to be financed through private capital,
    there must be a return on equity, and that return comes from
    being able to use your technology to offer everything that that
    technology has the capability to offer, and that includes
    video.
        Mr. Chairman, the costs of not acting are significant.
    According to the Phoenix Center, if franchise reform were to be
    postponed until the next session of Congress, that 1-year delay
    would cost consumers an estimated $8 billion. On a state-by-
    state basis, the numbers are equally substantial. Putting off
    franchise reform for 1 year would cost Alaska consumers $12
    million; Hawaii consumers, $31 million; Florida consumers, $626
    million; and Montana consumers, $22 million. So, I am pleased
    that each of the members of this committee is committed to
    moving forward with some important reforms this year.
        And, Mr. Chairman, we look forward to working with you and
    the members of the Committee to see this legislation through to
    enactment.
        [The prepared statement of Mr. McCormick follows:]

        Prepared Statement of Walter B. McCormick, Jr., President/CEO,
                 United States Telecom Association (USTelecom)
        Mr. Chairman, I am Walter McCormick, President and CEO of the
    United States Telecom Association (USTelecom). On behalf of our more
    than 1,200 member companies, I would like to thank you for this
    opportunity to appear before the Committee regarding S. 2686, the
    ``Communications, Consumers' Choice, and Broadband Deployment Act of
    2006.''
        This bill has been developed through an extraordinary process, and
    the result is equally exceptional. After more than a dozen hearings,
    you have proposed a comprehensive bill with significant positive
    implications for the U.S. economy and for all Americans. The vision set
    forth in this legislation would provide a solid foundation for our
    country's continued leadership and innovation in the information age.
    We admire your boldness; we respect your vision; and we thank you for
    your hard work.
        To understand the importance of this bill, you must step back in
    time 18 months. As you know, USTelecom's membership ranges from the
    smallest rural telecom companies to some of the largest corporations in
    America. In November 2004, our diverse membership united around a bold
    vision of the future:

       Ensuring a strong and sustainable universal service system
            to provide affordable, reliable telecommunications for all
            Americans in the 21st century;

       Establishing consumer-controlled, market-based competition
            by eliminating government-managed competition.

        We believe S. 2686 achieves these vital goals, which will unlock
    needed investment, innovation, job creation and economic growth. And,
    we appreciate this committee's leadership in working to update our laws
    to reflect the dramatic changes we have all witnessed as technology
    fundamentally reshapes the communications sector and delivers
    unprecedented voice, video and Internet choices to consumers.
        Today, allow me to focus on three critical areas of your proposed
    legislation:

       Video franchising;
       Network Neutrality; and
       Universal service.

    Title III--Streamlining the Franchising Process
        On the first matter, USTelecom strongly supports this bill's
    efforts to streamline the video franchising process. The net result
    would be accelerated broadband deployment, more competition for voice,
    video and data services, and lower prices for consumers.
        For our members, the opportunity to enter the video market is the
    driving force for broadband investment. These enhanced networks will
    carry the commercial and cultural traffic of 21st Century America.
    Faster and cheaper information flows will enhance productivity and
    improve our ability to secure the homeland. These are important and
    welcome gains. But to be financed through private capital, there must
    be a return on equity. And that return comes from the sale of video
    services.
        Unfortunately, our entry into video is delayed, and in some cases
    denied, by an archaic franchising regime. The streamlining proposed by
    S. 2686 would be a welcome remedy. We believe it would expedite our
    entry into the video market, speeding the arrival of competitive
    choices for consumers, while protecting local government revenues and
    right-of-way control.
        The quicker Congress acts on this, the better it is for consumers.
    Time is money. According to a study by the Phoenix Center, if franchise
    reform were to be postponed until the next session of Congress, that
    one-year delay would cost consumers an estimated $8 billion. On a
    state-by-state basis, the numbers are equally substantial. Putting off
    franchise reform for one year would cost:

       Alaska consumers--$12 million;
       Hawaii consumers--$31 million;
       Florida consumers--$626 million; and
       Montana consumers--$22 million.

        Mr. Chairman, we realize you are results-oriented. Your legislation
    provides the opportunity to improve the household economics for 66
    million cable television subscribers. With the rate relief that comes
    from competition so near at hand, Congress should not make consumers
    endure additional years of high rates.
        The franchising process was used in the past to protect consumers
    from cable monopolies. It should not be used today to protect cable
    from competition. Competition benefits consumers. Cable did not go
    through a new franchising process to enter the voice market. Phone
    companies similarly should not be impeded from entering the video
    market. The clear public interest lies with head-to-head competition.
    For example, when Verizon entered the video market in Keller, Texas,
    Charter Communications dropped its rates by a whopping 50 percent. So,
    as you can see, the sooner we streamline the franchising process--the
    better for consumers.
        On the issue of net neutrality, USTelecom strongly supports the
    measured approach taken in S. 2686. As I have repeatedly testified, our
    companies will not block, impair, or degrade content, applications, or
    services. We stand by that pledge. We stand by it because it's the
    right thing to do and because consumers simply would not tolerate any
    other approach. Under S. 2686, our commitment to Internet freedom--to
    consumer control of their Internet experience--would be subject to
    ongoing monitoring and enforcement--without risking innovation and
    investment. We think this strikes the right balance. And, it takes an
    appropriate ``first, do no harm'' approach to government oversight of
    the Internet.
        Under S. 2686, Internet users would have three layers of
    protection. The first two layers already exist. First, the discipline
    of a competitive marketplace. We have today wireless, cable and telecom
    companies offering high-speed Internet. We have satellite providers
    investing in upgraded systems to better deliver high-speed Internet. We
    have significant investments from municipalities and from massive
    Internet companies like Google in broadband over power line and WiFi.
    Consumers have choices. If any company sought to control their Internet
    experience, consumers no doubt would exercise their ability to make
    these choices.
        Second, the FCC has adopted four guiding principles of Internet
    freedom and has made clear its intention to enforce them. S. 2686 would
    further mandate annual reports by the FCC to Congress to identify any
    actual problems that occur and to recommend solutions. This will offer
    a constant reminder to Internet providers that the specter of
    government regulation is out there, which is a powerful deterrent to
    inappropriate action. This approach also will ensure that questionable
    practices will be subject to prompt scrutiny by the FCC, Congress, and
    the wider online community.
        This is the right approach given the fact that we are today dealing
    with a hypothetical problem. The one documented case of blocked traffic
    resulted in swift corrective action by the FCC. So the debate today
    focuses largely on ``what if'' scenarios. Those members of Congress who
    are calling today for a regulatory solution have sent a shudder through
    the investment community. As this committee has heard, Wall Street is
    bearish on network investment. If our next-generation broadband
    networks are subject to last-generation regulatory schemes, it is
    difficult to envision a future in which investment continues at a rate
    adequate to advance U.S. competitiveness, consumer choice and economic
    growth in a broadband world.
        S. 2686 is a balanced alternative. It ensures both unqualified
    support and vigilance on behalf of continued Internet freedom. And, it
    reflects a sound, responsible awareness that market incentives must
    exist to encourage or at least justify the significant investment
    necessary to maintain and enhance U.S. broadband infrastructure.
    Title II--Universal Service Reform; Interconnection
        USTelecom members also strongly support your efforts to reform
    universal service. We have grown increasingly concerned with the
    precarious revenue base and rising expenditures. We appreciate your
    efforts to broaden the base, to include interstate, intrastate, and
    international calls, as well as other voice communications using
    alternative technologies. We support your efforts to expand the rural
    exemption, to wall off universal service revenues from the Anti-
    Deficiency Act, to prevent a primary-line mandate by the FCC, and to
    address the growing problem of phantom traffic.
        In addition, S. 2686 takes important steps with regard to broadband
    to ensure that rural America is connected at high speeds and at a
    reasonable cost. With so many communications services migrating to
    broadband, rural areas need broadband like never before. Franchise
    reform will help, as will the dedicated broadband fund envisioned in S.
    2686.
        Our foremost concern in Title II is the extensive interconnection
    rights granted to voiceover-IP providers--providers with no facilities
    of their own. Although we respect the Committee's desire to promote
    competition, we believe this provision goes too far. As written, the
    bill gives these carriers an abundance of rights and privileges, but
    few of the duties and obligations that fall to facilities-based
    providers who are making the infrastructure investments--such as law
    enforcement obligations and payment of appropriate intercarrier
    compensation when connecting to the public network. Moreover, the
    interconnection language must be clarified to ensure the rural
    exemption is not adversely affected.
    Broadly Updating Our Nation's Telecom Laws
        Mr. Chairman, it hardly takes an industry expert to see plainly
    that the world of communications has changed. It is time to move beyond
    government-managed competition and embrace market-based competition.
    Consumers should have the ability to obtain the services they want from
    the companies they choose. They, rather than outdated government
    policies, should determine the future course of innovation . . .
    something this legislation would accomplish.
        USTelecom applauds you for your work lifting the barriers to real
    competition in video services, for eschewing heavy-handed, premature
    regulation of the Internet, and for reforming and thus safeguarding the
    future of universal service. We hope the Senate will see fit to enact
    your vision into law before the end of the 109th Congress.

        The Chairman. Thank you very much.
        Our next witness is Mayor Michael Guido, Vice President of
    the U.S. Conference on Mayors, from Dearborn, Michigan.
        Mayor, glad to have you here.

     STATEMENT OF HON. MICHAEL A. GUIDO, MAYOR, DEARBORN MICHIGAN;
            VICE PRESIDENT, U.S. CONFERENCE OF MAYORS (USCM)

        Mayor Guido. Thank you very much, Mr. Chairman, Senator
    Inouye--it was nice to have you in my city on Saturday to
    receive the Access Award--distinguished members of the
    Committee. I'm honored to appear before you on behalf of seven
    different organizations that represent local governments in
    every State of the Union to testify about the video franchising
    title, S. 2686, Communications, Consumer's Choice, and
    Broadband Deployment Act of 2006.
        I want to begin, Mr. Chairman, with a simple statement of
    fact. America's local elected officials strongly support
    technological innovation and competition in the video
    marketplace. Using the franchising authority granted to local
    governments, we have a long record of successfully delivering
    on that statement to all of our constituents, and we want to
    continue to be able to do so.
        That's why we're concerned about certain aspects of the
    video franchising bill before you today. In our view, it
    represents a significant step backward for the ability to
    deliver, to all residents, the latest in video technology at
    the best possible price.
        This bill appears to preserve local video franchising
    authority, but, in fact, it will strip that authority away from
    thousands of elected mayors, commissions, and councils across
    America, and place it in the hands of five unelected
    commissioners of the Federal Communications Commission here in
    Washington, D.C.
        The requirements in the bill that franchise authorities act
    within 15 days, and approve a franchise in just 30 days, is
    unreasonable and unworkable. And while local government is
    perhaps the most nimble and responsive to local concerns, even
    that timetable is unrealistic.
        Such a requirement would, in many instances, violate State
    and local law. It would deprive local elected officials of
    their statutory rights and authority. And it would leave
    consumers without a voice in their own communities. Surely,
    that cannot be your intent.
        Next, the bill would send any and all disputes about access
    and the use of publicly owned rights-of-way to the FCC.
    Clearly, the agency, as capable as it is, has neither the
    resources nor the expertise to handle such issues.
        The bill would second-guess the general police powers of
    the community, but also the policies and engineering practices
    of public works departments in every city, town, or village. Do
    we really want questions over the use of neighborhood sidewalks
    and sidestreets to be settled perhaps thousands of miles away?
    Who is better able to address such disputes, the mayor of
    Seattle, Washington, or the city manager of Bozeman, Montana,
    for example, or an FCC staffer here in Washington?
        Third, the bill would result in a significant loss of
    financial support to local governments. I recognize that the
    intent is not to disadvantage localities financially; however,
    by excluding advertising and home-shopping revenues from the
    mix, the rent paid for the use of public property will surely
    decrease. Furthermore, reducing the base gross revenues will
    undermine my ability, and that of all of my counterparts, to
    provide needed services through the use of public, educational,
    and government access facilities and institutional networks. It
    will also deprive local citizens of local public safety and
    local government information they currently receive through
    these uniquely local resources.
        Fourth, I regret that the bill's attempt to prevent
    redlining will not accomplish that goal. Video programmers will
    be able to pick and choose the neighborhoods they serve, while
    bypassing others entirely. Providers will decide where to
    extend service based on which neighborhoods promise the
    greatest return for the smallest outlay. As a business model,
    that probably makes sense, but, as a public policy tool to
    promote the broadest possible access to broadband service, it
    makes no sense at all. Raising the specter of redlining is not
    a red herring, it's an effort to raise a red flag against a
    provision that will increase the access gap unless it's
    significantly changed.
        Fifth, and finally, the bill appears to undermine the
    taxing authority of State and local governments in areas that
    have nothing to do with compensation for the use of public
    rights-of-way. Those provisions, which are both vague and
    confusing, should be eliminated.
        Mr. Chairman, Senator Inouye, and members of this
    Committee, back home in Dearborn I often tell people who come
    to see me seeking city support for a project or an initiative
    that government gets involved--city government gets involved
    when we can do what's best and bring the best results for
    Dearborn. I would suggest that a similar approach is in order
    here. Let's make sure that whatever changes are made to the
    current system of video franchising actually brings about the
    right results for Dearborn and every other city in America.
        Thank you.
        [The prepared statement of Mayor Guido follows:]

    Prepared Statement of Hon. Michael A. Guido, Mayor, Dearborn Michigan;
                Vice President, U.S. Conference of Mayors (USCM)
    Introduction
        Good morning, Chairman Stevens, Senator Inouye and members of this
    Committee, I am Michael A. Guido, Mayor of Dearborn, Michigan. I am
    honored to be here today to testify not only on behalf of the The
    United States Conference of Mayors (USCM) where I am the Vice
    President, but also on behalf of local governments across this Nation,
    as represented by the National League of Cities (NLC), the National
    Association of Counties (NACo), the National Conference of Black
    Mayors, the National Association of Telecommunications Officers and
    Advisors (NATOA), the Government Finance Officers Association (GFOA),
    and TeleCommUnity. \1\
    ---------------------------------------------------------------------------
        \1\ USMC, NLC, NCBM and NACo collectively represent the interests
    of almost every municipal or county government in the United States.
    NATOA's members include elected officials as well as telecommunications
    and cable officers who are on the front lines of communications policy
    development in cities nationwide. GFOA's members represent the finance
    officers within communities across the country who assist their elected
    officials with sound fiscal policy advice. TeleCommUnity is an alliance
    of local governments and their associations that promote the principles
    of federalism and comity for local government interests in
    telecommunications.
    ---------------------------------------------------------------------------
        On behalf of America's local elected officials and their advisors,
    I want to stress that America's local governments embrace technological
    innovation and competition in the video marketplace. We want and
    welcome real competition in a technologically neutral manner. Local
    governments--and our residents--support the deployment of new video
    services as rapidly as the market will allow. We appreciate the
    recognition of the importance of municipal provisioning of broadband
    where communities believe that it is in their best interest. We trust
    that the Committee will consider ensuring that the opportunity for
    local governments to partner with the private sector, or self provision
    broadband services, remain genuine and that any barrier to such
    provisioning is removed. We appreciate the important work of the Chair
    and Co-Chair on the issues of Universal Service and Interoperability,
    and we look forward to working with the Committee to ensure that such
    issues are addressed appropriately.
        Since today's hearing, and this panel in particular, is focused on
    the video franchising title of the bill, my remarks today are directed
    to that issue. I would also like to express our concerns with the
    current draft of the Communications, Consumer's Choice, and Broadband
    Deployment Act of 2006 (S. 2686). In so doing, I want to emphasize that
    we have met with the Committee staff and shared these concerns with
    them. We understand that this is still a work in progress, and we look
    forward to continuing our work with the Committee to make improvements
    to the bill.
        The concerns of local government reflect the scope and variety of
    issues raised in this legislation, and it will take time to ascertain
    its impact on the wide array of stakeholders that it affects. But
    that's what makes preserving the local voice in video franchising so
    important. It permits each community, based on unique community needs
    and citizen input, to decide for itself--in a fair, equitable and
    politically accountable manner--the nature of the video service that
    will be provided to its citizens. Local governments should retain their
    authority to supervise rights- ofway and recover the associated costs
    for doing so, require the payment of a reasonable franchise fee, ensure
    access to all and require appropriate public, educational and
    government (PEG) access channels and institutional networks (I-Nets)
    support. The Federal Government has neither the resources nor the
    expertise to address such issues.
        The limited and severely restricted role of local governments over
    providers for the delivery of video services in this bill is troubling.
    Indeed, proposed section 601 would abolish the long-standing
    Congressional policy that franchise procedures and standards should
    assure that cable systems are ``responsive to the needs and interests
    of the local community.'' And while we believe your intentions may have
    been to affirm the role of local governments in the video franchising
    process, the legislation, in its current form, would severely undermine
    local franchising enforcement and compliance authority, threaten local
    budgets, limit the benefit of broadband-video competition to a few
    well-to-do neighborhoods, weaken provisions that ensure that video
    providers meet each community's unique needs and interests, and
    undermine the ability of local government to protect their residents.
    This bill would do harm to citizens, consumers of these new services,
    and the communities in which they reside in five significant ways:
        First, while ostensibly preserving local franchising authority, the
    net effect of the legislation is to strip authority from local
    governments and grant that authority to the Federal Communications
    Commission (FCC). It is essential that the Committee understand that
    the requirement for a franchise authority to act in 15 days, and to
    approve a franchise in 30 days, would in many instances violate state
    and local law, deprive elected officials of their statutory rights and
    authority, and leave consumers without a voice in their community.
        Second, the bill would send all rights-of-way disputes to the FCC,
    an agency that lacks the resources and expertise to handle them. The
    bill would second guess not only the general police powers of the
    community, but the policies and engineering practices of public works
    departments nationwide--and put those decisions within a Federal agency
    with no stake in the outcome other than to speed deployment at any or
    all cost.
        Third, while the intent may have been to keep localities
    financially whole, the bill would result in a significant loss of
    financial support to local governments. The exclusion of advertising
    and home shopping revenues would significantly diminish the rent paid
    for the use of public property. Further, the reduction in the base of
    gross revenues will undermine local government's ability to provide
    necessary services through the use of public, educational and
    government access facilities and deprive public safety and governmental
    use of institutional networks.
        Fourth, while at first glance the bill appears to prohibit
    redlining, it would permit video providers to pick and choose the
    neighborhoods they would like to serve and bypass others completely.
    This bill will not enhance the position of this country in the standing
    of broadband deployment, but will certainly widen the gap of those who
    have access. Rather than ensure that everyone is served and served
    equitably, this legislation will continue the downward spiral that the
    unregulated market has created thus far.
        Fifth, it appears that the bill undermines the taxing authority of
    state and local governments in areas wholly unrelated to rights-of-way
    compensation.
    Local Governments Concerns--No Choice and No Deployment
        For local government, this debate is not about stifling competition
    or throwing up roadblocks to delay new entrants from entering into the
    video marketplace. To suggest otherwise is nonsense. Rather, this
    debate is about protecting core local government functions--a job our
    citizens expect their local officials to do. It's about streets and
    sidewalks, public safety, first responders, citizen involvement in
    local politics, and seeing that all of our residents are afforded the
    same, equal opportunity of access to these technological advances that
    increased competition will bring into our communities.
        Local governments have been managing communications competition for
    many years now and are familiar with the needs of new entrants into the
    market. The twist to the current debate is one which focuses not on the
    ``new'' entrant, but on the entrenched monopolist entering into a
    ``new'' line of offerings. After many years of false starts and broken
    promises--the potential entry into video by a few, well-funded and
    dominate players has placed in jeopardy the entirety of the statutory
    structure that guides such entry.
        Local governments understand the need to streamline our
    deliberative processes--to speed up the franchise application timeline,
    and we could support changes in Federal law that established the
    current process for franchising. However, in the process of making
    these changes we need to ensure that our communities are served and our
    citizens' concerns are heard.
        You may have heard about the recent push by many local communities
    in Michigan to get AT&T to enter into the video marketplace. These
    communities, representing approximately 60 percent of the state's
    population, formally asked AT&T to respond to the more than 600
    invitations and resolutions sent to it asking the company to sign local
    franchise agreements and start real competition for video customers.
    But AT&T remained silent, leading Michigan's towns and cities to
    publicly ask AT&T, ``Can you hear us now? We want competition!'' It was
    not until the media was alerted that AT&T finally began to respond.
        Local government is concerned that the continued rhetoric and
    unfounded, unsubstantiated claims of delays and barriers to entry into
    the marketplace voiced by the very same companies that now, at last,
    seek to provide video services in our communities and ``promise to do
    right by us,'' have led some members of Congress to believe that
    competition and innovation will flourish only if local government is
    removed from the franchising equation. Their new mantra is ``national
    franchising now.'' But a national franchising scheme just doesn't add
    up. Hundreds of millions of dollars have been spent perpetuating this
    myth.
        For months, the telephone companies wanting to enter into the video
    marketplace have been stating--in print and on television advertising,
    and at public hearings like this--that they intend to keep local
    governments whole. They say they are prepared to pay the same franchise
    fees that cable companies pay now. They say they will carry and support
    public, educational and government (PEG) access channels and
    institutional networks (I-Nets). They say they support the preservation
    of state and local governments' authority to manage their public
    rights-of-way. And they say that they believe in and support full
    customer access to the services they intend to provide.
        But when you look at this legislation, we are again disappointed to
    find these commitments to keep local governments--and their citizens--
    whole, are empty. This legislation, which--in reality--seeks to create
    a national franchising scheme, takes away many of the bargained for
    benefits that our citizens enjoy and expect to receive from these
    companies that come into our towns and cities and make use of the
    public's rights-of-way. The very benefits and services the telephone
    companies say they are supportive of are either watered down or are
    totally missing in this legislation. For example, the bill permits the
    local franchising authority to impose and collect a franchise fee not
    to exceed five percent of the provider's gross revenue. However, at the
    same time, the bill redefines ``gross revenues'' to exclude advertising
    and home shopping revenues. As a result, communities may see their
    franchisee fees decrease by as much as fifteen to twenty percent.
        Local governments and our citizens have been waiting for
    competition in the video arena for years--indeed, since 1992 when the
    Communications Act explicitly guaranteed such opportunities. In 1996,
    after telephone company leaders promised to enter the video market and
    provide real competition and consumer choice, Federal law was changed
    once again to encourage that entry and to provide regulatory relief in
    exchange. Industry leaders predicted great things for consumers, but
    consumers never got competition or lower rates--all they got were
    higher bills.
        Today, we are hearing once again from those who clamored for change
    over a decade ago for another rewrite to the rules of a game that they
    have sat out of for over 10 years. Once again, we are hearing promises
    of great things to come for consumers. And we have been told time and
    again that local governments will be kept financially whole, that local
    governments will see their revenues preserved and even possibly grow.
        Local government franchising is not the reason the telephone
    companies have sat out of the game. Current Federal law is not the
    reason they haven't gotten into the game. The simple reason they have
    been sitting on the sidelines until now is because of marketplace
    economics. Until recently, the provision of bundled services hasn't
    proven to be as financially attractive as the telephone companies'
    business plans have required in order for them to step up to the plate
    and get in the game.
        Tossing away local franchising and the ability of local governments
    to truly control and protect the public rights-of-way and to confer
    this authority on the Federal Communications Commission is not the
    solution. Such a scheme just doesn't add up. This is a concern that we
    have raised on numerous occasions--in private discussions, in public
    forums, and at previous House and Senate hearings. Protecting local
    franchising authority has been, and will continue to be, the same
    message and the same position that we have been advocating for years
    because the process works. Let local government continue to have its
    voice heard in the franchising process and let local government
    continue to maintain its historic authority over the public rights-of-
    way--where it belongs. And let the courts, not the FCC, continue to
    have the authority to resolve any disputes that may arise.
        This Committee, in its desire to speed up the entry of new video
    competitors in the marketplace, should not give these companies a blank
    check. Rather, it should strive to ensure that all providers have
    similar responsibilities in providing video services so that all
    consumers may enjoy the benefits of such services on a non-
    discriminatory basis.
    Preserve Local Authority Over the Public Rights-of-Way
        Even though technologies change, some things remain the same. For
    example, most of the infrastructure being installed or improved for the
    provision of these new services must still be placed in public streets
    and sidewalks. Local officials are the trustees of public property and
    must manage it for the benefit of all. We require--because we must--
    important public safety controls to ensure that telecommunications uses
    are compatible with water, gas, and electric infrastructure that are
    also in the public rights-of-way. Ensuring that the installation of new
    services in the public rights-of-way doesn't result in gas leaks,
    electrical outages, and water main breaks are among the core police
    responsibilities of local government, as is ensuring the efficient and
    safe movement of traffic over, under, and adjacent to these facilities.
    Local government is in the best position to manage these competing
    interests. It is local government that can best handle the complaints
    that arise from the installation of these services. It is local
    government that is in the best position to ensure that local problems
    are resolved in a timely and efficient manner. It is local government
    that is in the best position to ensure that a resource owned by the
    public is put to the best use for its citizens. And while our citizens
    want what they have long been promised--better services at lower
    prices--they don't want potholes in their roads, dangerous sidewalks,
    water main breaks, and rush hour traffic jams as a consequence. The
    proposed bill will eliminate many of the protections that current
    statutory authority and local authority address today.
        We look forward to working with Committee members to make sure that
    any legislation that is ultimately approved by the Senate does not
    abrogate this core tenet of federalism.
    Keep Localities Financially Whole--Protect Public, Educational and
            Government (PEG) Access Channels and Institutional Networks (I-
            Net)
        There's no disputing that communications companies are innovative.
    When you look back over the past 100 years, the changes we have seen in
    technology are absolutely mind-boggling. And new technologies and new
    products are coming onto the market so quickly that it makes your head
    spin. Last year's cell phone that took still photos is already being
    replaced with this year's cell phone that can play television programs
    and take both still photos and videos! You can't help but laugh when
    you watch a motion picture from a few years ago and see someone talking
    on a cell phone the size of an NBA player's shoe.
        But at the same time, the social obligations that have developed
    over the past decades have endured. These obligations include the
    continuing financial support for the provision of public, educational
    and government (PEG) access channels and institutional networks (I-
    Nets); prohibitions against redlining; and customer service and
    consumer protection.
        There is no argument that locally produced video programming
    performs an important civic function by providing essential local news
    and information. Under existing law, a certain amount of cable system
    capacity and financial support for that capacity may be set aside for
    the local community's use. This capacity is most often used in the form
    of channels carried on the cable system and are referred to as PEG for
    public, educational and government channels. Once the local franchising
    authority has established the required number of PEG channels and the
    financial support required to meet local community needs, it then
    determines the nature of the use, which may be mixed between any of the
    three categories.
        Current provisions of the Cable Act dealing with PEG access
    channels are intended to provide all members of the local community
    with access to the medium of television. And this system has worked
    very well. Whether it is video coverage of governmental meetings,
    information about government services or special programs, or local law
    enforcement's most wanted, these channels permit local communities to
    disseminate information and to better serve and interact with their
    constituents. Local governments continue to make innovative uses of
    this programming capacity as new interactive technologies allow more
    valuable information to be made available to our constituents.
        Under the current framework, local communities are permitted to
    freely negotiate with video providers the amount of PEG financial
    support that will be provided to the community. But under this proposed
    bill, PEG fees would be set at a uniform rate of one percent of the
    provider's gross revenue. While many communities across the country
    already impose a one percent of gross revenue formula for PEG financial
    support, a number of communities across the Nation have entered into
    freely negotiated franchise agreements with video providers that
    provide for additional financial support. This legislation would strip
    those communities of the support that their video providers agreed to
    give to support these vital local resources. Some communities would
    lose up to 67 percent of their PEG financial support under this
    proposed legislation.
        Even more troubling is this legislation's treatment of I-Net
    support. The bill provides that a local franchising authority may
    require an existing video provider to continue to provide any existing
    institutional network. But it also permits the operator to deduct the
    incremental cost of operating such a network from the one percent PEG
    fee. If that incremental cost exceeds the one percent PEG fee, the
    local franchising authority could very well be faced with the Hobson's
    choice of giving up all or a good portion of its PEG support to
    maintain the existing institutional network, or simply abandon the I-
    Net altogether. And remember: In many communities I-Nets are used for
    vital local government purposes, including public safety, first
    responder and homeland security purposes.
        Furthermore, unlike the current Cable Act, the proposed legislation
    explicitly excludes advertising and home shopping revenues from its
    definition of ``gross revenue.'' As a result, local governments will
    see an almost immediate drop in both franchise fees and PEG funding
    under the one percent funding formula. The promise to keep local
    governments whole just doesn't ring true.
        The Congressional Budget Office recently examined the
    Communications Opportunity, Promotion, and Enhancement (COPE) Act of
    2006 (H.R. 5252). It estimated that by 2011, local communities could
    lose anywhere from $100 million to $350 million dollars in PEG and I-
    Net support as a result of the bill limiting such support to one
    percent of the operator's gross revenues. And COPE, unlike this bill,
    includes advertising and home shopping in its definition of ``gross
    revenues'' and does not contain the I-Net offset. We have not yet had
    enough time to ascertain exactly how much more revenue local
    governments would lose under this proposed bill. The loss could be
    staggering!
        Decisions concerning the need and extent of PEG access channels and
    institutional networks are best made at the local level, based on the
    unique needs of each community. This Committee should resist industry
    pressure to impose a one-size-fits-all financial support scheme that
    just doesn't add up.
    Prohibit Redlining
        It is imperative that video providers treat all residents of the
    community alike, just as local governments are obligated to treat all
    video providers alike. There is nothing in the current Federal law that
    requires a new video entrant to deploy its services to the entire
    community immediately. But if the telephone companies have their way,
    there will be nothing in Federal law that would require them to deploy
    their video services throughout their existing service area--ever.
        Redlining is the practice of refusing to serve a particular area
    because of the race or income of its residents. The term redlining
    became familiar back in the 1930s when lenders began using racial
    criteria when assessing lending and insurance risks. Green lines were
    used for newer, affluent areas, while red lines were used for black and
    poor white neighborhoods. The Federal Housing Administration actually
    used this methodology in assessing areas for federally insured new
    housing loans.
        Any new telecommunications legislation must be drafted to ensure
    that the income, race, or any other discriminatory factor is not used
    to assess areas for the deployment of new and innovative video
    services. Unfortunately, this bill in its current form would allow a
    provider the option of serving only a defined portion of the community
    and bypass other areas as long as the provider did not refuse to
    provide service to an individual poor person living on the same street
    as wealthier consumers.
        Contrary to what some industry officials say, redlining is not a
    red herring. Communities across the country have seen the telephone
    companies bypass poorer neighborhoods while upgrading services in more
    affluent areas. Indeed, it has been reported that AT&T informed its
    Wall Street investors that in Michigan, the company was going to
    provide its video product to ninety percent of its ``high value''
    residents, but to only five percent of its ``low value'' residents,
    which it defines as those customers who buy less than $110 a month in
    telecommunications services. It's not hard to see how such a business
    plan on a national scale will deprive millions of Americans of the
    benefits of increased competition and technological advances.
        This Committee should not endorse legislation that would in any way
    permit new entrants to deny video access to our residents and should
    tell these companies to put away their red pens.
    Protect State and Local Taxing Authority
        The bill contains three tax saving clauses in sections 622(d)(1),
    (2), and (3), each more successively narrowly-tailored than the next.
    They are not only confusing, but internally inconsistent as well. While
    section 622(d)(1) appears sufficient by itself to protect locally-
    imposed taxes as well as any state-imposed telecommunications taxes
    that are not imposed in lieu of rights-of-way compensation, sections
    622(d)(2) and (3) contradict it. Exactly how the FCC or a judge is
    expected to make sense of the three provisions is anyone's guess.
        Section 622(d)(2) is redundant with the definition of ``franchise
    fee'' as amended in proposed section 622(d)(1) and should be
    eliminated. However, section 622(d)(3) is more troubling. It suggests
    that locally-imposed taxes (as opposed to those imposed by the state)
    are not protected from preemption. The section also suggests that even
    state-imposed telecommunications taxes that are not in lieu of rights-
    of-way compensation are not saved. By including these two unnecessary
    sections, the bill creates only more mischief on local governments and
    creates an issue that simply does not need to exist.
    Conclusion
        In the rush to embrace new technology, and to enhance the entry of
    new competitors in the market, it is the responsibility of local
    government to ensure that our citizens are protected and public
    resources are preserved. We value the deliberative process, such as
    this hearing today, to be sure that we are making informed decisions.
    Local control and oversight should not be confused with delay and
    barriers to competition. The franchising process should be designed to
    promote fairness for consumers and promote a level playing field for
    all providers.
        Franchises don't simply give permission to provide video services
    to our citizens; they are the core tool--a contract--we use to manage
    public sidewalks and streets, provide for public safety and homeland
    security, enhance competition, provide locally-originated programming,
    and collect compensation for the private use of public rights-of-way.
        Collectively, we represent the interests of almost every municipal
    and county government in the United States. We strongly endorse
    promoting competition that will permit new video providers to come into
    our communities on a level playing field, while preserving local
    franchising authority that has proved to be so valuable to our cities
    and counties around the country. We would be pleased to provide this
    Committee with additional information to further your assessment of
    these concerns as you continue your deliberations on video franchising.
    We note that there remain a significant number of areas within the bill
    that we have not yet addressed, including consumer protection and
    privacy which are in the forefront of areas of concerns by
    communications consumers today. We look forward to continuing our work
    in assessing the legislation and its impact, and believe that the
    Committee should continue its excellent work and ensure a strong record
    in support of any decision to change existing law.
        Thank you. I look forward to answering any questions you may have.

        The Chairman. Thank you very much, Mayor. We'll be glad to
    sit down with representatives of your organization and go
    through your suggestions. As I said in the beginning, I think
    some of the comments that have been made about the provisions
    of the bill so far are correct, and we need to modify them. So,
    we will consult with you. But those were not our provisions.
    They were submitted by others, who--and we put them in the
    bill. It is a draft bill. We appreciate the way you've
    approached it.
        Our next witness is Ms. Johnson, who's Chairman of Video
    Access Alliance, of Tallahassee, Florida.
        Ms. Johnson?

              STATEMENT OF JULIA L. JOHNSON, CHAIRPERSON,
                         VIDEO ACCESS ALLIANCE

        Ms. Johnson. Thank you, Mr. Chairman.
        Mr. Chairman and other members of the Committee, it's an
    honor to have the opportunity to speak with you today.
        I think it has been about 10 years since I had the
    opportunity in the context of being the Chair of the Florida
    Public Service Commission, when we were debating and discussing
    the Telecommunications rewrite dealing with universal service
    issues, unbundled network elements, and the 271 process.
        I believe that our opportunity to discuss the evolution and
    the advancements that have been made in the telecommunications
    markets over the last 10 years is a tribute to the work that
    was done. So, as the gentlemen and this lady sit and banter
    about what we'd like to see in this legislation, I ask that you
    consider this a tribute of sorts to the progress made in the
    last 10 years, a tribute to the technological advancements of
    our Nation, and to the many new opportunities for consumers,
    all due to your leadership.
        The Alliance is a not-for-profit focused on supporting
    policies that promote competition in the market for the
    delivery of video services. Our coalition consists of
    entrepreneurs, executives from independent, emerging, and
    minority networks, and other content providers and industry
    participants. Unfortunately, much of the current debate has
    turned into a cable-versus-telecom fight, so much of the
    dialogue is focused on policies that benefit or harm
    competitors or categories of competitors, when, instead, we
    should focus consistently and unrelentingly on the benefits to
    consumers.
        In the video market, no one has to speculate as to whether
    competition will benefit consumers. We know that it will.
    Creating an environment that allows for rapid investment and
    deployment of new video platforms will have a compounding
    consumer benefit. That is to say, competition will lead the
    underlying video distribution networks to lower their prices.
    Additionally, with real content competition, there will be a
    need for networks to distinguish their offerings, which will
    allow for more diverse and higher-quality content. Furthermore,
    competition in the programming content space will lead to more
    competitively priced programming. The result will be
    extraordinary savings for consumers, higher-quality
    programming, and greater choice for consumers.
        Fortunately, this legislation encourages such competition.
    We, again, applaud the Committee's efforts in working to do so.
        We all recognize that the current market environment denies
    consumers full benefit. The facts are undeniable. Independent
    networks, as a group, are excluded under current market
    structures. Research indicates that under the current
    structure, top video distribution networks, on a nonpremium
    national basis, carried less than 1 percent of the channels
    with no media affiliation. Less than 1 percent of those
    channels. Furthermore, the FCC has found that cable TV
    providers, when they offer--the FCC has found that cable
    television providers offer less than 6 percent fewer programs
    in the absence of competition.
        In a market characterized by discrimination and blockout of
    independent channels, the FCC's existing program carriage rules
    do not adequately address remedies for relief, and require
    modification to help independent channels. This is important,
    because independent channels have been shown to cost less than
    a third of what affiliate channels cost. So, independent
    channels apply another downward pricing pressure on what
    consumers ultimately pay. Independent channels have been frozen
    out of the cable TV market. And while we empathize with the
    worries of the content providers on the Internet side, there
    has not been a systemic market dysfunction in the Internet
    space. Whereas, in the cable TV market, competition and
    independent channels have been severely stifled in a
    demonstrative manner.
        Therefore, as a matter of urgency, we would ask that we
    focus on cable TV neutrality, and that being video distribution
    competition. We believe that with video reform, all consumers
    will benefit, particularly minorities. A number of our members
    are minorities or focus on minority markets, and the
    availability of these new offerings would be tremendously
    powerful and important to use.
        We have a unique interest, both socially and economically,
    to ensure that consumers have access to all of the amazing
    innovations video franchise reform will bring. Giving minority
    consumers enormous buying power, we firmly believe that
    minority consumers will be particularly attractive to all
    providers in the video distribution space. A market-driven
    formula, coupled with the redlining safeguards included in this
    legislation, is the best solution to ensure all consumers
    benefit from video franchise reform.
        I, again, applaud the Commission's efforts, and
    respectfully request that you continue to make video franchise
    reform a priority this year.
        Thank you, Mr. Chairman.
        [The prepared statement of Ms. Johnson follows:]

             Prepared Statement of Julia L. Johnson, Chairperson,
                             Video Access Alliance
        Introduction
        Good morning Mr. Chairman and members of the Committee. Thank you
    for the opportunity to address you today.
        I am Julia Johnson, Chairperson of the Video Access Alliance. The
    Alliance is a non-profit organization focused on supporting policies
    that promote competition in the market for the delivery of video
    services--whether by incumbent cable companies, traditional
    telecommunications companies or others--to consumers. We serve as an
    educational, advocacy and advisory group for independent, emerging and
    minority networks, content providers, programmers, entertainers and
    other industry participants. Our coalition consists of entrepreneurs
    and executives from minority and independent networks including
    MultiChannel Ventures, The Employment & Career Channel, The America
    Channel, The Tennis Channel, Black Education Network and ImaginAsian
    TV, to name a few.
        For Alliance members, removing barriers to the deployment of
    innovative and competitive video service means more avenues to deliver
    more quality diverse programming to consumers at lower prices. As an
    organization, we believe that removing barriers to deployment of
    competitive video platforms will benefit all communities.
        Unfortunately, much of the current debate has turned into a cable
    versus telecom fight. So much of the dialogue is focused on policies
    that benefit or harm competitors or categories of competitors when,
    instead, the focus should consistently and unrelentingly be on the
    consumer. The Video Access Alliance is not ``for'' or ``against''
    cable. The Alliance is not ``for'' or ``against'' the telephone
    companies. We are for innovation and investment. We are for
    competition, consumer choice, lower consumer prices, and more
    diversity.
    Guiding Principles
        We are guided by a belief in several foundational principles, which
    include the following:

       Competitive platforms, innovative technologies, new business
            models, increased consumer choice and lower consumer prices
            should characterize the market for video services.

       Competitive video technologies are spurring innovation and
            investment--the result being robust product, service and price
            competition amongst an array of competitive video providers to
            the benefit of all consumers.

       The existing cable franchise process, one focused on the
            provision of video services by local cable monopolies, is not
            well-suited for the expeditious development of a competitive
            video market.

       The video market is national in scope (i.e., national
            companies making national investments to deliver video across
            state borders) and the need to avoid patchwork policies argues
            strongly for national regulation..

       National regulation should be minimalist in nature, to
            encourage greater competition amongst providers and, thus, to
            ensure that consumer welfare is maximized.

        The stakes of the current debate before this Committee are high. As
    stakeholders in different camps wave the consumer flag, it is important
    to bear in mind that consumers are entitled to more competition,
    greater choice, better prices, and more diversity. Policy should not be
    about protecting competitors or categories of competitors, but on
    policies that create competition and an environment for rapid
    investment and innovation.
        The Alliance advocates for more platforms, which will lead to more
    robust and diverse content offerings, at lower prices, for America's
    consumers. We strongly support the need for more video distribution
    systems and encourage the use of broadband deployment into communities
    to bring consumers more innovative options.
        The Alliance supports greater competition in the video delivery
    market. Fortunately, this legislation encourages such competition.
    Consumers Benefit from Choice
        Consumers and the economy will benefit if companies invest in new
    video networks and build the infrastructure as quickly as possible.
    Additionally, consumers and the economy will benefit if the cable
    companies respond to that competition as quickly as possible. In
    addition to bringing more choices to more consumers, the competitive
    expansion of distribution networks will create a larger and more
    diverse base of distribution outlets for minorities and other
    entrepreneurs to create new programming and content businesses--all of
    which will generate more competition and choice, lower prices, and
    increase diversity in the content space.
        In the video market, policy makers do not have to speculate as to
    whether competition will benefit consumers. We know that it will. The
    General Accounting Office, for example, has concluded that where
    broadband service providers have entered markets and provided video
    services, basic cable rates have declined (GAO-04-241, February 2004).
    Specifically, the GAO concluded that ``BSP's entry into a market
    benefited consumers in the form of lower prices for subscription
    television, high speed Internet access and local telephone services.''
        Creating an environment that allows for rapid investment in and
    deployment of new video platforms will have a ``compounding'' consumer
    benefit. That is to say, competition will lead the underlying video
    distribution networks to lower their prices. Additionally, with
    competition, there will be a need for networks to distinguish their
    offerings--which will allow for more diverse and higher quality
    content. Furthermore, competition in the programming/content space will
    lead to more competitively priced programming--independent channels
    having been shown to apply downward pricing pressure on affiliate
    channels.
        The result will be extraordinary savings for consumers, higher
    quality programming and greater choice for consumers.
    Importance of Reform for Independent Networks
        We all recognize that the current market environment denies these
    full benefits to consumers. The facts are undeniable: Independent
    networks, as a group, are excluded under the current structure. Recent
    research indicates that under the current market structure, the top
    video distribution networks carried--on a non-premium, national basis--
    less than 1 percent of channels with no media affiliation. A number of
    studies, including one by the GAO as well as academic studies, confirm
    that the top cable operators are much more likely to carry their own
    affiliated channels than independents. Furthermore, the FCC has found
    that cable television providers offer at least 6 percent fewer programs
    in the absence of competition. At the same time, independent channels
    have been shown to cost less than \1/3\ of what affiliated channels
    cost. So independent channels apply downward pricing pressure on what
    the consumer pays. In a market characterized by severe discrimination
    and lockout of independent channels, the FCC's existing program
    carriage rules do not provide an adequate mechanism for relief, and
    require modification to help independent channels.
        The best way to ensure diversity of information sources, lower
    prices for cable TV, higher quality programming and more consumer
    choice is to create an environment that allows for the rapid deployment
    of more platforms and greater competition--which will also create more
    competition in the content space.
        Competition will super-charge the video delivery market and have a
    favorable economic impact on our economy. We support greater
    competition in the video delivery market--and fortunately this
    legislation does just that. We would like to see telecommunications
    companies expand their video networks as quickly as possible. We'd like
    to see the cable companies expand their networks as quickly as
    possible. And we again applaud the Committee's efforts in working to do
    so.
        Delay in the passage of this bill would be disastrous for
    independent networks, and for consumers. It will exacerbate the problem
    of higher prices and poor choice. Expeditious passage of video
    franchise reform is a matter of great urgency, for the consumer and for
    competition in both distribution and content.
    Promoting Content and Programming Diversity
        Independent channels have been frozen out of the cable TV market.
    While we empathize with the worries of the content providers on the
    Internet side, there has not been a systemic market dysfunction in
    broadband, whereas in the cable TV market, competition and independent
    channels have been severely stifled. A look at consumer benefits
    clearly demonstrate this: Over the last several years broadband prices
    have come down precipitously while cable prices have risen over 86
    percent in the last ten years. In the broadband market there are
    millions of content providers, while in the cable TV market a small
    group of companies control most of the content. Therefore as a matter
    of urgency, what we need right now is ``TV Neutrality,'' not ``Net
    Neutrality.'' Consumers need more distributor competitors, and more
    content competitors--and more competition will generate more choice,
    better prices, and greater diversity. We should monitor potential
    future abuses in broadband, and take action in the future if it becomes
    necessary. But as a matter of urgency in the video space, let's not
    hurt consumers by delaying video franchise relief.
        The Alliance asks that you focus on the issues of unreasonable
    control of content distribution, lack of competition and lack of
    choice, and that you remain focused on resolving a real market problem
    in need of urgent relief--which is the need for real competition in the
    cable TV market in order to bring consumers lower prices and greater
    choices.
        We believe that new choice in programming is just one benefit of
    reforming our video franchise laws. Equally important to the minority
    communities that many of our coalition members serve are the
    technological advances and increased capacity competition would
    undoubtedly create. We strongly believe that innovation, open markets
    and fair competition will encourage investment in infrastructure that
    will allow for the new applications and distribution models. These
    applications, many of which have yet to be invented, will bring
    opportunities like distance education, global commerce and telemedicine
    closer to all consumers.
    Minority Markets and Consumers
        A number of our members are minorities or focus on minority
    markets, and the issue of availability of these new offerings is of
    tremendous importance to us. We have a unique interest--both socially
    and economically--to ensure that consumers have access to all the
    amazing innovations video franchise reform will bring. We believe that
    the best way to ensure networks are built and available to all is to
    let the markets work. Given minority consumers' enormous buying power,
    we firmly believe that minority consumers will be particularly
    attractive to all providers in the video distribution marketplace.
        Minority consumers have been shown in recent studies to spend more
    on media products and services than other demographics. According to a
    study by Horowitz Associates, minorities are the top subscribers to
    premium channels and have higher penetration rates for digital
    television.
        A market-driven solution, coupled with the redlining safeguards
    included in the legislation, provide the best solution to ensure all
    consumers benefit from video franchise reform.
    Conclusion
        In conclusion, the more choices consumers have in the video market,
    the better. Expanded video distribution networks, and the resulting
    competition amongst providers, will result in lower consumer prices,
    higher quality diverse consumer programming and overall enhanced
    consumer choice. Moreover, we know that this expansion will create more
    opportunities for independent, minority, emerging, and other non-
    mainstream networks to be distributed into all communities.
        The beneficiaries of a robust video market are the consumers. As
    such, all of us concerned with public policy decisions must
    continuously pursue policies to ensure that we as a nation help provide
    consumers with more choices of innovative technologies as expeditiously
    as possible.
        I again applaud the Committee's efforts and respectfully ask that
    you continue to make video franchise reform, and the legislation that
    is the subject of this hearing, a priority this year. As consumers, we
    will all benefit from more robust competition in the market for the
    delivery of video services.
        Again, thank you for inviting me to testify today.

        The Chairman. Well, thank you very much, Ms. Johnson.
        Next is Gene Kimmelman, Senior Director of Public Policy
    from the Consumer's Union.
        Nice to have you back, Mr. Kimmelman.

       STATEMENT OF GENE KIMMELMAN, VICE PRESIDENT, FEDERAL AND
                 INTERNATIONAL AFFAIRS, CONSUMERS UNION

        Mr. Kimmelman. Thank you, Mr. Chairman, Co-Chairman Inouye,
    and members of the Committee.
        I, also, want to applaud you. You've got some great
    concepts that you've put forward here, particularly related to
    expanding universal service to broadband, ensuring that new
    spectrum is made available for more competition, trying to get
    at some of the problems of independent programmers by
    preventing anti-competitive practices.
        But, Mr. Chairman, there are some significant shortcomings,
    we believe, in the bill, and I think history will shed some
    light on the nature of the shortcomings.
        In 1992, you, in Congress, stepped in and, with that dirty
    little word, ``targeted regulation,'' you actually jump-started
    competition to cable by helping the DBS satellite industry
    emerge and grow by getting access to programming and bringing
    us the first signs of true competition to cable. But then in
    1996 I think there was an overexuberance, a feeling of
    enthusiasm about where things stood, and a desire to deregulate
    without full knowledge of whether there was really an open,
    fully competitive market. And I think as Senator Burns referred
    to, the result, in some ways, has been disastrous. Consumers
    are paying more than twice as much for cable now than they did
    then. Rates are up 68 percent, if you give cable credit for all
    the channels that they put on, even ones that people don't even
    watch. And we have a few media giants, as Ms. Johnson
    indicated, who really are controlling almost all the popular
    programming. So, something went wrong there, and now we clearly
    do need legislation. We clearly need legislation to address
    this lack of competition. And we have phone companies and
    communities interested in stepping in and offering us
    something.
        But the executives of the phone companies, in hearings
    here, in hearings in the House, in public statements, will not
    commit to driving down prices. Phone company executives will
    not commit to serving all rural and low-density areas. They
    will not commit to serve middle- and low-income consumers in
    their neighborhoods. They will not commit to serve communities
    of color. But--and this bill doesn't make them do that. And
    then, most importantly, what concerns us is that the bill turns
    around and, even where a phone company doesn't really enter the
    market, or doesn't enter the entire market, it allows the cable
    companies to back away from all of those obligations they've
    had in the past, and not even offer a basic tier, limited to
    low price, guaranteeing local broadcast channels and PEG
    channels are available on a low-cost tier. We fear the result
    in that imbalance is that the phone companies start entering.
    And some people will get benefits. But when cable pulls back on
    its rate and service obligations, many consumers will actually
    face price increases. That has to be corrected in the bill.
        In looking at consumer complaints, billing complaints,
    service complaints, the common day-to-day hassles with the
    cable companies, the bill moves regulation of those issues to
    the Federal Communications Commission. We don't see any way
    that, at the Federal level, FCC can handle these local
    neighborhood, house-to-house concerns that really ought to be
    left with the local government. And, unfortunately, the bill
    fails to keep the Internet free of all anti-competitive
    discrimination, even if we don't get more robust competition
    from more distribution systems.
        So, the bottom line, Mr. Chairman, is that we think, again,
    the danger here is a reliance upon the hope of competition
    rather than the reality of competition, and we need more
    meaningful signs of broadbased competition before Congress
    eliminates these public responsibilities that exist in current
    law.
        So, we urge you to go back to the drawing board and make
    some adjustments here to balance this bill and ensure that,
    really, all consumers can benefit from the entry of telephone
    companies and community broadband systems to the market, so
    that it's not just high-end customers, not just customers who
    want three or four services for $150 a month who get the
    benefit, but instead that consumers across the board benefit
    from this. You have the opportunity, and we think that this is
    the right time to move, but the bill does need significant
    adjustments.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Kimmelman follows:]

             Prepared Statement of Gene Kimmelman, Vice President,
               Federal and International Affairs, Consumers Union
    Summary
        Consumers Union,\1\ Consumer Federation of America,\2\ and Free
    Press \3\ appreciate the opportunity to testify on the Communications,
    Consumer's Choice, and Broadband Deployment Act of 2006 and the need
    for expanded consumer choice and access to competitive video and
    broadband services. We agree with and support the goals of the
    legislation: to expand viable, affordable competitive video offerings
    and increase access to vital broadband services.
    ---------------------------------------------------------------------------
        \1\ Consumers Union is a nonprofit membership organization
    chartered in 1936 under the laws of the state of New York to Provide
    consumers with information, education and counsel about good, services,
    health and personal finance, and to initiate and cooperate with
    individual and group efforts to maintain and enhance the quality of
    life for consumers. Consumers Union's income is solely derived from the
    sale of Consumer Reports, its other publications and from noncommercial
    contributions, grants and fees. In addition to reports on Consumers
    Union's own product testing, Consumer Reports with more than 5 million
    paid circulation, regularly, carries articles on health, product
    safety, marketplace economics and legislative, judicial and regulatory
    actions which affect consumer welfare. Consumers Union's publications
    carry no advertising and receive no commercial support.
        \2\ The Consumer Federation of America is the Nation's largest
    consumer advocacy group, composed of over 280 state and local
    affiliates representing consumer, senior, citizen, low-income, labor,
    farm, public power an cooperative organizations, with more than 50
    million individual members.
        \3\ Free Press is a national nonpartisan organization with over
    200,000 members working to increase informed public participation in
    crucial media policy debates.
    ---------------------------------------------------------------------------
        Unfortunately, while the legislation takes some strong steps toward
    achieving the goal of expanded broadband access through a more robust
    Universal Service Fund and expanded access to unlicensed spectrum, it
    also takes steps backward by limiting the ability of communities to
    provide affordable broadband services. More importantly, the
    legislation falls far short of providing middle and low-income
    consumers, particularly those in rural areas, with meaningful
    competition and relief from skyrocketing costs and limited choices in
    the video marketplace. And without any requirement for competition, the
    bill simultaneously eliminates prohibitions against discriminatory
    cable pricing, strikes current requirements for, and rate regulation
    of, an affordable basic cable tier, and reduces consumers' ability to
    resolve service, billing and other disputes with cable and telephone
    companies in a timely manner. While the legislation ensures that cable-
    owned programming is made available to new competitors, that provision
    alone does nothing to hold down cable rates. Under S. 2686, it is most
    likely that competition will come only to the most privileged rather
    than those who most need the relief that competition brings. Consumers
    in areas unserved by new competitors will likely be made worse off.
        As we noted in our testimony before the Committee earlier this
    year, over the last decade, consumers have suffered under monopolistic
    cable pricing that has resulted in a 68 percent increase in rates--
    nearly two and a half times the rate of inflation. Limited satellite
    competition has not policed cable rates. In addition to skyrocketing
    rates, consumers have virtually no choice among providers or channel
    offerings. Satellite television, the primary competitor to cable, has
    had virtually no price disciplining effect.
        In the broadband market, consumers face at best a duopoly, where 98
    percent of broadband lines in the Nation are owned and controlled by
    cable and telephone companies. At best, consumers have a choice of only
    those two providers, and many have no choice at all: approximately 30
    percent of Americans have only cable modem or DSL options,\4\ and 9
    percent, mostly consumers in rural America, have none.\5\ Where
    broadband is available, it is often priced out of the average
    consumer's reach.
    ---------------------------------------------------------------------------
        \4\ ``Broadband Reality Check: FCC Ignores America's Digital
    Divide,'' Free Press, August, 2005.
        \5\ ``Broadband Deployment is Extensive throughout the United
    States, but it is Difficult to Assess the Extend of Deployment Gaps in
    Rural Areas,'' GAO-06-426, Government Accountability Office, May 2006.
    ---------------------------------------------------------------------------
        The deplorable state of competition within the video and broadband
    marketplace is the result of the failed policies of the 1996
    Telecommunication Act, which did too little to promote meaningful
    competition in wireline communications services and went too far in
    deregulating cable rates. The result has been an explosion in mergers
    that have reduced competitive market options. Moreover, the Federal
    Communications Commission's (FCC) decision to deregulate broadband
    services has eliminated the possibility for markets to grow alternative
    wireline broadband providers and provided cable and telephone companies
    with both unprecedented power and an irresistible incentive to
    discriminate against Internet-based content and service providers that
    could compete with their own offerings.
        Given the interest of the telephone companies in offering video
    services and the growing interest among communities in providing
    broadband services as an alternative to incumbents, Congress has a
    unique opportunity to correct the failed polices of the FCC and the
    1996 Act by promoting competition that will both discipline cable rates
    and ensure that consumers not only have access to broadband, but also
    unfettered access to the competitive services offered via broadband
    wires. Congress also has the responsibility not to repeat the mistakes
    of the 1996 Act: prematurely deregulating rates and eliminating
    nondiscrimination rules before competition actually unfolds.
        To serve consumers' interests, the public policy goal must be to
    maximize, as rapidly as possible, the benefits of new technologies and
    competitive markets to every American household. Without significant
    changes, however, S. 2686 is likely to make the majority of consumers
    worse off than they are now, bringing higher, not lower, video and
    broadband prices; reducing consumer protections; limiting access to
    competitive video and Internet-based service providers; and imposing
    greater barriers to municipally offered broadband services.
    Consumers Who Most Need Competition Will Be the Least Likely to Receive
            It
        Because the legislation does not require new video service
    providers operating under the streamlined franchise process to offer
    service to all consumers, new entrants will be free to offer service to
    only wealthy neighborhoods, leaving behind middle and low-income
    consumers who most need cable rate relief. The bill's default franchise
    provisions triggered after 30 days of the franchise application
    effectively eliminate the existing authority of communities to require
    that video providers serve all residents--something virtually every
    franchising authority has required of video service providers.
        To ensure that the benefits of competition come to those who need
    it most, the legislation should require telephone companies entering
    the video market to build out their services to all consumers within a
    franchise area over a reasonable period of time, with appropriate
    accommodations for very low-density areas. This is not only critical to
    ensure that video competition disciplines cable rates, it is also
    central to reversing the alarming trends of inadequate competition in
    the broadband market. Next generation cable services bring broadband as
    well. Absent a build-out requirement, underserved areas will be
    permanently stranded on the wrong side of the digital divide.
        As we noted in our earlier testimony, skepticism that telephone
    companies will offer their video services to all residents rather than
    just the wealthiest is particularly warranted given SBC's statements
    last year that it would roll out Project Lightspeed, the company's IPTV
    video offering, to 90 percent of its high-value customers--those
    willing to spend up to $200 on communications services per month on a
    large bundle of video, voice and data services--but only to 5 percent
    of its low-value customers. Similarly, Verizon's conduct to date
    strongly suggests it is seeking franchise agreements for its FiOS
    service in only the wealthiest counties in the country.
        To effectively enhance competition and ensure that its benefits
    come to all consumers, any franchising legislation must require new
    entrants to build-out their services to all consumers over a reasonable
    period of time. Particularly in areas where telephone companies already
    have facilities, build-out should be timely and mandatory.
        In the absence of build-out requirements, Congress should establish
    financial incentives for new entrants to serve the entire community.
    Telephone companies that do not agree to serve the entire community
    should be required to provide sufficient financial resources to local
    communities, in addition to reasonable rights-of-way fees paid, for use
    in fostering alternative means of ensuring broadband competition. Those
    resources could be used to establish community broadband networks,
    competitive commercial services to areas unserved by the new entrant,
    or other means of assistance to help low-income consumers access
    advanced telecommunications services at affordable prices and meet
    local community communications needs.
    Consumers May See Their Cable Rates Rise, Not Fall; Affordable Basic
            Broadcast Tier Is Eliminated
        By striking Section 623, the bill eliminates the few protections
    against cable price gouging that remain in current law. Regardless of
    whether there is any competition in a market, S. 2686 strikes the
    requirement that providers charge uniform rates across the franchise
    area. Equally troubling, the legislation inexplicably eliminates the
    authority for localities to regulate rates for the basic tier, which
    includes local broadcast stations and public access programming, and
    eliminates entirely any requirement that a basic tier be offered.
        Consumer experience with deregulation in the absence of competition
    demonstrates that rate deregulation without adequate competition leads
    to skyrocketing prices. The presence of two satellite providers has not
    been sufficient to police cable rates; in fact, the availability of
    satellite has only a marginal impact on prices. Not only would the
    legislation virtually guarantee that basic cable rates will soar in
    some areas, the elimination of uniform rate requirements creates both
    the incentive and the ability for cable providers to increase rates
    charged to lower income populations to subsidize price breaks for the
    wealthier consumers they are trying to attract. Under the legislation,
    an incumbent cable provider could lower rates in areas served by new
    competitors and raise them elsewhere to offset losses from those
    discounts. Regardless of whether any competition exists, cable is given
    free-reign to price discriminate. Consumers who are not served by the
    new Bell competitor would be hit twice--they will lack a competitive
    alternative to the incumbent and they may face higher cable rates and
    declining service quality. During a March 2006 House Telecommunications
    and Internet Subcommittee hearing, Kyle McSlarrow, the head of the
    National Cable and Telecommunications Association refused to pledge
    that cable providers would not increase rates to some consumers if
    uniform rate regulation was eliminated. If Congress does not require
    that new market entrants build out to all consumers, it must, at a
    minimum, require that cable incumbents maintain a uniform rate
    structure.
        Moreover, eliminating the requirement for an affordable basic cable
    tier could severely disadvantage consumers. Basic cable allows
    consumers to affordably access their local broadcast stations where
    over-the-air reception is poor, and provides them with affordable
    access to community programming. In addition, under current law,
    consumers who want to buy only pay channels, like HBO, need only buy
    the basic tier, not expanded basic to access those channels.
        Without the basic tier requirement, video service providers could
    locate broadcast stations within the expanded basic tier, dramatically
    increasing costs to those consumers who merely want access to local
    broadcast and public access channels. Worse, consumers who only want
    individual for-pay channels could now be required to buy the costly
    expanded basic tier to do so. Finally, even where cable companies opt
    to maintain a basic tier, the bill's elimination of local authority to
    regulate prices for that tier will result in substantial rate hikes.
        By striking Section 623 from the Communications Act, S. 2686
    effectively deregulates cable even where no competition exists. The
    impact on consumers would be devastating.
    Consumers May Be Denied Service Upgrades by Incumbent Cable
            Providers
        The legislation allows incumbent cable providers to jettison their
    existing franchise obligations, including existing build-out and
    upgrade requirements, by making them eligible for the streamlined
    franchise process as soon as another video service provider applies for
    a new franchise agreement, even if that new market entrant offers
    service to just one household in the franchise area. And upon
    expiration of their existing franchise agreement, cable providers may
    use the streamlined franchise process even if no other competitor has
    entered its market. Allowing incumbent providers to backslide on their
    existing franchise obligations would have devastating impacts in any
    community where the new video entrant is not providing service
    throughout the community. If a telephone company offers its video
    service in only part of a franchise area, as allowed under the
    legislation, an incumbent cable provider will have both the ability and
    the financial incentive to offer service upgrades only to competitive
    areas while denying them to customers in neighborhoods not served by
    the new entrant. While the National Cable and Telecommunications
    Association has pointed out the importance of providing network
    upgrades in an equitable and non-discriminatory manner,\6\ it has
    refused to pledge that cable providers will not to deny service
    upgrades or withdraw service to currently served areas if a national
    system of franchising is adopted.\7\
    ---------------------------------------------------------------------------
        \6\ National Cable & Telecommunications Association, 2006, ``The
    Bell Monopolies Want a Special Break to Enter the Video Business.''
    Http://www.ncta.com/pdf_files/Bell_Myths_
    FINAL_03.06.06.pdf.
        \7\ Comments of NCTA, Hearing on Committee Print of the
    Communications Opportunity, Promotion, and Enhancement Act of 2006,
    Subcommittee on Telecommunications and the Internet, U.S. House of
    Representatives, March 31, 2006.
    ---------------------------------------------------------------------------
    Without Build Out Requirements, Anti-redlining Provisions Are
            Insufficient to Prevent Discrimination
        S. 2686 appropriately prohibits redlining based on income, race and
    religion. Unfortunately, in the absence of meaningful and enforceable
    requirements to offer services throughout a franchised community, the
    anti-redlining provisions, on their own, will be not be sufficient to
    prevent redlining by new video providers. Existing Title VI anti-
    redlining provisions have only been effective after decades of cable-
    industry foot-dragging, because they exist in tandem with the ability
    of local franchise authorities to require service throughout the
    franchise area over time. Without requirements for build-out, anti-
    redlining provisions provide inadequate incentives or enforcement tools
    to ensure that moderate income and communities of color receive video
    and broadband services comparable to those offered to wealthy
    neighborhoods.
        So long as the burden lies with consumers to prove that income,
    race or religion is the sole reason a cable company has denied service
    or upgrades--that is, that the provider had discriminatory intent
    rather than impact--the anti-redlining provision will be largely
    symbolic. Provider practices that have discriminatory impact will be
    permitted under the bill. Providers may attempt to justify failure to
    provide service to particular neighborhoods based on insufficient
    demand or economic infeasibility--a claim that would be difficult for
    the public to assess given the lack of access to adequate data.
    Therefore, any anti-redlining prohibition should create a presumption
    of redlining when service is denied to particular neighorboods,
    rebuttable only upon evidence provided by video service providers that
    service is denied for bona fide reasons. Moreover, the anti-redlining
    language only prohibits intentional redlining within a local franchise
    area, allowing providers to effectively redline by opting to provide
    service only to wealthy LFAs, leaving lower and middle income LFA's
    behind.
        The legislation should also provide for concurrent anti-redlining
    enforcement by states and localities and include strong penalties for
    violations. Localities, in particular, have specific knowledge of local
    economic circumstances; a providers' service history in the community;
    and other knowledge that allows them to identify redlining concerns.
    They are also more accountable and responsive to their citizens than
    Federal regulators and are more likely to take timely action to resolve
    redlining concerns.
        In addition, to improve the effectiveness of anti-redlining
    enforcement, S. 2686 should require the FCC to collect data that will
    allow enforcement authorities to identify redlining violations.
    Currently, FCC lacks data that would help identify patterns of service
    and potential redlining in broadband--the technology over which
    telephone companies will deliver video services. Additional reporting
    requirements and analysis should be part of the systematic process of
    oversight. Cable service providers should be required to submit regular
    reports about the location, density, and level of service offered in
    each franchise area.
    Consumer Protections Are Weakened
        Under current law, states and localities have authority to
    establish more stringent cable customer service standards than required
    by Federal law. Localities are able to enforce those standards through
    the terms of and renewal process for their local franchising
    agreements. Many franchise authorities have staff and offices dedicated
    to resolution of cable complaints that provide for speedy resolution of
    customer billing concerns, service outages and more. Penalties in the
    form of liquidated damages or mandatory discounts for customers harmed
    by a provider's violation of customer service standards are not
    uncommon.
        S. 2686 strips states and localities of authority to establish
    consumer protections that exceed Federal minimum standards and
    eliminates the ability of localities to use the franchise agreement
    itself as an enforcement tool. The legislation provides no guarantee
    that federally established consumer protection standards would take
    into account unique local needs or be able to respond quickly to adapt
    regulations to novel anti-consumer behaviors.
        Any national franchise legislation should retain state and local
    authority to establish customer service standards and consumer
    protections. When facing billing errors, failure to make service
    repairs, property damage by cable employees and other related hassles,
    consumers must have a means for timely and local resolution of
    complaints against their service providers. Federalizing consumer
    protection is simply not workable. The Federal Communications
    Commission is ill-equipped to establish regulations in a timely manner
    to protect consumers. If Congress intends to give consumers meaningful
    opportunities to have their complaints resolved, the legislation should
    ensure that customer service standards as well as the process for
    resolving complaints remains at the state and local level.
    Broadband Discrimination Protections Are Inadequate
        As subscription video services are increasingly offered using
    Internet-based technologies, maintaining the Internet as a neutral
    platform on which network owners cannot discriminate becomes essential
    to building broadband and telecommunications competition. Telephone
    companies are not the only providers who could compete with cable.
    Increasingly, ``video on demand'' is being offered over the Internet,
    where consumers can access movies or pay to watch a single episode of a
    single program. Congress should not overlook independent Internet
    content providers as additional competitors.
        But that source of competition will be squelched without strong,
    enforceable prohibitions against network discrimination--protections
    that existed until they were recently eliminated by FCC's decision to
    reclassify cable modem and DSL as information services. As a result,
    cable and telephone companies will now have both the ability and the
    financial incentive to use their network control to prioritize their
    own video content over others--eliminating a potential source of video
    competition.
        The cable and telephone companies who now object to strong network
    neutrality legislation have complained about the discriminatory
    practices of their own competitors who control a network to which they
    seek access and have sought legislative and regulatory relief. Time
    Warner has filed complaints against incumbent telephone companies over
    refusals to provide interconnection for its VoIP services. And Verizon
    has complained that Rainbow Media, and its parent company Cablevision,
    are denying Verizon carriage of its regional sports cable networks. In
    each of these cases, the discriminating party is using its power over a
    communications network and the content that flows over it to exclude
    competitors.
        Fortunately, S. 2686 prohibits these anticompetitive discriminatory
    tactics. First, it grants interconnection rights to providers of IP-
    enabled voice service, ensuring that phone companies cannot prevent
    competitors from accessing the public switched telephone network.
    Second, it prohibits cable distributors that own regional sports
    networks from denying carriage of those networks to other video service
    providers. In doing so, the bill acknowledges the importance of
    providing telephone companies with fair access to cable programming and
    the importance of providing cable companies with fair access to the
    telephone network.
        It is equally important for Congress to ensure that Internet based
    content and service providers receive comparable fair access to
    broadband networks controlled by the telephone and cable companies.
    Just as a cable company's VoIP service cannot be viable without
    nondiscriminatory interconnection to the telephone network, an
    independent VoIP provider's service will not be viable without
    nondiscriminatory treatment on broadband networks. If the largest
    telecommunications providers need protection from the discriminatory
    tactics of each other, Congress cannot reasonably expect small,
    entrepreneurial Internet-based businesses to compete with comparable
    protections from discriminatory behavior of cable and telephone giants.
        Unfortunately, when it comes to broadband network discrimination,
    S. 2686 requires only a study when there is every reason to believe
    that both dominant cable and telephone providers will use their network
    control to discriminate against Internet-based companies that offer
    services that compete with their own. Both Verizon and AT&T have made
    clear their intent to give priority service to Internet-based services
    and content providers who pay for that right. But in prioritizing
    service for one provider, other providers will receive degraded
    service, reducing or eliminating their viability in the market place.
    Moreover, any fees charged to Internet-based companies will inevitably
    be passed on to consumers who have already paid for high-speed access.
    Not only will consumers pay twice for broadband service, network
    discrimination in the form of access tiering will stifle the innovation
    that consumers have come to expect from the Internet. Only those
    companies that can afford to pay for access will be able to reach
    consumers, stifling innovation, impeding competition and hiking end
    user costs.
        Consumers must not be forced to rely on the FCC's unenforceable and
    unduly vague policy statement on network nondiscrimination. It is
    critical that any legislation designed to promote competition in
    broadband and video also provide for strong, enforceable network
    neutrality requirements to ensure that consumers have access to all
    competitive telecommunications services, not just those offered by the
    dominant telephone and cable companies.
    Video Content and Competitive Programming Choices
        In order for true price competition to emerge in video markets,
    Congress must also address the anticompetitive programming practices
    that reduce competitive opportunities in the video marketplace. The
    legislation has taken a strong step in that direction by eliminating
    the ``terrestrial loophole'' that have prevented cable competitors from
    offering regional sports networks so attractive to consumers. But more
    must be done to ensure that new video market entrants can compete with
    entrenched incumbents by offering innovative video packages and
    favorable pricing for those packages.
        At the same time that the cable distribution market consolidated
    through mergers, concentration in video programming has increased
    dramatically. Broadcast giants and cable programmers have merged;
    broadcast and satellite distributors have merged; and cable
    distributors increasingly offer their own programming or have gained
    ownership stake in other video programmers.
        Since the Bell video market entrants will have to purchase all
    popular programming from a handful of media and cable giants that
    overcharge and require purchase of large unwanted bundles of channels,
    it is extremely unlikely that the Bell's video packages will offer
    consumers any meaningful price reductions. Innovative programming
    packages that offer consumers smaller bundles of individual channels
    could give new entrants a significant competitive edge over dominant
    incumbents. Surveys have shown that the majority of consumers want the
    option to buy video service channel-by-channel.\8\ In countries where
    such choice exists, cable prices are significantly lower. For example,
    according to FCC's chief economist, Hong Kong consumers who select
    channels a la carte pay fifty percent less than those who buy
    programming tiers.\9\
    ---------------------------------------------------------------------------
        \8\ ``How we pay for cable may be about to change; `A la carte'
    programming picking up support over expanded-basic bundle,'' USA Today,
    March 2, 2006.
        \9\ ``FCC Top Economist Trumpets a la Carte, MultiChannel News, May
    10, 2006.
    ---------------------------------------------------------------------------
        But program carriage contracts preclude cable competitors from
    offering consumers smaller bundles or individual channels. Such
    contracts typically stipulate that distributors must offer several or
    all of the programmer's channels in the most widely viewed tier
    (usually the expanded basic tier), regardless of consumer demand for
    them, and prohibit channels from being offered to consumers
    individually or in specialty tiers. These bundling requirements have
    contributed to increased size and price of the expanded basic tier,
    which has increased in cost by two and a half times compared to the
    basic tier.\10\
    ---------------------------------------------------------------------------
        \10\ Mark Cooper, Time to Give Consumers Real Cable Choices,
    Consumer Federation of America and Consumers Union, July 2004, p. 5.
    ---------------------------------------------------------------------------
        Media companies can secure these commitments because of their
    market power. Six media giants, including the top four broadcasters,
    dominate the programming landscape, accounting for three-fourths of the
    channels that dominate prime time.\11\ Four are networks (ABC, CBS, FOX
    and NBC) and two are cable operators (Time Warner and Comcast). The
    networks use the retransmission consent negotiations for carriage of
    the local stations they own and operate to leverage local cable
    carriage of their other channels. These six companies also completely
    dominate the expanded basic tiers and the realm of networks that have
    achieved substantial cable carriage. And they account for almost 80
    percent of the more than 90 cable networks with carriage above the 20
    million subscriber mark.
    ---------------------------------------------------------------------------
        \11\ MM Docket No. 92-264, Comments of CFA, CU, Free Press in the
    Matter of The Commission's Cable Horizontal and Vertical Ownership
    Limits and Attributions Rules., August 8, 2005.
    ---------------------------------------------------------------------------
        Moreover, cable operators are majority owners of one-fifth of the
    top 90 national networks--a substantial stake in the programming
    market.\12\ They also own minority stakes in other networks, as well.
    The Government Accountability Office found that vertically integrated
    distributors or those affiliated with media companies are more likely
    to carry their own programming,\13\ contributing to the size and cost
    of the expanded basic tier. These vertically integrated networks
    continue to have the largest number of subscribers,\14\ and are the
    most popular.\15\ Program ownership by dominant incumbent cable
    distributors also provides the incentive to withhold carriage of cable
    networks they own from competitive video distributors. This is the
    basis of Verizon's recent complaint against Rainbow Media and
    Cablevision over sports channel carriage.
    ---------------------------------------------------------------------------
        \12\ GAO-04-8, p. 27.
        \13\ Id. at 29.
        \14\ Federal Communications Commission, Annual Assessment of the
    Status of Competition in the Market for the Delivery of Video
    Programming: Eleventh Annual Report, January 14, 2005, para. 150.
        \15\ Id. at para. 151.
    ---------------------------------------------------------------------------
        Independent, unaffiliated video service providers that do not own
    their own programming have consistently expressed concerns about
    exclusionary tactics, contractual bundling requirements, and coercive
    retransmission consent negotiations that limit their ability to respond
    to customer demand for more choice in program packages and for lower
    prices. \16\ Telephone companies attempting to enter new markets and
    compete will face these same barriers.
    ---------------------------------------------------------------------------
        \16\ EchoStar Communications Corporation, Testimony of Charles
    Ergen, Chairman and CEO, EchoStar Communications Corporation before the
    Senate Committee on Commerce, Science and Transportation, January 19,
    2006; Testimony of Bennett Hooks, Chief Executive Officer, Buford Media
    Group on behalf of the American Cable Association, before the
    Subcommittee on Telecommunications and the Internet, July 14, 2004.
    ---------------------------------------------------------------------------
        It is therefore essential that any franchise legislation that hopes
    to expand competition in video markets prohibit the anticompetitive and
    coercive contractual requirements, including retransmission consent
    abuse. Failure to do so will impede the ability of any new video market
    entrant, including Verizon and AT&T, to compete on price or packages.
    They'll be forced to buy the same channels their competitor is
    carrying; pay the same or greater licensing fees; and offer the same
    packages. Worse, they will be precluded from offering consumers
    channels individually or in specialty tiers, rather than in a large and
    costly bundle, even though doing so may give them an opportunity to
    differentiate their services from the incumbent cable monopoly and
    respond to strong consumer demand for greater channel choice.
    Universal Service and Broadband
        We applaud the provisions of S. 2686 that expand contributions into
    the Universal Service Fund to all providers of communications services.
    Doing so will not only improve equity of contributions, it will also
    address the depletion of fund revenues due to declining use of wire
    line telephone service and reduce the financial burdens on wire line
    telephone service customers. We likewise support provisions that
    require providers receiving USF contributions to provide broadband
    service within five years of passage. However, we remain concerned that
    the default waiver provisions may frustrate the goals of the policy.
    Moreover, the legislation does not stipulate that all of a carrier's
    lines be broadband capable, but instead merely that the carrier have
    deployed broadband ``within'' its service area. To achieve the goals of
    universal broadband, it will be critical that carrier eligibility for
    USF be contingent on making broadband available to all of its
    customers.
        We also suggest the following additional provisions: First, we urge
    the Committee to consider whether, in the context of broadband service,
    FCC should be given authority to provide USF distributions from the
    unserved area fund directly to consumers through a voucher system. Such
    flexibility could extend the limited funding for unserved areas by
    providing the subsidy directly to those consumers who find it difficult
    to afford broadband services. Second, we recommend that municipal
    broadband systems be made eligible for funding from the Broadband for
    Unserved Areas Account, which could enable communities to finance the
    construction of broadband networks where private players refuse to
    invest. Third, we recommend that USF funds be available only to those
    carriers that provide broadband to all neighborhoods and households in
    a community and that abide by the network nondiscrimination rules noted
    above.
    The Right of Municipalities to Provide Broadband Networks May Be
            Hampered
        We applaud the inclusion in S. 2686 of provisions that bar states
    from preventing municipalities from offering broadband or other
    advanced communications services to their residents. Hundreds of
    communities have responded to the lack of affordable broadband access
    by creating their own networks through public-private partnerships,
    offering new opportunities for entrepreneurs. Community broadband
    networks offer an important option for communities in which broadband
    services reach only certain areas or are offered at prices out of reach
    for many consumers. Equally important, the mere possibility that a
    community may develop a broadband network helps discipline the
    marketplace. Efforts to prohibit these community networks merely stifle
    competition across a range of telecommunications services, stall local
    economic development efforts, and frustrate efforts to close the
    digital divide.
        We therefore strongly support the approach of S. 1294, introduced
    by Senators McCain and Lautenberg, which clearly and unequivocally
    preserves the rights of localities to offer broadband services in any
    manner they choose. However, if Congress opts for legislation that
    requires communities to offer private entities a right of first refusal
    before offering their own advanced telecommunications services, such a
    provision must be structured so that it does not function as a de facto
    prohibition on municipal broadband systems. Imprecise notions of
    ``equivalency'' that do not account for the policy goals of the
    municipality can serve to preclude municipal systems even where the
    private entity proposal fails to meet the overall objectives of a
    community system.
        We are concerned that S. 2686 includes conditions that may
    significantly hamper local community efforts to ensure needed broadband
    services are made available. Specifically, the bill requires
    communities to offer private companies with the right to bid on
    development of proposed networks. While the legislation stipulates that
    the request for bids may stipulate the price at which the service is
    offered as well as the coverage area, we recommend that Congress
    clarify that communities may stipulate in their request for proposals
    all service terms and conditions beyond price and functionality, such
    as specific price discounts, technology and training for low income
    consumers as well as open access and open source software requirements
    and that any bid offered must meet those terms. For example,
    Philadelphia Wireless, the now well-known community WiFi project, will
    provide for free access in public parks and some other outdoor areas,
    offer deep discounts for low-income consumers, and provide free
    computers and technology training for underserved populations.
        Unless communities have the ability to ensure a private provider
    will actually offer the same services the municipality intended to
    provide, the efforts of communities to meet their policy goals will be
    thwarted. Moreover, no community should be forced to forego its own
    broadband build out plans if a bid-winning private sector entity is not
    prepared to immediately implement its plans. Therefore, any right of
    first refusal provision must stipulate tight and strict time frames in
    which private entities must begin implementation of the project. No
    community should be forced to delay its plans merely because a private
    provider is willing to offer the same service in the distant future.
    Conclusion
        The need for greater competition in the monopolistic video
    marketplace is an urgent one--but it has been urgent for a decade. We
    urge Congress to preserve and enhance oversight of fundamental consumer
    and public needs as part of S. 2686 in order to ensure this legislation
    promotes robust competition. That requires adjusting the legislation to
    include provisions for mandatory build out requirements or, in lieu
    thereof, resources to meet the needs of underserved consumers;
    provisions that prevent cable providers from backsliding on their
    current obligations to serve the entire community; strong consumer
    protections with state and local regulatory and enforcement authority;
    prohibitions on anticompetitive contractual channel bundling
    requirements that reduce consumer choice and prevent product
    differentiation; and strong enforceable prohibitions on broadband
    network discrimination.

        The Chairman. Thank you very much.
        I will not ask any questions this time. I'll yield to
    Senator Inouye.
        Senator Inouye. Thank you.
        Mr. McSlarrow, I believe your testimony, your prepared
    testimony, suggests that local governments are best suited to
    meet the needs of their communities in a fair, equitable
    manner, and oversight by local franchising authorities would be
    better than FCC. Can you tell us why?
        Mr. McSlarrow. Mr. Co-Chairman, that's correct. Our
    preferred path to reform is along the lines that you and
    Senator Burns outlined several months ago. And while the bill
    does acknowledge that local governments have an appropriate
    role to play when it comes to management of rights-of-way,
    franchise fees, PEG, and I-Net obligations, as I point out in
    my testimony, I think it's hard to imagine, if you're going to
    have a meaningful nondiscrimination clause that addresses where
    the service territory is, that that's going to be managed out
    of the FCC in Washington. Those are peculiarly local issues.
    And so, I just think, as a matter of which level of government
    is best placed to deal with it, it would be at the--a local
    level. There are probably other issues like that, but
    fundamentally this is a process that's more than just simply
    paying of franchise fees. There's a lot of interaction that
    takes place between the local communities and any provider in
    today's market.
        Now, with that said, as you've suggested and the chairman
    has put in this bill, there is no question that this entire
    process can and should be streamlined. We've been on record for
    a year as saying we would back a process that ended in 30 days
    to ensure that no new entrant would be kept out of the market,
    because everybody, rightly, believes that competition is the
    right policy. So, that's not really the issue. The issue is
    what sets of responsibilities are best placed at which levels
    of government.
        Senator Inouye. Thank you very much.
        Mayor Guido, you've suggested that this bill would have an
    impact upon the ability of your city or the State to operate
    and maintain the I-Net. Can you tell us why?
        Mayor Guido. Well, I believe it--this is all inclusive.
    It's PEG channels and I-Net. It would limit the scope to 1
    percent for the I-Net. Right now, our franchise fees are about
    5 percent. Those dollars go toward the operation of public
    access, education, and government channels. We feel that, from
    a local level, we know what our constituents are looking for.
    The franchises that cities have had the opportunity to exercise
    over the years have worked well for us. Our concern is that we
    would be stripped of that local franchise agreement, that it
    would become federalized, it would be part of the FCC's being
    able to oversee it, and that we wouldn't have the ability to
    exercise, not only I-Net, but PEG channels, and have the
    revenues to operate these, as well.
        Senator Inouye. So, you agree with the cable people that
    you're in a better position to do the business than FCC?
        Mayor Guido. Well, this is something, Senator, that the
    cable companies and cities agree on this. We've worked, over
    the years, on franchising agreements. We do agree that--you
    know, we believe we've been fair and that cities have the best
    interests of their constituents at heart.
        Senator Inouye. In the current debate, it's been suggested
    that the franchising authorities--that's city and State--are
    frustrating competition through delay and unreasonable
    requirements that are imposed on new entrants. Is there any
    credibility or--to that charge?
        Mayor Guido. Well, I think you--the industry can always
    pull out one city that has been putting up roadblocks, but we
    can also point out industry members that we've had a hard time
    trying to come to an agreement with. We're not necessarily
    opposed to a timeline. We think that 15 and 30 days is
    unreasonable, perhaps 120 days. We have to fulfill a process
    and a requirement, in terms of publication, scheduling hearings
    and meetings in front of our city council. We do this with the
    simplest of purchases for office supplies in the city. We think
    we should take the time to do it in a multimillion-dollar deal
    that provides services to our community.
        Senator Inouye. Mr. Kimmelman, the number of changes in
    Title VI seem less focused on eliminating barriers and more
    focused on eliminating the current power of localities to
    establish consumer protection. Are these provisions serious
    obstacles to entry, in your opinion?
        Mr. Kimmelman. I don't see how leaving cities in charge of
    customer service complaints could be a barrier to competition.
    I think that there are certain things that just cannot be
    handled federally. I'm not saying that everything must remain
    local. I think that all levels of government have strengths and
    weaknesses. But there are certain things that really ought to
    be left local and have nothing to do with whether you're
    allowing a competitor in or not. I think it's critical to make
    sure that consumers who don't get adequate service from their
    cable company or their phone company, or have a billing
    complaint, have someone to turn to who can turn it around in a
    meaningful timeframe, and I seriously doubt the Federal
    Communications Commission can do that.
        Senator Inouye. I will ask one more question.
        The Chairman. Yes, sir.
        Senator Inouye. Do you believe, Mr. Kimmelman, that it is
    reasonable to require existing telephone companies and
    operators to upgrade facilities uniformly over some reasonable
    period of time?
        Mr. Kimmelman. Yes, sir. Senator Inouye, I think that
    everywhere where they have a telephone plant already in place,
    there's no reason why they can't upgrade in every neighborhood
    in every community, serving every consumer they have. I think
    that is reasonable. I think that those are comparable to a lot
    of what the cable industry was required to do previously. They
    were not necessarily willing to do it. It took 20 years and a
    lot of foot-dragging, but they finally got most of the way to
    fill build-out. And I think there's no reason the phone
    companies can't do the same thing.
        Senator Inouye. What would be a reasonable period of time?
        Mr. Kimmelman. Senator Inouye, I would suggest that you
    almost turn it over to them and give them a kind of a pay-or-
    play option, ``You have the option to build-out, or you have
    the right to pay the community to make sure it gets done.'' I
    don't think it's appropriate to assume that you can just demand
    a company to do something it doesn't want to do. If that is
    required, the company may not do it well. But putting out a
    bonding requirement, a payment up front for every street they
    won't serve, every home they won't serve, every neighborhood
    they won't serve, but giving them the opportunity to serve
    everybody if they don't want to have to make that payment, I
    think, is the correct way. And it seems to me it shouldn't take
    forever.
        Senator Inouye. Thank you very much.
        The Chairman. Senator Pryor?
        Senator Pryor. Thank you, Mr. Chairman.
        Let me just say, at the outset, that I like competition,
    and I think it's a good thing, good public policy. In fact, my
    suspicion is there are millions of Americans today who are very
    frustrated with the lousy service they receive from their cable
    company. And I think one reason they are is because, the way
    the cable structure is set up right now, the customer really
    has no recourse against a cable company. You know, you can
    complain, or you can talk to the city, but, basically, we just
    don't have a lot of recourse. I think competition will help on
    that.
        Let me ask a question about the world of competition, as
    you all see it. And maybe I should direct this first Walter
    McCormick, if you don't mind, and others can chime in if they
    would like to.
        I'm curious about how you see this unfolding, in terms of a
    competitive marketplace. I know, right now, for example, with
    wireless telephone, it's very, very competitive. But there's a
    common practice in wireless telephone where the customer is
    asked to sign a 1-year or a 2-year or a 3-year contract, you
    know, depending on the nature of the contract, et cetera. But
    do you see that happening--I know you can't speak for your--for
    any individual companies, but as an industry--do you see that
    type phenomenon happening with video franchise--with video
    service, where, when you switch over, you obligate yourself to
    a 6-month or a year or 2-year contract?
        Mr. McCormick, could you take a swing at that, please?
        Mr. McCormick. Senator, I don't have any idea what the
    individual business plans would be of individual companies. I
    know, today, in Washington, D.C., there's a lot of competition
    among health clubs, but I don't think that you can join a
    health club without committing to a 6-month or a 1-year
    contract with the health club. And what we see in the
    telecommunications space is, we see extraordinary competition.
    Among cell phone providers, in some communities there are up to
    ten providers. Consumers can choose. In fact, 97 percent of the
    U.S. population today has a choice of at least three wireless
    carriers. And five wireless carriers are providing service
    nationwide. So, that's a lot of competition. There are probably
    more wireless carriers in the Washington, D.C., market than
    there are health club chains to choose from.
        In the video space, we see enormous competition developing.
    You can watch Desperate Housewives over broadband today. You
    can download a movie. What we want to do is to be able to offer
    video over the network that was deployed for voice service. The
    cable industry deployed a network for video service. It now
    offers voice over that video network. We'd like to be able to
    offer video over our voice network. We think that new
    competition is good for consumers. And what that will mean is,
    further competition on the basis of price and quality of
    service, and we think that's good for consumers.
        Senator Pryor. Does anybody else have a comment on that?
        Mr. Kimmelman. Senator Pryor, I would just say, I wouldn't
    be surprised if you would see long lock-in contracts, but you
    don't know what any company will do. That certainly would make
    sense from the consumer perspective, to get your telephone
    business, your cable business, and your Internet business. And
    I'm sure there would be some discount incentive to do that.
        Senator Pryor. And, in your view, is that good or bad for
    the consumer?
        Mr. Kimmelman. It's definitely good for those consumers who
    are willing to lock in that way. What I worry about is the
    differentiation of, you know, which neighborhood will get that
    offer, people who tend to spend $100, $150 a month on their
    bill. What about the people who only want a--5, 10, or 15
    channels, or get a barebones telephone service package? Are
    they going to get the same deal or be offered service at all? I
    worry that that's going to be the differentiation, and it's
    troubling.
        Senator Pryor. Are you concerned that the bill, as it's
    currently drafted, doesn't address your concern?
        Mr. Kimmelman. Correct. I'm concerned it gives way too much
    leeway for the phone company to discriminate in where it offers
    service--and I would understand why: they go in where they can
    make the most money. But the problem is that the bill
    immediately allows the cable company to pull back from current
    obligations to have uniform rates everywhere or to even offer a
    basic package at a low cost whether ot not real competition
    develops. And I think until we see--and the market may play out
    beautifully, but until we see competition playing out across
    income levels and other divides, I think we ought to be more
    cautious about releasing those public obligations of cable
    companies.
        Senator Pryor. In other words, I guess, if I can rephrase
    what your concern is, you have a monopoly in cable right now.
    And with a new entrant coming into the market, your concern is,
    the--there may not be true competition there, because you may
    not have a choice all over town, but the monopoly can go
    basically on the free market and still be anti-competitive, I
    guess. Is that your--am I putting words in----
        Mr. Kimmelman. Absolutely. I think the bill releases some
    public obligations too quickly here--I think, probably on the
    right assumption, that you want competition to happen. But you
    don't know if competition is really going to come across these
    different neighborhoods and communities. And it would be more
    prudent, from a consumer protection perspective, to provide a
    little more time and see that there is enough competition in
    the market, such that those protections are no longer needed.
        Senator Pryor. For most consumers around the country,
    competition never really came in the telephone--local telephone
    market.
        Thank you, Mr. Chairman. I'm out of time.
        The Chairman. Mr. Ben Nelson--Senator Ben Nelson, please.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        If--in the franchise agreements governing the use of right-
    of-way--rights-of-way, if the actual terms aren't negotiated in
    those franchise fee agreements, will that lead to more disputes
    going to the FCC? What will be faced, in terms of that, given
    the fact that there may be more than one available provider
    coming into a market? How will we be able to resolve that
    without it just being turned over to a jumpball situation with
    the FCC? Anybody? Mr. Guido?
        Mayor Guido. Yes, thank you, Senator.
        I think, as an example, in the city of Dearborn, we do have
    competition. We have Comcast Cable. We have WOW Cable. Another
    Internet service provider is AT&T-SBC DSL service that's
    available in our city. And then we have inordinate number of
    cable providers that run to our industries. Ford Motors World
    Headquarters is in the city of Dearborn. And so, there are a
    lot of opportunities.
        We have the same agreements with these providers. And we
    are very concerned about the use of our rights-of-way, the
    restoration of our rights-of-way, to make sure that they're put
    back in the same condition that they were found, and that the
    city gets the rent that it deserves for the use of the public
    property.
        I think if we were--if we didn't have that type of
    control--if it were turned over to the FCC, for instance--it
    would put an inordinate burden on cities, because we would have
    to have some type of Washington law firm representing our
    interests here in front of the FCC so that, you know, we could
    get our day in court; whereas, right now we use the court
    system. So, we would find it a very difficult paradigm to use
    the FCC as the arbiter of these kind of issues, as opposed to
    local control, which we have now, and the court system as a
    backup.
        Senator Ben Nelson. Would it make sense to, in this bill,
    try to resolve those questions about rights-of-way?
        Mayor Guido. I think it would be helpful. We felt that the
    Cable Act of 1996 is a good template. I know that there was
    some debate earlier in the comments by the Committee as to
    whether or not there was value and merit to that Cable Act. You
    can't predict everything in the future, technology or
    otherwise. But we think that it's worked well. We could use it
    as a template, and perhaps try to massage it from there, as
    opposed to throwing it out and starting from scratch.
        Senator Ben Nelson. Well, this would be less affected by
    technology, more affected just by rights to certain rights-of-
    way. Would that be a----
        Mayor Guido. I would say that's a fair assessment.
        Senator Ben Nelson. And then, currently under the bill,
    when the current cable franchise expires, the cable company
    gets the benefit of this new streamlined franchise process,
    regardless of whether there's any competition from a new
    entrant. Wouldn't it make more sense right now to streamline
    the process, whether there is competition or not?
        Mayor Guido. I think mayors and city councils are willing
    to streamline the process. I think that's what you hear from
    the industry, and they hold the mayors up as the bad guys, as,
    you know, roadblocks, to technology. We all want technology for
    our communities and for our citizens. And if there was a
    streamlined system that we could agree to that wasn't onerous
    on us, like this 15 and 30 days, which we feel, you know, in a
    draft form, is a start, but not necessarily what we would like
    to end up, I think that would be helpful, and I think you could
    get buy-in from a local government.
        Senator Ben Nelson. And it wouldn't have to be based on
    competition, it just would be based on----
        Mayor Guido. Just on----
        Senator Ben Nelson.--streamlining it for its own sake.
        Mayor Guido. Just on deployment of the technology in your
    community, yes.
        Senator Ben Nelson. OK.
        Thank you, Mr. Chairman. Thank you.
        The Chairman. Thank you, Senator.
        Before I call on Senator Lautenberg, I have conferred with
    Senator Inouye. We have, currently, a hearing scheduled on May
    25th. We're going to change the schedule. And, on June 5th,
    we'll issue a revised draft that will be put together on a
    bipartisan basis during the recess that will come up at the end
    of May. On June 8th, I want to announce we'll have a hearing on
    the revised draft. And on June 15th we'll do our markup, rather
    than June 8th.
        Senator Lautenberg?
        Senator Lautenberg. Yes, thanks, Mr. Chairman. That's a
    very good change in plan, because one of the things that
    concerned me was that since there were 15 hearings, I assume
    that in selecting out of what those 15 hearings uncovered or
    developed was a consensus view that was done by staff,
    primarily, to make sure that what they thought was the
    consensus view was, in reality, a good and fair recognition of
    what each of the parties on opposing sides determined. So, we
    might have to have original text from those committee hearings
    attached to the bill so that we can all be reminded about what
    was said at those hearings.
        Mr. McCormick, I have a question that relates to your
    testimony this morning in which you identify the costs that
    might occur for Alaska, Hawaii, Florida, and Montana. I assume
    you knew that there were Senators from these States at this
    Committee. An interesting coincidence. But how did you arrive
    at these numbers? Was that what might have been saved if
    actions were taken sooner?
        Mr. McCormick. Senator, this was a report from the Phoenix
    Center. It was a report with regard to the costs of not moving
    forward with franchise reform. It was----
        Senator Lautenberg. I see.
        Mr. McCormick.--based upon--and I'd be happy to provide a
    copy of----
        Senator Lautenberg. Yes.
        Mr. McCormick.--the report.
        Senator Lautenberg. And maybe instead of rounding, you
    could give us the precise numbers that you think that might be
    the result.
        What was the New Jersey figure?
        Mr. McCormick. Senator, I don't have that, but I'd be happy
    to provide it for the record.
        Mr. McCormick. Again, it was a Phoenix Center study that I
    was citing. It was not a U.S. Telecom study.
        Senator Lautenberg. OK. That's a little bit randomized, in
    my view, but I thank you for that contribution.
        Mayor Guido, you got a lot of nails to hit on the head in
    where you think the communities ought to be. And, with great
    respect, I note that. You make a comment about the requirement
    for franchise authority to act in 15 days and approve a
    franchise in 30, and a kind of rush to judgment. Those are the
    rules. And I'm one of those who believes that the communities
    have to have a voice here. And I respect the fact that you've
    outlined in your testimony what some of the problems are.
        Mr. McCormick, New Jersey may soon grant a statewide
    franchise to make it easier for the phone companies to enter
    the video market, but they'd have to serve the 60 largest towns
    within 3 years. You know about New Jersey, and we have 560
    communities, individual communities, a lot of them very small.
    If the states are acting on this issue, why is Federal
    legislation necessary?
        Mr. McCormick. Senator, in every other area of
    communications, at this point, we have recognized
    communications as inherently interstate. With regard to
    broadband, with regard to wireless, with regard to satellite,
    with regard to every other form of entertainment and
    communications--it's regarded as inherently interstate. Today,
    you can download a movie, you can watch NBC online. And what
    we're trying to do at this point is to move forward with a new
    business that's going to deliver services that are inherently
    interstate.
        This Committee and this government, with regard to the
    cable industry being able to move into the voice business, did
    so not pursuant to local franchise regulation. They had a
    franchise, they were able to add voice without a franchise. We
    have a franchise to offer voice. We'd like to be able to add
    video.
        And so, what you have is, the world's changed since 1996,
    and technology's taken us to a place where you have the ability
    to offer services over----
        Senator Lautenberg. Are you prohibited from going ahead and
    offering video in the communities that are already cabled? I
    don't think so.
        Mr. McCormick. It is our belief that the way in which the
    1996 Act was written, and the prior 1984 Cable Act, that a
    multichannel video offering that we would be providing on a
    terrestrial basis could be interpreted as being cable service,
    and, therefore, requiring a franchise from the local
    franchising authority, rather than being able to be offered
    pursuant to the franchise that we hold. And so, for example, it
    creates great dislocation. We have a rural company with just
    40,000 customers. It's a co-op. It's owned by its customers. It
    crosses 25 franchise areas.
        Senator Lautenberg. Right. But there are lots of
    communities, I'm sure, where as opposed to waiting for a
    legislative solution, a court certainly could hear that. And
    you have lots of lawyers, and you can make a judgment about
    whether or not you're really prohibited. It's my view--I'm not
    a lawyer, so you can't judge by me. I did run a company with
    16,000 employees, but I would think that it's worth a try. And,
    again, New Jersey is trying to open up the process.
        So, thank you.
        Thanks, The Chairman.
        The Chairman. I did announce that--the hearing dates. We're
    going to have to revise that because of a conflict of Senator
    Inouye. And we will issue the revised hearing. But we will not
    have the hearing on the 8th. It will be on the--what date?--on
    the 13th.
        Senator Boxer. You mean the markup?
        The Chairman. The markup will be on the 13th. The hearing
    will--we're going to have to straighten out the dates. I just
    want to tell you what--Senator Inouye has indicated he is--
    cannot do the hearing on the 8th. So, we will announce a new
    date for the hearing, and the markup will follow the hearing.
        Senator Dorgan?
        Senator Dorgan. Mr. Chairman, thank you very much.
        Let me thank the witnesses for bringing your different
    perspectives. And many are very different, coming from
    different business models, and so on, to the Committee.
        Mr. Kimmelman, first let me ask you about this so-called
    ``Net neutrality,'' or what I call ``Internet freedom.'' A
    couple of my colleagues, one from this committee, sent out a
    ``Dear Colleague'' yesterday, calling it ``stifling regulation
    on the Internet, opposing the heavy hand of regulation.'' In
    fact, the intent of this would be exactly the opposite of that.
    Give me your perspective of the need for an open architecture
    that is free, and remains free.
        And let me just read a statement. This is a statement from
    Ed Whitacre. In fact, this is the one that piqued my attention
    last fall. Ed Whitacre, then CEO of SBC, said--he's talking
    about Google--``They don't have any fiber out there. They don't
    have any wires. They don't have anything. They use my lines for
    free, and that's bull. For a Google or a Yahoo! or a Vonage or
    anybody to expect to use these pipes for free is nuts.''
        So, when I saw that, last fall, I got interested, because,
    whether it's Google or Yahoo!--I mean, I actually--I kidded,
    yesterday. I said, ``I pay the price of a small used car every
    month for the right of having a wire coming in for cable and
    for broadband.'' And, you know, I wouldn't be without it, but I
    pay for this, and I don't want to have an access where I am
    told that, ``Well, if you want Google to come in, they have to
    pay Verizon or SBC something to bring''--so, that's what piqued
    my interest in this issue of trying to keep the Internet free,
    and the architecture free, and the issue of Internet freedom,
    or ``Net neutrality,'' as it's called.
        Mr. Kimmelman, your evaluation of that?
        Mr. Kimmelman. Well, Senator, the big problem here is,
    there are very few broadband pipes into the home. It's usually
    only a telephone wire or a cable wire. Some people are
    fortunate enough to have both options. Satellite's trying to
    find another way, and maybe we'll see broadband over powerlines
    someday. But we live in a world where the cable and telephone
    are the gatekeepers. And net neutrality is not a question about
    whether a Google should pay or a consumer should pay. Everyone
    should pay for what they use. The difficulty here is whether
    they're--whether you're allowing any discrimination through by
    letting the gatekeeper decide what Internet content and
    services reach the consumer, how they reach them, at what
    speed, at what quality, and whether there's an ability to
    manipulate that in any way. And, obviously, if there were five,
    six, ten providers, we wouldn't worry about that, it would be
    an open, competitive market. But with only cable and telephone
    broadband providers, there's a significant concern about anti-
    competitive practices, and there's a history of these companies
    trying to overcharge, block competition. We've seen it in the
    phone companies, we've seen it in the cable companies. That's
    why some form of nondiscrimination requirement in statute is
    critical.
        Senator Dorgan. So, the telephone companies now want to
    come in and provide, essentially, a cable service, plus an
    Internet service. And I--if that brings two competitors into a
    circumstance where there is now one, I say, ``Good.'' I think
    competition is good. And the question I have about that is
    this. They--I'm told there are, what, 30,000 franchises? And
    so, the telephone companies would like to get in and compete
    sooner rather than later and have some streamlined franchising
    opportunities, rather than going one by one across the entire
    United States.
        The question I have is this, about buildout. When the cable
    companies go to a community and get a franchise, are there, in
    most cases, a buildout requirement to that franchise? And
    should there be some sort of buildout requirement--or will
    there be a buildout requirement, whether it's a State judgment
    or a local judgment or action the Congress takes, with respect
    to the franchising issues, dealing with the telephone companies
    and their competition?
        Mr. McSlarrow, are the cable companies largely, with
    respect to franchises, required to build out in certain ways?
        Mr. McSlarrow. Senator, they are, although I would note
    that that's for video service.
        Senator Dorgan. Right.
        Mr. McSlarrow. When it comes to phone and highspeed data,
    we have built out our entire communities, even though there has
    been no obligation at all, because we just want to do that. So,
    when you come back to video, I think--your second question was
    whether or not I think we should impose that as a matter of
    law--I think it's an odd thing for me, as the competitor, to
    say ``impose a buildout requirement on my competitor.'' That's
    just a strange thing.
        Senator Dorgan. But you don't have----
        Mr. McSlarrow. I--but I do think the point of local
    involvement is that there's a proxy for the community that they
    can do that negotiation.
        Senator Dorgan. Interesting. My interest isn't whether
    it's--whether it's a neighborhood--and in rural America, the
    whole area is the neighborhood--my interest is in how this
    happens, that we want to stimulate competition and provide the
    best opportunity to have robust competition. Everybody talks
    about--and I, in fact, said it--the world has changed. But, you
    know, one thing hasn't changed, and that's the consumer. The
    consumer wants the best product, for a fair price. And the only
    way you get that is through robust competition. And much of
    that competition is diminished. And now, the question is, How
    can you connect the ends of these two plates of spaghetti and
    see if you can make something of it? And I don't quite know how
    to do that. This is very complicated.
        I might mention one other things, Mr. Chairman. A piece
    that is not quite related to this, but, in many ways, is, and a
    piece that I would expect to offer an amendment on in this
    process, as well, is the issue of media concentration, because
    the Federal Communications Commission, as the chairman has
    said, we're set to go now, given the Federal court decisions,
    and, you know, ``Katie, bar the door,'' cross-ownership
    television and radio concentration, which has just been an orgy
    of concentration. I think we have to find a way in this
    legislation to slow them down, as well. They began a localism
    proceedings, and never finished it. They shouldn't be doing
    anything with respect to the media concentration rules, or
    media ownership rules, until they finish their localism
    proceeding. And I would expect to offer amendments on that.
        But I--let me say, again, it's very helpful to have all of
    you come in and say, ``Here's our business. Here's our plan.
    Here's what we're doing. Here's what we represent,'' because,
    as we put those together, then we understand what kind of
    legislative interests we might have that can benefit the entire
    country.
        Thank you very much.
        The Chairman. Thank you very much.
        Our next is Senator Boxer.
        Senator Boxer. Thanks, Mr. Chairman. I, also, want to thank
    the panel, all of you.
        I want to say, Mr. Mayor, I found your presentation really
    good, in the sense that it's very clearly understood. And,
    matter of fact, I wrote on a--sort of, to my staff, that this
    is an example of very clear thinking and very clear writing.
    And I thought that I would just simply say that your--by
    reiterating your points, that the bill, as it is written,
    ``while ostensibly preserving local franchising authority, the
    net effect is to strip authority from local governments and
    grant the authority to the FCC.'' Point made. Because I--that's
    our analysis in our office, as well.
        Second, ``The bill would send all rights-of-way disputes to
    the FCC, an agency that lacks the resources and expertise to
    handle them.'' I think that's an understatement.
        Third, ``While the intent may have been to keep localities
    financially whole, the bill would result in a significant loss
    of financial support to local governments.'' And as someone
    who's champion of local government, I think you know how to
    spend the money better than most, because you see it, and the
    folks can knock on your door. I think that's a sad, perhaps
    unintended, consequence, perhaps a planned consequence, of this
    legislation, as written.
        Fourth, while at first glance the bill appears to prohibit
    redlining, it would permit video providers to pick and choose
    the neighborhoods they'd like to serve. I think that's an
    important point, because clearly our private sector is going to
    act from their own best interest--for their own best interest.
    That's generally what they do. That's--they have to respond to
    their shareholders. I don't call them ``bad'' for that at all.
    But the point of our involvement is to just say, through our
    legislation, ``Let's make sure that whatever we do helps the
    community, doesn't hurt the community.'' I think the bill, as
    written, will, in fact, lead to redlining. And I'm going to ask
    a little bit more about that in a minute.
        Fifth, it appears the bill undermines the taxing authority
    of State and local government in areas wholly unrelated to
    rights-of-way. And that has to be a concern to all of us, I
    think, on both sides of the aisle, that do have respect for our
    local--people who are trying to provide services at the local
    level.
        So, I just wanted to thank you very much, Mr. Mayor,
    because I think what you have said is really clear and will
    help us as we sit down with the Chairman and Co-Chairman to try
    and fight for the cities and the people in the cities. Thank
    you for that.
        Ms. Johnson, I just have a concern here that I know
    Congressman Markey had, as well, and that is, you know, your
    approach to this, because I think, although you are here
    representing Video Access Alliance, you also, as I understand
    it, run another company, Net Communications, LLC, which--you
    testified before a House Telecommunications Subcommittee--that
    clients include telephone companies. It's also my understanding
    that you're a member of the Board of MasTec, a company whose
    core activities are the building, installation, maintenance,
    and upgrade of communications and utility infrastructure and
    transportation systems. And among its largest clients are
    Verizon and Bell South.
        The reason I bring this out is, I appreciate your
    intelligence that you bring to this, and your--how articulate
    you are, but I really don't see you as an independent voice. I
    mean, I--would you like to challenge that? Because I know
    that--when was this organization formed, this independent
    organization, Video Access? When was it formed?
        Ms. Johnson. It was formed at the beginning of the year to
    specifically----
        Senator Boxer. And what's its----
        Ms. Johnson.--specifically to address the issues of
    multiple platforms. And I would like to respond to the----
        Senator Boxer. Sure, please.
        Ms. Johnson.--the issues that you've raised.
        Senator Boxer. I would appreciate it.
        Ms. Johnson. As it relates to--you're right, I am the proud
    owner of a company, maybe not often seen, African-American
    women heading up such organizations, but it's a great team, and
    we are proud of the work that we do. I have the opportunity
    that so many of us don't have----
        Senator Boxer. Well, I'm not talking about that.
        Ms. Johnson.--of serving on a----
        Senator Boxer. We're very proud of you. I just want to get
    to the point of----
        Ms. Johnson. I'm----
        Senator Boxer.--you are testifying today as an independent
    voice. My view is that you're really not an independent voice,
    because you represent phone companies in your other business.
    I'm just trying to establish that.
        Ms. Johnson. Yes, and I'm trying to respond to it, as well.
        Senator Boxer. Yes.
        Ms. Johnson. MasTec represents cable, electric, telecom,
    water, waste water, a series of industry groups, not just one
    sector. So, the point there, I'm not----
        Senator Boxer. Well, water has----
        Ms. Johnson.--understanding.
        Senator Boxer.--nothing to do with this bill. So----
        Ms. Johnson. Certainly. But cable and telcom do----
        Senator Boxer. Sure do. That's my----
        Ms. Johnson.--as well as----
        Senator Boxer.--point.
        Ms. Johnson. And it--and so, my point would be that there's
    a balance in the approach, and that we represent--over the
    years, I've represented numerous entities, and including local
    governments over the years. So--but as to my membership and the
    people that I represent today, they are--they are not telcom
    companies. They are not----
        Senator Boxer. No, I understand.
        Ms. Johnson.--and they are not cable companies. They are
    independent networks. They are entrepreneurs that are, indeed,
    seeking this kind of relief. And their advocacy--whether I own
    independent companies or not, their advocacy, their positions,
    what they bring to communities, the diverse content that they
    offer, is real. And for me to have the opportunity to speak on
    their behalf----
        Senator Boxer. OK, I----
        Ms. Johnson.--not Julia Johnson's behalf, but on their
    behalf----
        Senator Boxer. Right.
        Ms. Johnson.--is a very legitimate----
        Senator Boxer. OK----
        Ms. Johnson.--honorable thing.
        Senator Boxer. OK, I think you're totally honorable.
        Ms. Johnson. Thank you.
        Senator Boxer. I'm just making the case, as Congressman
    Markey made, that, as we approach the rewrite of this bill, or
    the modification to this bill, I want to look to the truly
    independent voices, is all I'm saying, because, I'll tell you
    something, I'm here to represent the people of my State, and
    not any special interest. And I was just making that point,
    because I think, in my own view, the truly independent voices,
    as I see it, happen to be the mayor and Mr. Kimmelman, just in
    my view, because of the other clients that you have. I just
    want to put that on the record. And I thank you.
        The Chairman. Thank you----
        Ms. Johnson. Thank you.
        The Chairman.--very much.
        Senator Smith, you're recognized, please.

                  STATEMENT OF HON. GORDON H. SMITH,
                        U.S. SENATOR FROM OREGON

        Senator Smith. Thank you, Mr. Chairman.
        I've had the obligation to be in three different committees
    this morning, and so I was not here for an opening statement,
    and would ask that mine be included in the record.
        The Chairman. Without objection, so ordered.
        All of the statements you presented will be printed in the
    record in full.
        [The prepared statement of Senator Smith follows:]

      Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon
        Thank you, Chairman Stevens and Co-Chairman Inouye, for convening
    these hearings on telecommunications law reform and more specifically
    to discuss changes to Universal Service and Video Franchising
    regulations.
        The last major telecommunications legislation was signed into law a
    decade ago. During this time the accelerated growth of the Internet has
    fundamentally changed the way Americans communicate and conduct
    business. Rightly, our Federal Internet policies have favored a light
    regulatory touch. Free of government interference, the Internet grew
    exponentially during the 1990s and the United States was a world leader
    in network deployment.
        Since the turn of the century, however, our legacy
    telecommunications laws have been exposed as out-of-date. An oft-cited
    International Telecommunications Union study recently revealed that the
    U.S. has fallen to 16th in global broadband deployment. These rankings
    are unacceptable for the world leader in innovation.
        It is essential that we modernize our telecommunications laws now.
    Any reform measures must encourage the deployment of broadband to all
    Americans, meet the reality of today's marketplace, and ensure that we
    do not damage the long-term competitiveness and economic well-being of
    the United States.
        I am pleased that the Committee's draft telecom reform legislation
    includes revisions to the Universal Service Fund regulations to
    encourage the ubiquitous deployment of broadband networks to Americans
    and to allow local municipalities to offer broadband services. I have
    well-established my position that access to broadband services should
    be just as available to rural communities as urban areas. Further,
    allowing localities to offer broadband services to the public will help
    to expedite the deployment of broadband service, especially where
    private companies have failed to meet the community's needs.
        Likewise, I have long advocated Video Franchise reform and applaud
    the Committee's recognition of this issue by including it in its draft
    telecom reform bill. The video marketplace today is vastly different
    then when Congress first authorized local regulation of cable
    television service in 1984. In those days. a typical American community
    was served by a local cable company that had a few hundred or a few
    thousand subscribers. Twenty years later, many of those communities are
    still served by just a single cable company.
        The longer consumers go without effective video competition, the
    higher their bills will be. Year after year, cable price increases
    outpace inflation. According to a 2006 article from The Oregonian,
    Portland-area cable rates are set to increase by another seven percent
    this year. Although satellite TV services have made great strides
    during their twelve years of existence--serving over twenty million
    subscribers--they have failed to exhibit price control on cable.
        Thankfully, some of the largest communications companies in the
    country are now investing billions of dollars in high speed networks
    capable of offering video and other services that will compete with
    cable. However, under current law, these companies must negotiate and
    sign local franchise agreements before they can offer competitive video
    service. There are over 33,000 franchise authorities in the United
    States and the slow pace of negotiations has delayed competition.
    Existing video franchising regulations no longer meet the reality of
    today's marketplace. These regulations, while once desirable, now serve
    as barriers to competitive entry and disincentives to network
    investment. We must encourage these investments by freeing video
    providers from unnecessary federal, state and local regulations.
        Taken together, these reforms will help create ubiquitous broadband
    networks, modernize our telecom laws to meet the reality of today's
    marketplace, and bolster the long-term competitiveness and economic
    well-being of the United States. I look forward to working in a
    bipartisan effort to take up these issues in quick order in the coming
    weeks.

        The Chairman. Thank you, Senator.
        Senator Smith. Mr. Mayor, a question I have, somewhat as a
    followup to Senator Boxer, is from a different approach. I want
    to be sensitive to the local franchises and the fees and
    everything that our local communities have become accustomed to
    receiving. However, one of the questions I have--everything
    that I understand that local franchises or communities require
    is, in this bill, statutorily required--but the question I have
    is, What do local communities do for the taxes they want to
    keep?
        Mayor Guido. Are you talking about the taxes that we
    collect, in general, or are you talking about the----
        Senator Smith. Well, I mean----
        Mayor Guido.--telecom taxes, the----
        Senator Smith. I mean, I----
        Mayor Guido.--5 percent----
        Senator Smith.--I----
        Mayor Guido.--the 5 percent plus the I-Net----
        Senator Smith. I--Yes, all of that. I mean, I just--I'm--I
    don't want to take their revenue source away, but I also think
    government has an obligation to provide something for the taxes
    that it collects.
        Mayor Guido. We agree. And you certainly--our feet are held
    to the fire on a local level on a daily basis, so we believe
    that, in our communities, we provide the services that people
    see, feel, and touch every day, whether it's a police car, a
    rubbish truck, a fire engine, whatever. These are the things
    that people, you know, want in our communities, and they
    determine where they want to live by the services that are
    provided.
        Senator Smith. Well, I----
        Mayor Guido. The dollars that----
        Senator Smith.--understand that.
        Mayor Guido. The dollars that we collect in--for--is a
    rent, if you will, for the use of public rights-of-way. This is
    public property that cities and taxpayers have paid for, have
    acquired over the years, have maintained, pay insurance on, and
    so forth. And it's a rent for--that we receive for the use of
    that right-of-way. We provide----
        Senator Smith. But are there--I obviously understand
    there's no relationship between your TV, necessarily, and the
    firetruck down the street, but are there services you're
    providing relative to video?
        Mayor Guido. But--yes, we are. And we do. And we're very
    proud of the fact that--you know, that we run a studio that
    provides public information.
        Senator Smith. But isn't the public information access--
    isn't that all provided for now, statutorily, in this bill?
        Mayor Guido. But it's--the fees that we collect help pay
    for that information, the disbursement of that information. In
    other words, we could not operate--we could not have our camera
    people and our producers and so forth if we didn't have those
    dollars that we collect from the cable franchise.
        Senator Smith. So, what--there ought to be some
    relationship between those costs of providing, via public
    access television and things, to the amounts collected.
        Mayor Guido. Well----
        Senator Smith. Unless we just say honestly to the public,
    ''This is just another way we're going to tax you.``
        Mayor Guido. Well, I think that--I think that, you know,
    cities are under attack on every level, whether it's from the
    Federal level or the State level, in terms of our revenues and
    the revenue sources. And we zealously guard them. And, while
    this bill tries to protect our revenues, or at least it states
    that, it doesn't include the revenues for advertising and for
    home shopping networks, which is about a 15- to 20-percent
    reduction. The City of San Antonio, I believe, collects about
    $9 million, currently, through their franchise fees. They would
    be reduced to about $7.6 million--they would lose if this bill
    were to go in without amendments. And so----
        Senator Smith. Well----
        Mayor Guido.--these are dollars that we use for
    programming. These are dollars that we use for operations. And
    I think that they all go into the same pot. They're all in
    the--they're all in the local pots, like when we send tax
    dollars to Washington. They could be for defense, they could be
    for----
        Senator Smith. Well, I----
        Mayor Guido.--Medicare----
        Senator Smith.--I don't want to sound insensitive to it,
    but I'm being asked this by local consumers who are saying,
    ''What's this for? What am I getting for this?`` And, frankly,
    I'm asking these questions because I'm being asked these
    questions.
        To a larger question that I--Kyle, you spoke to it--many of
    you have, many of my colleagues, I assume have--certainly,
    Senator Dorgan did--Kyle, your comments were--actually struck
    me as credible on the issue of Net neutrality, because you
    could clearly make the argument that it would be good for the
    cable industry if this whole thing just went away. And there's
    a very real likelihood that this whole issue could die over Net
    neutrality. And yet, you said, ''Notwithstanding that, stay
    away from it and let this evolve with a lot more thought, and
    perhaps with less regulation,`` that we're faced with a
    fundamental choice between regulating or not regulating.
        My question to you is, if that is the choice--and that
    means this thing just gets hung up in the Senate, which is easy
    to predict right now--do any of you have any other ideas? Is
    there another middle ground? Because, literally, the Senate may
    be the strainer that this just can't pass through unless we
    find a way to accommodate the legitimate interests being put
    forward on both sides. Any good ideas?
        Mr. McCormick. Well, Senator, I thank you put your finger
    on it. I think Kyle did, as well. I mean, the issue here is
    whether or not to provide consumers with additional choice for
    video. It's a good thing. It's a good thing for consumers.
        Net neutrality, or so-called net neutrality, is totally
    irrelevant to that issue. And, as we are learning, nobody
    really knows what this whole net neutrality thing means, or
    what problem exists. Everybody agrees--there's consensus--that
    there's no problem today. It's what-if legislation. So, our
    hope would be, let's move forward with giving consumers video
    choice. Let's move forward with the important USF reforms. And
    let's let this net neutrality debate better define itself, let
    the problem better define itself, before Congress attempts to
    put a solution on something that's in search of a problem.
        Mr. Kimmelman. Senator, if I could just weigh in. I don't
    believe this is a new problem. This is an old problem with a
    new name. This is----
        Senator Smith. Right.
        Mr. Kimmelman.--a problem of discrimination on networks.
    And it doesn't surprise me that the cable industry would take
    the stand it does, because probably in reality it knows that
    anything that's nondiscriminatory that applies to the phone
    company would have to apply to the cable industry, as well. You
    couldn't do it one way without the other. And they probably
    fear that even more than the telephone companies getting into
    their business.
        If we had an option of looking at a third, a fourth, a
    fifth pipe into people's homes--wireless, wire, however you do
    it--I don't think it would be an issue. But so long as it's the
    two industries that have a track record--with interconnection,
    video programming, or whatever--of a lot of disputes about
    anti-competitive practices, I don't think you can avoid
    addressing the issue.
        Senator Smith. Well, how about if there's legitimate
    payment for access, but you don't limit the numbers of people
    or companies--a Google or a Yahoo!--that have access to that,
    so the consumer still retains----
        Mr. Kimmelman. Senator, I urge you to dig into it, because
    I don't believe anyone is really asking for a free ride. I
    think everyone is asking for some clarity as to what the rules
    of the road are, what is a fair payment, and whether you are
    sure you can get your content on or your service through
    without being overtly or subtly blocked or impeded. I've not
    seen anyone ask for a free ride.
        Senator Smith. Well, bottom line is that investors need to
    get paid on their investments in order for this to be deployed,
    and consumers need choices. And that's how we've got to figure
    out how to split this baby, because I hate to see this bill die
    over that issue.
        The Chairman. Thank you very much.
        And we thank you, as members of the panel.
        We'd like now to turn to the second panel: Shirley
    Bloomfield and Walter McCormick, Kyle McSlarrow, The Honorable
    Steve Largent, Joslyn Read, and Philip McClelland.
        Thank you very much.
        Mayor Guido. Mr. Chairman, may I thank you for your offer
    to work with the mayors of the United States and local
    governments. Thank you so much.
        The Chairman. I'm happy to do that, Mayor. I will call your
    attention--we believe there will be competition in each one of
    these cities. You're not going to get these fees from just one
    source, you're going to get multiple sources. We do want to sit
    down and talk to you about that. And we will work it out.
        We'll take a short recess here for a station break, sort
    of.
        [Laughter.]
        [Recess.]
        The Chairman. Ms. Bloomfield, if we may----
        Thank you very much. We're pleased--your statements will be
    printed in the record, as though read. I appreciate your
    comments. We want to finish today. We thank you for your--for
    waiting so long. And as a result of what's gone on today, we're
    going to change the Committee policy about when we call on
    witnesses to testify.
        Ms. Bloomfield?

          STATEMENT OF SHIRLEY A. BLOOMFIELD, VICE PRESIDENT,

              GOVERNMENT AFFAIRS AND ASSOCIATION SERVICES,

          NATIONAL TELECOMMUNICATIONS COOPERATIVE ASSOCIATION

        Ms. Bloomfield. Good morning. I'm Shirley Bloomfield, Vice
    President of Government Affairs and Association Services for
    the National Telecommunications Cooperative Association. I'm
    here today on behalf of the Coalition to Keep American
    Connected.
        The Coalition is organized by ITTA, WTA, OPASTCO, and NTCA.
    And, together, we collectively represent more than 700 small
    and community-based telephone companies serving millions of
    consumers in over 40 percent of the land mass of this country.
        Generally the rural sector of the communications industry
    views the comprehensive nature of S. 2686 very positively. We
    think the legislation includes many pro-consumer provisions and
    takes constructive steps to modernize and bring accountability
    to the Universal Service Fund.
        USF is critical to ensuring that all consumers have access
    to affordable telecommunications services and the latest
    technologies, no matter where they live. The committee's
    leadership on these issues shows the commitment to craft a
    solution that modernizes the current Universal Service Fund and
    the vision to bring broadband to consumers everywhere.
        Supporting universal service and broadband deployment will
    provide consumers access to new products and services.
    Likewise, the video elements of the legislation contain a
    number of provisions that will bring answers and stability to
    confusing situations that exist now under current law.
        Overall, the intent of Subtitle 2, Modernizing Universal
    Service, is on target, as it will appropriately broaden the
    base of contributors to the program. In addition, the new
    definition of ``communications service'' will serve the
    industry well and will alleviate a lot of today's concerns that
    we have regarding what is a telecommunications service and what
    is an information service.
        The definition of ``broadband speed'' being at least 200
    kilobits per second in at least one direction might be an
    acceptable baseline, yet technological capability and consumer
    demand continue to evolve to the degree that this may already
    be an outmoded target. There are different speeds suggested at
    different points in the bill, and we believe these should be
    reevaluated to ensure consistency with the objectives that the
    Committee intended.
        We also concur with the interconnection guidelines that
    require an ILEC to interconnect with a requesting VoIP
    provider, so long as the VoIP provider takes on the rights and
    obligations that a requesting telecommunications carrier would,
    including paying access charges and contributing to universal
    service.
        The language tightening eligibility requirements for
    eligible communications carrier is long overdue and a positive
    addition to the bill. Consideration may be given to tightening
    the requirements even further by ensuring that any eligible
    carrier is compensated based on their own costs and not on the
    identical costs of the incumbent carrier. This would help to
    alleviate concerns some members of this committee have
    demonstrated on controlling the growth of the fund.
        We think that the 5-year upgrade period demonstrating how
    high-cost support will be used to improve coverage in services
    and the quality with the waiver process is a very good
    approach. We believe the language needs more clarification on
    defining broadband availability. In doing so, we would urge
    that the assessment be based on access to broadband and not the
    actual take-rates. We've been doing a lot of broadband studies,
    and these broadband studies show that even while buildout is
    rapid in these rural telco markets, the consumer take-rates
    continue to lag behind. The establishment of a broadband
    account for unserved areas may prove to be a useful way to get
    broadband out to really remote areas of our country. Limiting
    it to unserved areas-only helps to tighten the use of the
    Universal Service Funds. However, the language in this section
    regarding opening a door to all aspects of the provision of
    satellite-oriented services does raise substantial competitive
    questions that require a closer look.
        We're also concerned that setting a lower transmission
    speed requirement than the target for the rest of the Nation
    does not necessarily ensure comparable services. We should not
    be subjecting rural Americans in unserved areas to substandard
    broadband service in comparison to the rest of the Nation,
    particularly when cost recovery funds such as these are being
    made available to offset the deployment costs.
        Additionally, the primary line language is very positive
    and will, once and for all, preclude the FCC from giving
    further consideration to this concept. The Anti-Deficiency Act
    exemption currently sponsored as separate legislation by more
    than half of the U.S. Senate is also excellent.
        Because universal service is the primary focus of the
    Coalition to Keep America Connected, on behalf of NCTA I just
    wanted to say that Title III on streamlining the franchising
    process should be modified to ensure that it applies
    universally to all video content providers to eliminate any and
    all video programming vendor loopholes. Rural telephone
    companies have long been the video provider in the rural
    communities, thanks, in part, to the early cable cross-
    ownership exemptions. And we're seeing many of our member
    companies using the IPTV model as a way to boost their take
    rates for deployed broadband services. We support streamlining
    the franchising process.
        The included shared headend provision is very important to
    rural carriers. This cost-effective method of video delivery is
    needed to ensure that video competition, or even just video
    service, is available in all markets, regardless of how
    sparsely populated they are. Access to affordable video
    programming is a huge obstacle for small carriers and for their
    consumers.
        Additionally, we'd like to see an assurance that all
    telecommunications, cable, wireless, satellite, electric, and
    other companies have nondiscriminatory access to the Internet
    backbone in the future.
        The Coalition to Keep America Connected thanks and commends
    you, Chairman Stevens and Co-Chairman Inouye, for your
    leadership, and we look forward to working closely with you and
    the entire Committee to ensure the best legislative outcome
    possible.
        Thank you.
        [The prepared statements of Ms. Bloomfield follow:]

          Prepared Statement of Shirley A. Bloomfield, Vice President,
                  Government Affairs and Association Services,
              National Telecommunications Cooperative Association
              On Behalf of the Coalition to Keep America Connected
    Introduction
        Good morning. I am Shirley Bloomfield, Vice President of Government
    Affairs and Association Services for the National Telecommunications
    Cooperative Association. I am here today to testify on behalf of the
    Coalition to Keep America Connected which represents rural consumers
    and small businesses from all across the nation. We thank you for the
    Committee's leadership on universal service issues that are so critical
    to rural America and specifically for the opportunity to testify before
    you.
        The Coalition to Keep America Connected is organized by the
    Independent Telephone and Telecommunications Alliance (ITTA), the
    National Telecommunications Cooperative Association (NTCA), the
    Organization for the Promotion and Advancement of Small
    Telecommunications Companies (OPASTCO), and the Western
    Telecommunications Alliance (WTA). Collectively, our memberships
    include more than 700 small and midsize communications companies.
    Together these companies serve millions of consumers that reside
    throughout more than 40 percent of the landmass of rural America.
    Additional members of the Coalition include the National Cooperative
    Business Association, the Center for Rural Affairs, the Association of
    Educational Service Agencies, along with other rural focused
    organizations and businesses, including over 300 community-based
    communications providers.
        Generally, the rural sector of the communications industry views
    the comprehensive nature of the ``Communications, Consumer's Choice,
    and Broadband Deployment Act of 2006'' very positively. The legislation
    includes many pro-consumer provisions and takes many positive steps to
    modernize, and ensure accountability within, the universal service
    program and its related funding mechanism.
    Summary/Overview
        Early on in the discussions about the potential Communications Act
    rewrite our organizations, like so many, set about identifying what we
    believed would be necessary from a rural consumer and small business
    perspective to ensure the development of a successful rewrite package.
    Today's hi-tech revolution continues to yield unparalleled economic and
    policy pressures for the entire communications industry. Yet, as always
    the industry's rural sector persists in aggressively embracing and
    offering the exciting new technologies and services associated with
    this era.
        Over time, it has become crystal clear that the deployment of
    advanced infrastructure is more and more important as Americans
    increasingly rely upon communications services to satisfy their
    commerce, security, and entertainment needs. It is our conclusion that
    the deployment of advanced infrastructure that is fully capable of
    offering such services should become the hallmark of our national
    universal service policy.
        Likewise, we believe that industry responsibilities must accompany
    the opportunity for any communications provider to operate in a
    competitive deregulatory environment. Universal service and
    intercarrier compensation and the ability to effectively negotiate
    interconnection and access matters are major keys to the ability of
    rural communications providers to recover their costs. For us to retain
    and build upon a nationwide ubiquitous communications network, all
    providers must embrace these elements of our national communications
    policy.
        Early on we identified the following specific issues as being those
    we should focus our attention on during the rewrite debate.

       Universal service should be strengthened by tightening the
            process for determining program eligibility, providing support
            based on a carrier's own costs, expanding the base of
            contributions, providing support for advanced systems, and
            removing the program from the Federal budgeting process.

       Intercarrier compensation arbitrage that is plaguing today's
            system must be limited, yet in a way with minimal consumer
            impact and with appropriate transitions for carriers and
            policymakers alike.

       Nondiscriminatory interconnection and access to
            infrastructure content, roaming, spectrum, rights-of-way, and
            financing at appropriate rates, terms, and conditions with
            government default rates should be required.

       Finally, we believe it is imperative that policymakers
            practice smart rather than absolute deregulation, which is the
            key to achieving the regulatory flexibility so many seek.
            Generally a more flexible approach, rather than rigid
            deregulation will best serve consumers--and particularly those
            in rural markets. Following this policy course will maintain
            and encourage the entrepreneurial spirit that has long ensured
            America's economic and technological superiority.

        So, the question becomes, ``how does S. 2686 stack up against this
    policy course outline that our rural organizations envision? '' The
    short answer is that we believe the bill has hit the mark on virtually
    every point. Really, the suggestions offered in our submission today
    are merely to strengthen the already solid core that has already been
    built into S. 2686.
    Universal Service
        Universal service has long served as the cornerstone of our
    Nation's communications policy. It ensures that all Americans enjoy the
    benefits of a nationwide integrated communications network. And it is
    clear that our economic and national security insists that this policy
    be preserved. Driven by a unique cost-recovery process, today's
    universal service system effectively ensures that all Americans, urban,
    suburban, and rural alike, have access to quality communications
    services that are comparable in price and scope. By emphasizing an
    assurance that necessary cost recovery is available to those that make
    the commitment to serve the Nation's most economically challenging
    markets, the policy concurrently ensures the highest level of
    communications connectivity among the public. Unfortunately, in many
    ways it could be argued that our national universal service policy has
    become the victim of its own success. Too often regulators and
    competitors alike have viewed the program as little more than a means
    of inciting artificial competition rather than serving as a cost
    recovery mechanism for those with a genuine commitment to high-cost
    markets. Policies must be crafted that will reestablish the value of
    this program for all consumers. In evaluating the universal service
    aspects of S. 2686 as well as other rewrite bills that are emerging
    both in the Senate and the House of Representatives we have been
    determining the degree to which they meet the following objectives:

       Removes the ambiguity that has evolved over the definitional
            differences between Information Services, Telecommunications
            Services, and Telecommunications.

       Alters the Contribution aspects of today's program to:

            -- Allow for the full assessment of intrastate in addition to
            interstate and international revenues, or at the very least
            looks at alternatives or hybrids involving any combination of
            revenues, numbers, connections or IP addresses that will best
            ensure no parties are able to escape contribution
            responsibilities..

            -- Expand the base of supporters to include all providers of 2-
            way communications regardless of the technology involved.

            -- Set the stage for supporting cost recovery of broadband
            capable infrastructure.

            -- Provide for the FCC to modify the scope of contributors in
            the future.

       Alters the Distribution aspects of today's program to:

            -- Clarify that support is for cost recovery of networks that
            benefit all consumers throughout a given market, and not just
            those that are the most economical or easy to serve.

            -- Reject the concepts of providing support directly to
            consumers or states via vouchers, auctions and/or block grants.

            -- Eliminate the Federal Communications Commission's (FCC's)
            identical support rule that allows competitors to receive
            universal service support based on the incumbents costs.

            -- Eliminate the FCC's parent trap rule that forces carriers
            acquiring exchanges to receive support based on the level of
            support, if any, that the previous owner/carrier was receiving.

            -- Prohibit regulators from using universal service to incite
            artificial competition through the development of a much
            stricter checklist to determine universal service eligibility
            (eligible telecommunications carrier (ETC) determinations).

            -- Maintain non-rural and rural fund distinctions.

            -- Eliminate the regulatory cap on the fund that has already
            deprived rural carriers of more than $2 billion in cost
            recovery they otherwise qualified for under the program.

    Contributions to Universal Service
        Clearly, overall the provisions of S. 2686 appropriately touch on
    most of these issues. We believe that for the most part the Title II,
    Subtitle A provisions of this bill will in fact help expand the base of
    contributors to the program which will provide relief to consumers at
    all levels. Naturally, our first choice with regard to a methodology is
    to stick with a purely revenues approach. It is a system that is proven
    and that has worked. The only reason we need to look at modifying it
    today is because interstate revenues have begun to drop due to the
    changing lines of business and the regulatory classification of
    different lines of business.
        Thus, the language in this bill that provides for the assessment of
    all revenues is entirely appropriate. The bill also allows for
    assessments based upon working phone numbers or equivalents, identifier
    protocols, connections, or combinations thereof. The intent of the
    language seems to be clear that no methodology should unfairly allow
    certain industry sectors to escape participation in the assessment
    process. Some have suggested that perhaps a cooling off period should
    accompany the provisions that would allow methodologies other than the
    expanded revenues approach. This would allow the other aspects of this
    legislation to become effective and would provide policymakers and the
    industry with a period of time to see if the expanded revenues approach
    might address the bulk of the shortfall issues we are observing today.
    We think this idea has a great deal of merit and would encourage the
    Committee to give it serious consideration.
        We agree completely with the legislation's approach to expanding
    the base of contributors to include all those that are making use of
    the network today. As representatives of our industry have stated in
    prior testimony to this committee, infrastructure does in fact have a
    cost attached to it, and one way or another, those costs must be
    recovered. This is one way to effectuate that objective.
        We also believe the legislation's new definition of Communications
    Service will serve the industry as a whole well and will alleviate
    today's confusion between the definitions of telecommunications
    services and information services.
        Regarding the proper accounting of Universal Service Funds is
    language that has been necessary for more than a decade. This language
    will remove all questions as to what these funds are and how they
    should be treated in the future. Removing them from the clutches of the
    Federal budget and other Federal statutes such as the AntiDeficiency
    Act will serve the program and consumers well.
    Distributions from Universal Service
        This section amends section 214(e) of the Act that determines
    whether a carrier is eligible to receive universal service support, and
    what sort of deployment it will receive such cost recovery for. Overall
    we are supportive of the approach of this subtitle and think it will
    help bring a great deal of stability to the Universal Service Fund. We
    particularly agree with the vision of the underlying intent of this
    section which is to advance the idea that universal service should
    eventually be supporting the deployment of infrastructure that is
    broadband and advanced services capable.
        Another very positive development is the language tightening the
    eligibility requirements for Eligible Communications Carries. This is
    long overdue and we would only encourage the Committee to consider even
    stronger guidelines for what constitutes the public interest when
    determining whether or not multiple carriers are appropriate in given
    markets. This would be particularly responsive to the concerns of those
    that have suggested the bill needs additional language to control the
    future growth of the fund. Another element that could be added that
    would truly respond to this issue would be to include language
    specifically eliminating the identical support rule which provides
    support to competitors based upon incumbents' costs.
        The primary line language is also very positive and will once and
    for all preclude the FCC from giving further consideration to this
    concept. Likewise the Phantom traffic language is a positive addition.
    This is a difficult issue to resolve, yet this language serves as a
    line in the sand sort of directive to the FCC that the efforts to
    resolve it must continue until such time a satisfactory outcome is
    identified.
        Mr. Chairman, again, we are pleased with the comprehensive approach
    that you have taken with your legislation, we have many more detailed
    thoughts on the bill, some of which we have already outlined with your
    staff and others which will be provided to you directly in writing.
    Thank you again for this extraordinary opportunity to work with you and
    your colleagues in a joint effort to meet the challenges of today and
    anticipate the opportunities of the future.
        The Coalition to Keep America Connected looks forward to working
    with this committee to ensure the best possible legislative outcome for
    consumers everywhere.
                                     ______

      On behalf of the National Telecommunications Cooperative Association
    Introduction
        Good morning. I am Shirley Bloomfield, Vice President of Government
    Affairs and Association Services for the National Telecommunications
    Cooperative Association. I am submitting testimony on behalf of NTCA's
    nearly 600 small, community-based communications providers across the
    nation. We thank you for the Committee's leadership on universal
    service issues that are so critical to rural America.
        Generally, NTCA views the comprehensive nature of the
    ``Communications, Consumer's Choice, and Broadband Deployment Act of
    2006'' very positively. The legislation includes many pro-consumer
    provisions and takes many positive steps to modernize, and ensure
    accountability within, the universal service program and its related
    funding mechanism.
    Summary/Overview
        Early on in the discussions about the potential Communications Act
    rewrite our organizations, like so many, set about identifying what we
    believed would be necessary from a rural consumer and small business
    perspective to ensure the development of a successful rewrite package.
    Today's hi-tech revolution continues to yield unparalleled economic and
    policy pressures for the entire communications industry. Yet, as always
    the industry's rural sector persists in aggressively embracing and
    offering the exciting new technologies and services associated with
    this era.
        Over time, it has become crystal clear that the deployment of
    advanced infrastructure is more and more important as Americans
    increasingly rely upon communications services to satisfy their
    commerce, security, and entertainment needs. It is our conclusion that
    the deployment of advanced infrastructure that is fully capable of
    offering such services should become the hallmark of our national
    universal service policy.
        Likewise, we believe that industry responsibilities must accompany
    the opportunity for any communications provider to operate in a
    competitive deregulatory environment. Universal service and
    intercarrier compensation and the ability to effectively negotiate
    interconnection and access matters are major keys to the ability of
    rural communications providers to recover their costs. For us to retain
    and build upon a nationwide ubiquitous communications network, all
    providers must embrace these elements of our national communications
    policy.
        Early on we identified the following specific issues as being those
    we should focus our attention on during the rewrite debate.

       Universal service should be strengthened by tightening the
            process for determining program eligibility, providing support
            based on a carrier's own costs, expanding the base of
            contributions, providing support for advanced systems, and
            removing the program from the Federal budgeting process.

       Intercarrier compensation arbitrage that is plaguing today's
            system must be limited, yet in a way with minimal consumer
            impact and with appropriate transitions for carriers and
            policymakers alike.

       Nondiscriminatory interconnection and access to
            infrastructure content, roaming, spectrum, rights-of-way, and
            financing at appropriate rates, terms, and conditions with
            government default rates should be required.

       Finally, we believe it is imperative that policymakers
            practice smart rather than absolute deregulation, which is the
            key to achieving the regulatory flexibility so many seek.
            Generally a more flexible approach, rather than rigid
            deregulation will best serve consumers--and particularly those
            in rural markets. Following this policy course will maintain
            and encourage the entrepreneurial spirit that has long ensured
            America's economic and technological superiority.

        So, the question becomes, ``how does S. 2686 stack up against this
    policy course outline that our rural organizations envision? '' The
    short answer is that we believe the bill has hit the mark on virtually
    every point. Really, the suggestions offered in our submission today
    are merely to strengthen the already solid core that has already been
    built into S. 2686.
    Universal Service
        Universal service has long served as the cornerstone of our
    Nation's communications policy. It ensures that all Americans enjoy the
    benefits of a nationwide integrated communications network. And it is
    clear that our economic and national security insists that this policy
    be preserved. Driven by a unique cost-recovery process, today's
    universal service system effectively ensures that all Americans, urban,
    suburban, and rural alike, have access to quality communications
    services that are comparable in price and scope. By emphasizes an
    assurance that necessary cost recovery is available to those that make
    the commitment to serve the Nation's most economically challenging
    markets, the policy concurrently ensures the highest level of
    communications connectivity among the public. Unfortunately, in many
    ways it could be argued that our national universal service policy has
    become the victim of its own success. Too often regulators and
    competitors alike have viewed the program as little more than a means
    of inciting artificial competition rather than serving as a cost
    recovery mechanism for those with a genuine commitment to high-cost
    markets. Policies must be crafted that will reestablish the value of
    this program for all consumers. In evaluating the universal service
    aspects of S. 2686 as well as other rewrite bills that are emerging
    both in the Senate and the House of Representatives we have been
    determining the degree to which they meet the following objectives:

       Removes the ambiguity that has evolved over the definitional
            differences between Information Services, Telecommunications
            Services, and Telecommunications.

       Alters the Contribution aspects of today's program to:

            -- Allow for the full assessment of intrastate in addition to
            interstate and international revenues, or at the very least
            looks at alternatives or hybrids involving any combination of
            revenues, numbers, connections or IP addresses that will best
            ensure no parties are able to escape contribution
            responsibilities.

            -- Expand the base of supporters to include all providers of 2-
            way communications regardless of the technology involved.

            -- Set the stage for supporting cost recovery of broadband
            capable infrastructure.

            -- Provide for the FCC to modify the scope of contributors in
            future.

       Alters the Distribution aspects of today's program to:

            -- Clarify that support is for cost recovery of networks that
            benefit all consumers throughout a given market, and not just
            those that are the most economical or easy to serve.

            -- Reject the concepts of providing support directly to
            consumers or states via vouchers, auctions and/or block grants.

            -- Eliminate the Federal Communications Commission's (FCC's)
            identical support rule that allows competitors to receive
            universal service support based on the incumbents costs.

            -- Eliminate the FCC's parent trap rule that forces carriers
            acquiring exchanges to receive support based on the level of
            support, if any, that the previous owner/carrier was receiving.

            -- Prohibit regulators from using universal service to incite
            artificial competition through the development of a much
            stricter checklist to determine universal service eligibility
            (eligible telecommunications carrier (ETC) determinations).

            -- Maintain non-rural and rural fund distinctions.

            -- Eliminate the regulatory cap on fund the fund that has
            already deprived rural carriers of more than $2 billion in cost
            recovery they otherwise qualified for under the program.

    Video Issues
        Small video programming providers today continue to encounter many
    obstacles in their endeavors to secure and distribute video content.
    Their difficulties arise whether they employ traditional or emerging
    transport technologies and whether they are operating existing systems
    or entering new markets. Almost uniformly, these challenges are due to
    the unreasonable policies of video content providers, and in some cases
    municipalities or other governmental entities with various levels of
    oversight of such issues. Such practices are clearly inconsistent with
    the public interest. The most prevalent of these tactics are:

       Non-disclosure agreements/mandates that restrict the flow of
            information to preclude any semblance of what ``market rates''
            may be.

       Automatic escalation clauses that force prices up a certain
            percentage annually for the term of the contract.

       Tying arrangements that require video programming providers
            to contract for additional networks/channels in order to secure
            a flagship station.

       Predatory pricing where a carrier will dramatically increase
            prices in a non-competitive market to be able to slash prices
            in a competitive market.

       Exclusive contracts where market power is used to secure
            exclusive agreements precluding competitors from accessing the
            same programming.

       Transport discrimination where content providers prohibit
            their material from being transported via IP-Transport or Telco
            TV, or where they require an analog cable provider to incur
            expensive upgrades to continue carrying their content.

       Shared head-end restrictions are beginning to close the door
            on joint ventures by small companies partnering to spread their
            costs by sharing such access.

        Whether viewed individually or as a whole, these tactics are
    anticompetitive and lead to unnecessarily inflated consumer costs.
    Policymakers should take all appropriate steps to prohibit these
    practices. In some ways, S. 2686 gets at aspects of these issues.
    Franchising Issues in General
        While Title III, Subtitle A of this legislation does not provide
    the FCC with the authority to grant a national franchise certificate to
    CATV or IPTV providers, it does streamline the franchise process at the
    local level. We do have concerns with the language in that it is not
    inclusive enough and establishes too many regulatory silos that are not
    necessarily consistent. We would encourage policymakers to replace the
    entire section with language based on many of our filings with the FCC
    regarding how the local franchising authority (LFA) process should be
    modified as follows:

            1.  LFAs should not impose build-out requirements on new
            entrants seeking franchises in competitive local franchise
            areas.

            2.  LFAs should grant competitive providers an exemption from a
            public rights of way review if the provider already has
            permission to access public rights of way.

            3.  LFAs should refrain from imposing on new entrants any
            requirement not reasonably related to the provision of video
            service.

            4.  LFAs should limit the total amount of a new entrant's
            franchise application fee to not more than $100.

            5.  LFAs should refrain from requiring a telecommunications
            provider to serve the entire franchise area, if the
            telecommunications carrier's service territory does not
            completely encompass the local franchise authority's service
            area.

            6.  LFAs should not be allowed to require new video entrants to
            first obtain a cable franchise agreement from the LFA before
            upgrading their network to offer IPTV video services.

            7.  LFAs should apply the new guidelines only to new entrant
            competitive LFA applications and should not apply to existing
            incumbent CATV local franchise agreements, unless the existing
            incumbent CATV opts to seek a new franchising certificate under
            the new guidelines.

    Municipality Specifics
        Individually as well as collectively, our organizations are
    absolutely opposed to providing municipal entities with the authority
    to provide video services as envisioned by Title III, Subtitle C of S.
    2686. Though there are a few safeguards, it really sets the stage for
    the municipal operators to be the judge and jury with regard to the
    remainder of the industry that is engaged in these lines of business
    while enjoying the opportunity to operate competitive systems
    simultaneously. There are no checks and balances associated with this
    process and we believe it should be eliminated.
    Sports Freedom
        Again, we are concerned with the approach that is outlined in the
    bill which creates a series of silos of service that heavily favor
    large video programmers such as Time Warner and Verizon and would give
    rural ILECs virtually no additional relief in their efforts to obtain
    access to affordable video programming. This section would replace
    current section 628 of the Act and it intentionally removes ``satellite
    cable programming vendors'' from the provisions of the new law. The new
    law therefore would only apply to MVPD programming vendors that have an
    attributable interest in a CATV or IPTV provider, and satellite
    broadcast programming vendors. By deleting satellite cable programming
    vendors from current Section 628, the legislation creates a new
    loophole in the law.
    Municipal Broadband
        The language allowing municipal entry into the broadband arena
    contains some positive aspects such as recognizing that competing with
    private carriers is not in the best interest of anyone, and that
    partnerships should be encouraged with existing carriers and finally
    that existing carriers should be given the first right of refusal to
    serve a given market before a municipal offers service in such a
    market. Nevertheless, this language unravels a U.S. Supreme Court
    victory that our association and our industry were a party to which
    preserved the authority of state governments to limit municipal entry
    as it saw fit. We expended great amounts of time and capital on this
    case and thus cannot easily agree to language that will unravel a
    victory of this nature. Thus, we are opposed to the underlying premise
    of the provision that eliminates state authority to limit municipal
    entry into the broadband arena. However we are supportive of the manner
    in which the language sets the stage to effectuate this.
    Wireless Innovation Networks
        Title VI of this bill is right on target with regard to permitting
    the use of unlicensed wireless devises to make use of eligible
    broadcast television spectrum in a manner that protects the spectrum
    licensee (defined in Section 3(24)) from interference. We support this
    language, but might like to take the opportunity to also include
    language we have advocated with regard to licensed spectrum that would
    force license holders to either use or lose the associated spectrum.
        America's rural communications providers have long demonstrated
    their commitment to providing wireless services to rural consumers by
    investing heavily in an array of such facilities. The vast majority of
    our members offer some form of wireless service, including both mobile
    and fixed voice, broadband data, and paging services. Yet doing so has
    never been easy, and even today they face significant entry barriers.
        There are a number of reasons for this. First, despite clear
    statutory directives to the contrary, policymakers continue to advocate
    the sort of nationwide spectrum licensing that has led to unprecedented
    consolidation within the wireless industry. A lack of ownership
    limitations, inadequate build out requirements, and a failed Designated
    Entity (DE) program have all led to unimaginable concentration within
    the wireless industry. Today, the Nation's top five wireless carriers
    serve 89 percent of the Nation's wireless subscribers compared to only
    50 percent in 1995. Meanwhile, rural carriers are unable to obtain the
    spectrum necessary to serve their markets.
        We believe the FCC's weak population oriented build-out
    requirements must be strengthened to include a geographic orientation
    as well. Furthermore, they should be updated to apply to digital build-
    out to ensure analog systems and their consumers are not abandoned. The
    DE program should be strengthened to ensure that a base percentage of
    licenses in any auction are prohibited from any affiliation with the
    Nation's largest carriers. In addition, the biding credit criteria
    should be strengthened to provide their users with more flexibility to
    compete in the bidding process. Finally, steps should be taken to
    ensure financing options are available to carriers willing to serve the
    Nation's more remote regions.
    Internet Neutrality
        This section of the legislation presumes to give guidance to the
    FCC regarding future regulation of the Internet yet we are concerned
    that it may in fact limit the FCC's ability to act in this regard at
    all. We are particularly concerned with the market power large
    conglomerate do or will have over pricing of special access transport
    to the Internet Backbone and the price of Internet Backbone bandwidth.
    This language should be modified to provide the FCC with the authority
    to regulate the prices, terms and conditions concerning special access
    and Internet backbone facilities. We would ask the drafters to consider
    incorporating the following principles into this section of the bill:

        1. Telecommunications, cable, wireless, satellite, electric and
    other companies are required to provide consumers with non-
    discriminatory access to any lawful content or services on the public
    Internet through their Internet connection and allow consumers to
    attach any lawful equipment to their Internet connection.
        2. Telecommunications, cable, wireless, satellite, electric and
    other companies are allowed to offer tiered/priority private services
    to providers of IP-enabled services who seek to guarantee the quality
    of their services to the telecommunications, cable, wireless,
    satellite, electric and other provider's end-user customers,
    independent of the public Internet.
        3. Internet backbone providers are required to provide all
    telecommunications, cable, wireless, satellite, electric and other
    companies with non-discriminatory access to the Internet backbone,
    including special access transport needed to reach the Internet
    backbone.
        4. Internet backbone providers are required to price their Internet
    backbone service, including special access transport needed to reach
    the Internet backbone, based on their cost to provide the service.
        5. Internet backbone providers are required to provide non-
    affiliated telecommunications, cable, wireless, satellite, electric and
    other companies the same terms, conditions, and prices that the
    Internet backbone providers charge their affiliated companies for
    access to the Internet backbone, including special access transport
    needed to reach the Internet backbone.
        6. Internet backbone providers are required to make publicly
    available all of the terms, conditions and prices for their Internet
    backbone services, including special access transport needed to reach
    the Internet backbone.
        7. To achieve and maintain the goal of universal affordable
    broadband service for all Americans, the FCC shall regulate the terms,
    conditions and prices of Internet backbone services, including special
    access transport need to reach the Internet backbone, to prevent large
    vertically integrated Internet backbone providers from abusing their
    market power by imposing unfair and discriminatory pricing on small,
    rural communications carriers providing retail high-speed Internet
    access service in rural, insular and high-cost areas of the United
    States.
        These net neutrality positions attempt to accomplish the following:
    (1) maintain the current level of consumer freedom on the public
    Internet; (2) allow small rural communications providers the
    opportunity to pursue future revenues streams from IP-enabled service
    providers through tiered/priority pricing of private services; and (3)
    protect small rural communications providers from large vertically
    integrated Internet backbone providers that will abuse their monopoly
    or oligopoly market power in rural areas through unfair and
    discriminatory pricing of Internet backbone services.
        NTCA looks forward to working with this committee to ensure the
    best possible legislative outcome for consumers everywhere.

        The Chairman. Well, thank you very much, Ms. Bloomfield,
    for speaking on behalf of the National Telecommunications
    Cooperative Association.
        We'll now turn to Mr. McSlarrow again, with the National
    Cable & Telecommunications Association.
        Mr. McSlarrow. Mr. Chairman and Mr. Co-Chairman, thank you.
        First, at the outset, let me just say that we support the
    goals of the Universal Service Fund. And, in fact, all of our
    circuit-switched phone services pay into the fund exactly as an
    incumbent telephone company does, and our newer digital voice
    offering, so-called VoIP phone, we voluntarily pay into the
    fund, and we agree with what is in the bill, which is that that
    should be something that should be put into law.
        As we see it, there are really three main issues, at least
    for our industry. I know there are a lot of other issues
    surrounding USF.
        The first is on the contribution methodology. If we're
    trying to make this a stable, predictable, and, I would argue,
    simple methodology, we would submit for your consideration that
    we not allow the FCC a range of options, that we should just
    make it simple, right at the outset, and that we use telephone
    numbers as the basis for a contribution scheme.
        Right now, I think, last year, the disbursements out of the
    fund were about $6.5 billion. The average household in America
    pays, I think, about $2.70 a month into USF. There are two and
    a half telephones per household, so if you just chose a dollar
    per telephone number, you would--the average household would
    pay about the same, and you would raise $6.7 billion, and it
    would be the cleanest, most technology-neutral methodology that
    we could come up with.
        The second issue really goes to eligibility. And here, I
    think the bill really does need some more work. ETCs, under the
    current regime and really carried over into the bill, are
    really looked at through the prism of the incumbent telephone
    company. So, there are all kinds of requirements that, frankly,
    just don't make any sense in an age where you've got a lot of
    new telephone competition, particularly for VoIP providers. And
    I think a very simple principle ought to be applied throughout
    the disbursement scheme, and that is, if you pay into the fund,
    you should be eligible, and the rules should not be too
    centered on what the incumbents have to do. The most obvious
    example of that really goes to--just as the telephone companies
    argue that their telephone footprint should define their video
    service territory, we would argue the same should apply for
    another provider of service when it comes to telephone.
        The third, and very large, issue really deals with
    broadband. And, Mr. Chairman, I realize I'm probably leaning
    into the wind a little bit here, but I think the focus on
    broadband, when it comes to the USF, should really be focused
    on unserved areas. And I commend you and--for putting, in the
    bill, the account for--the broadband account for unserved
    areas. We think that is the right way to target funding to
    areas that don't currently have any kind of broadband service.
        What we're concerned about is a tax on broadband, either
    because the contribution methodology allows us to tax
    broadband--and, as we read the bill right now, arguably the FCC
    could go down that road--or because USF funds are used to
    subsidize competition against private-sector actors who,
    themselves, are putting capital at risk to deploy broadband.
        And, finally, just highlighting the same point we've
    already discussed on the last panel, if you want to deploy
    broadband, we think this is about the investment decisions and
    how you incent investment. And the No. 1 thing I think you
    could do, in addition to not taxing broadband in the USF, is
    not to add Net neutrality to this bill.
        Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Our next witness is, again, Walter McCormick, president and
    chief executive officer of USTelecom.
        Mr. McCormick. Mr. Chairman, thank you.
        We absolutely applaud the importance that you place on
    universal service in this bill. And I strongly agree with Mr.
    McSlarrow that net neutrality would be devastating to rural
    companies.
        Access to affordable, high-quality telecommunications in
    all parts of our country by all Americans is perhaps the single
    most important objective in today's 21st-century information
    economy. It's a more important objective today than it was when
    universal service was established, more than 70 years ago.
        So our members, who have a history of providing service to
    all corners of the country, strongly support your efforts to
    reform universal service. We've grown increasingly concerned
    with the precarious revenue base and the rising expenditures.
    We appreciate your efforts to broaden the base to include
    interstate, intrastate, and international calls, as well as
    other voice communications using alternative technologies.
        We support your efforts to expand the rural exemption, to
    wall off universal service revenues from the Anti-Deficiency
    Act, to prevent a primary line mandate by the FCC, and to
    address the growing problem of phantom traffic.
        Mr. Chairman, if we have a concern, the concern that we do
    have in Title II is the extensive interconnection rights that
    are granted to voice-over-Internet providers, providers that
    have no facilities of their own. Although we respect the
    Committee's desire to promote competition, we believe that the
    provision currently in the bill goes too far. As written, the
    bill would give these kinds of non-facilities-based carriers an
    abundance of rights and privileges, but few of the duties and
    obligations that fall to facilities-based providers who are
    making the infrastructure investments. I am not talking here
    about economic regulation, I am talking about social
    obligations, such as providing 9-1-1 emergency services,
    complying with CPNI requirements, law enforcement obligations,
    and payment of appropriate intercarrier compensation when
    connecting to the public network.
        So, we believe that this language does need to be changed,
    and we believe the interconnection language should be clarified
    to ensure that the rural exemption is, in no way, adversely
    affected. We'd like to continue to work with the Committee on
    these matters, but we want to do so in the context of getting
    this bill done quickly, expeditiously. Your legislation is
    important legislation, important for our national
    competitiveness, important for our communities, important for
    consumers. So, again, we commit ourselves to supporting you and
    moving to enactment this year.
        The Chairman. Thank you very much.
        Our next witness is Steve Largent, Chief Executive Officer
    of The Wireless Association.
        Steve?

      STATEMENT OF HON. STEVE LARGENT, PRESIDENT/CHIEF EXECUTIVE
          OFFICER, CTIA--THE WIRELESS ASSOCIATION'

        Mr. Largent. Thank you, Chairman Stevens and Co-Chairman
    Inouye. It's a pleasure to be with you here this morning--or
    this afternoon. And I thank you for the opportunity to appear
    before you this morning to discuss updating our Nation's
    communications laws--specifically, universal service reform.
        I think it's fair to say that the advent of growth and
    innovation associated with the U.S. wireless industry over the
    last 20 years has been a remarkable success story. However, it
    pales in comparison to the growth of wireless which is taking
    place in countries such as China and India.
        An article entitled ``Spending Spree,'' in May--in the May
    5th issue of U.S. News & World Report cites that there 400
    million cell-phone users in China. The U.S., by comparison, has
    212 million. And, on average, they replace their phones every 3
    to 6 months. Consumers in China can choose from something like
    900 different models, compared with only 80 or so in the United
    States. Companies like Samsung offer a new handset model in
    China as often as once a week. In India, mobile-phone
    subscriptions are growing at a rate of 4 million new
    subscribers a month. Clearly, the wireless wave is a global
    phenomenon.
        I know I've mentioned it before to this Committee, but it
    bears repeating. The wireless Magna Carta that spawned the
    growth of the U.S. wireless industry was the 1993 Budget Act.
    Thirteen years ago, Congress had the foresight to create an
    environment of regulatory restraint that rewards efficiency and
    innovation. As a result, the American consumer has been the
    beneficiary of a variety of carriers to choose from, lower
    monthly bills, cheaper minutes, and new and innovative service
    offerings.
        Ironically, over the last couple of years, the industry has
    become a victim of its own success. Last year alone, there were
    over 1,000 bills introduced in State legislatures across the
    country intended to regulate and micromanage the wireless
    industry. As a result, the industry is threatened by a
    patchwork quilt of regulations that seeks to undermine the
    foresight that this committee exercised back in 1993.
        I believe--and the companies I represent share the view--
    that the legislation we're discussing today, S. 2686, is the
    appropriate legislative vehicle for Congress to reiterate the
    deregulatory national framework which offers consistency across
    50 State jurisdictions. A national wireless framework will
    eliminate confusion for consumers, provide a uniform set of
    rules for carriers to operate in a more efficient manner,
    which, in turn, will allow an industry--our industry--to
    promote access to innovative and convenient wireless devices
    and services to over 200 million wireless consumers.
        If the past is prologue, I don't think it's much of a leap
    of faith to predict that if this Committee adopts a wireless
    national framework, the next wireless renaissance will ensue.
    Just consider what has taken place since 1993. Today there are
    three things you make sure you have before leaving home: your
    wallet, your key, and your wireless device.
        Earlier, I mentioned that there are 400 million cell-phone
    users in China and India, mobile-phone subscriptions are
    growing at a rate of 4 million new subscribers a month. These
    are two very populous nations that, until recently, did not
    have a ubiquitous telecommunications infrastructure. How have
    China and India decided to create a national telecommunications
    infrastructure? Wirelessly.
        I raise this fact to address the wireless industry's
    position on universal service reform. Wireless is the solution,
    not the problem, to providing voice and advanced communications
    throughout the country in a cost-efficient manner. As a
    significant net payor into the universal service system, the
    wireless industry is uniquely positioned to comment on the
    proposals to reform the universal service system. Wireless
    carriers, collectively, are responsible for approximately 32
    percent of the contributions to the universal service, while
    receiving roughly 13 percent of payments. Wireless carriers
    have strong incentives to ensure that the Universal Service
    Fund is no larger than necessary, while ensuring that support
    is available to committed eligible telecommunications carriers
    on a nondiscriminatory basis.
        In general, CTIA supports reforms that will ensure both
    incumbents and competitors receive no more support than is
    necessary to achieve the goals of universal service. As
    Congress considers reforms to the universal service system,
    wireless services must be part of the equation. The 200 million
    wireless subscribers, or, more importantly, those consumers yet
    to receive wireless services, deserve as much.
        Consumers, the only intended beneficiaries of universal
    service, must be the central focus of USF reform. So, what do
    consumers want? If subscribership is any indication, there can
    be little doubt that consumers want access to mobile wireless
    services. While there obviously are many examples of universal
    service support being used by both incumbents and competitors
    to improve coverage and quality of service to consumers, there
    is also significant waste in the universal service system.
        If the experience of the wireless industry can be any
    guide, simplified regulations that encourage and reward
    efficiency will best benefit consumers by ensuring that USF
    support is targeted only to where it is most needed and demands
    accountability by fund recipients.
        Importantly, universal service policies must put power in
    the hands of consumers, and, therefore, must not discriminate
    against wireless carriers. CTIA has long supported market-
    driven efforts to curb demand for universal service subsidies.
    Under CTIA's proposal, both incumbents and competitors would
    receive less support. In short, USF's 21st-century problem
    needs 21st-century solutions.
        Again, thank you for the opportunity to present the
    wireless industry's views on this important legislation, and I
    look forward to answering any questions you might have, Mr.
    Chairman.
        [The prepared statement of Mr. Largent follows:]

      Prepared Statement of Hon. Steve Largent, President/Chief Executive
              Officer, CTIA--The Wireless Association'
        Chairman Stevens, Co-Chairman Inouye and members of the Committee,
    thank you for the opportunity to appear before you and discuss issues
    relating to rewriting U.S. telecommunications laws generally, and
    revisions to the universal service program in particular. As Congress
    considers the important question of how to reform the universal service
    system, we believe there are important lessons that can be learned from
    the wireless industry's last 13 years of delivering enormous benefits
    to American consumers, rural and urban, rich and poor, young and old.
    Thanks in part to the national, deregulatory framework Congress
    established in 1993, the wireless industry has been able to deliver to
    more than 200 million American consumers more choices, faster, than any
    other segment of the telecommunications industry. Wireless offers
    consumers choices among providers, service plans, devices, and most
    significantly, the choice to reach and be reached whenever and
    wherever--the ability to be mobile. As I will discuss today, the
    wireless industry's proven record of success for U.S. consumers and the
    U.S. economy is under siege. The successful framework you established
    in 1993 is being threatened by a growing tide of anti-competitive,
    command-and-control regulations at the federal, state, and local
    levels. We are asking for Federal legislation to ensure that the
    wireless industry remains free from unnecessary, short-sighted
    regulatory constraints so that U.S. consumers can continue to receive
    the best wireless services, applications and devices that the industry
    can produce, at rates the consumer can afford.
        The significant growth and expansion of the competitive mobile
    wireless industry has had a profound impact on the U.S. economy. In
    2004, approximately 3.6 million jobs were directly and indirectly
    dependent on the U.S. wireless telecommunications industry. In that
    same year, the wireless industry generated $118 billion in revenues and
    contributed $92 billion to the U.S. Gross Domestic Product. The
    wireless industry has continued its ongoing investments in the networks
    and other facilities needed to deliver increasingly sophisticated
    wireless services--with almost $200 billion in cumulative capital
    investment as of year-end 2005. Over the past five years, the wireless
    industry invested on average more than $20 billion annually in new
    facilities. In addition, carriers have bid in excess of $20 billion in
    winning spectrum licenses from the FCC.
        Wireless carriers have been successful, in part, because Congress
    created an environment of regulatory restraint that focuses on
    efficiency, innovation, competition and empowers the consumer to be the
    regulator. The FCC most recently reported to Congress that 97 percent
    of the U.S. population lives in counties with access to three or more
    different operators offering mobile telephone service, up from 88
    percent in 2000. This competition has resulted in lower monthly bills,
    cheaper minutes, and new and innovative service offerings. In June
    1992, before Congress enacted the Omnibus Budget Reconciliation Act of
    1993, the average wireless bill was $68.51 per month. As of December
    2005, the average wireless bill was less than $50 per month. For many
    customers, nationwide bucket of minute plans have made wireless the
    service of choice for making long-distance calls. In 1995, the average
    wireless customer used about 115 minutes of service per month. In 2005,
    the average wireless customer used almost 700 minutes of service per
    month. In 1995, there were 37 billion minutes of use on wireless
    networks. In 2005, wireless customers used almost 1.5 trillion wireless
    minutes of service. Now, wireless carriers are in the midst of rolling
    out mobile broadband services.
        As we enter our third decade, the wireless industry is poised to
    enter a Wireless Renaissance, bringing advanced services like wireless
    Internet, to more than 200 million mobile Americans. We are at a
    critical juncture in our evolution and need your leadership to make
    this Renaissance a reality for consumers. American consumers--rural and
    urban, rich and poor--have benefited enormously from your decision in
    1993 to limit regulation of the wireless industry; however, a patchwork
    quilt of state-by-state regulations threatens to undermine the
    principles of the 1993 Act and thereby undercut the ability of wireless
    carriers, suppliers, and developers to collectively bring newer and
    faster and more personal services to wireless consumers and business
    users across the country. Shoring up the national, deregulatory
    framework you created in 1993 is the best way to empower consumers and
    protect their rights and access to innovative, convenient and
    affordable wireless devices and services.
        The wireless industry has developed guidelines that ensure customer
    billing information is clear and non-misleading, while simultaneously
    enabling carriers the flexibility to differentiate themselves in the
    market by competing on customer service features. State-specific
    wireless laws would undermine these market-oriented, consumer-focused
    solutions and hinder the industry's ability to compete in the
    converging telecommunications marketplace. State-by-state wireless
    specific regulation undermines the very purpose of a national,
    deregulatory framework and threatens to undermine the very nationwide
    and regional calling plans that are now so popular with consumers.
    Consumers in rural areas, where the cost of providing service tends to
    be higher, are particularly threatened by regulations that could put an
    end to uniform nationwide calling plans. Wireless consumers need your
    help to stem the growing tide of state regulation before this
    regulatory onslaught washes away the benefits they currently enjoy. We
    believe the best way to do this is to legislate a national framework
    for wireless carrier practices and allow the FCC to regulate only in
    instances necessary for public health and safety or demonstrated market
    failure.
        The industry has proven itself a responsible steward of the
    wireless consumer. Carriers have reduced the number and complexity of
    pricing plans, reduced or eliminated additional charges for roaming,
    peak/off-peak, and long distance calling. Wireless carriers have also
    made enormous improvements in how consumers are informed about,
    acquire, and manage their wireless services. Website and in-store
    literature provide details on price, plans, and other options. Wireless
    carriers have also developed sophisticated on-line tools to provide
    more efficient and user-friendly self-care options--from checking
    minute usage to signing up for new services to paying bills via the
    Internet and via the mobile phone itself. Wireless companies now list
    on their bills contact information not only for their own customer
    service departments, but also for state and Federal regulatory
    agencies, including TTY contact information. More than 200,000 E-911
    calls are made with wireless devices each day. This year, the U.S.
    Attorney General officially commended the industry on its voluntary,
    national Wireless AMBER Alerts Initiative. These are just a few of the
    characteristics that mark a highly competitive, responsible industry
    like the U.S. wireless industry.
        Recently, a concept called ``Net Neutrality'' has generated intense
    debate within the context of broader reforms of our telecommunications
    laws. The wireless industry is very concerned that the proposed Net
    Neutrality regulations being contemplated will drive away the
    investment the industry needs to continue building the infrastructure,
    design the devices and operate the evolving networks needed to sustain
    consumer demand for more advanced mobile services. The industry is also
    concerned that many of the unintended consequences that would flow from
    some of the Net Neutrality regulations being considered would have a
    particularly negative impact on wireless consumers. CTIA believes the
    Internet has derived its strength and contributed to the economy by
    virtue of its freedom from regulation and therefore believes the net
    neutrality provisions of the Communications, Consumer's Choice, and
    Broadband Deployment Act of 2006, which calls for a review of the
    current system, in lieu of regulation, is appropriate absent market
    failure.
        The industry agrees with FCC Chairman Martin that the FCC already
    has the jurisdiction and ability to address any problems in this area
    and urges you to carefully consider the unintended, negative
    consequences that could befall the U.S. wireless consumer if
    anticipatory regulations are enacted. The Internet, like the wireless
    industry, has never stopped growing and evolving. There is no reason to
    restrict the growth or evolution of either, unless and until a real
    marketplace failure is identified.
    Universal Service Reform
        As a significant net payer in to the universal service system, the
    wireless industry is uniquely positioned to comment on proposals to
    reform the universal service system. When it comes to universal
    service, the wireless industry writes more checks than it cashes.
    Wireless carriers collectively are responsible for approximately 32
    percent of contributions to universal service, while receiving only
    approximately 13 percent of payments. Wireless carriers have strong
    incentives to ensure that universal service contributions are collected
    from as wide a base of contributors as possible, while ensuring that
    both incumbent and competitive eligible telecommunications carriers
    (ETCs) receive no more support than is necessary to achieve the goals
    of universal service. As I will discuss, both the contribution and
    distribution sides of the universal service equation are in urgent need
    of reform.
        Universal Service Contributions. On February 28, 2006, CTIA
    appeared before this Committee to present its views on reforming the
    universal service contribution methodology. At that hearing, CTIA
    described its proposal for the FCC to transition from the current
    revenue-based system to a numbers- and capacity-based system. Under
    CTIA's proposal, all switched connections would be assessed based on
    working telephone numbers and non-switched connections would be
    assessed based on capacity. CTIA believes that a numbers- and capacity-
    based contribution system will best adapt to the evolving multi-
    dimensional communications market in which we now operate. The current
    revenue-based system simply is no longer sustainable and must be
    scrapped.
        CTIA has designed its proposal to ensure that no consumer groups
    will be unfairly disadvantaged as a result of the transition to a
    numbers- and capacity-based system. Under CTIA's proposal before the
    FCC, the typical household would pay about the same universal service
    costs as it does today. CTIA has achieved that result by providing safe
    harbors for certain broad customer categories--for example, exempting
    low-income Lifeline and Link-Up customer numbers from contribution
    obligations. CTIA's proposal also provides safe harbors for wireless
    family plan and wireless prepaid customers. We welcome legislation
    under consideration that would give the FCC flexibility to transition
    to a numbers-based system that addresses the critical needs of
    residential customers.
        Universal Service Distributions. Let me turn now to the
    distribution side of the universal service equation. The wireless
    industry shares Congress's concerns about growth in the size of the
    Universal Service Fund. Since 1997, wireless carriers and their
    customers have paid almost $7 billion into the Universal Service Fund.
    The wireless industry's contribution to universal service is
    significant and growing. At the same time, wireless carriers continue
    to receive less than 20 percent of high-cost universal service support
    and about 13 percent of universal service support overall. Since 1997,
    of the $22 billion spent on high-cost universal service subsidies, $
    20.9 billion has gone to incumbent LECs and only $ 1.1 billion has gone
    to wireless carriers. Simply put, wireless carriers and their customers
    pay too much into the Universal Service Fund and receive too little in
    return. CTIA, therefore, is calling for commonsense, market-oriented
    reforms to the universal service system. More of the same is not
    acceptable.
        Although most of the wireless industry's growth has occurred
    without the benefit of universal service subsidies, universal service
    can and does play a critical role in improving access to wireless
    services in high-cost, rural areas. Wireless deployment in some rural
    areas has occurred because of wireless carrier access to universal
    service support. In a few short years, wireless ETCs have achieved a
    great deal. For example, Cellular South serves 380,000 square miles of
    rural territory in Mississippi and is using high-cost support to
    significantly expand its network capacity. Centennial Wireless has
    brought mobile wireless services to communities, such as Shaw and
    Blackhawk, Louisiana, that previously had no telephone service at all,
    wireline or wireless. On the Pine Ridge Indian Reservation in South
    Dakota, Alltel has used universal service to increase telephone
    penetration rates from 27 percent to 92 percent in only five years.
    These are areas where the incumbent carrier--the ``carrier of last
    resort''--was unwilling or unable to serve all customers. There are
    numerous other examples.
        Any universal service reform that discriminates against wireless
    carriers will disserve consumers and must be rejected. CTIA has
    supported proposals to ensure that universal service support is used
    only for its intended purposes. CTIA supports stringent guidelines
    adopted by the FCC requiring both incumbent and competitive ETCs to use
    high-cost universal service support to provide supported services to
    requesting customers throughout a designated service area (in essence,
    a ``carrier of last resort'' obligation). CTIA welcomes this
    Committee's focus on universal service accountability, but that
    accountability should apply to both incumbent ETCs and new entrants.
        CTIA strongly opposes any anti-competitive proposals to
    discriminate against wireless carriers in the name of accountability.
    For example, CTIA opposes proposals to require competitive ETCs to
    serve an entire incumbent LEC service area in order to receive
    universal service support. Wireless licensed service areas often do not
    match incumbent LEC service areas. Wireless licensed service areas are
    determined by the FCC, not wireless carriers. Denying wireless carriers
    designations under such a scenario would in some cases prevent wireless
    carriers from bringing wireless service to remote underserved areas.
        In addition, CTIA opposes proposals to require wireless carriers to
    become like wireline carriers in order to receive high-cost universal
    service funding--something that contradicts the expectations of
    consumers. Just as wireline ETCs should not be required to offer
    mobility, wireless ETCs should not be required to offer local usage and
    other wireline service packages that are comparable to that offered by
    the relevant incumbent carrier. CTIA believes that consumers, not
    regulators, should decide whether they would rather pay one amount for
    unlimited local usage in a small incumbent LEC local calling area, or a
    different amount for a certain number of minutes in a much larger
    (perhaps even national) wireless local calling area. There is no
    rational basis to determine whether two plans are ``comparable'' other
    than consumer choice. Likewise, CTIA opposes proposals to require
    wireless carriers to offer equal access, something wireless consumers
    clearly do not want. CTIA does not believe it is appropriate for
    government to second guess consumers.
        CTIA is particularly troubled by proposals to calculate competitive
    ETC support based on companies' embedded or ``actual'' costs. Such
    proposals threaten the efficiency and innovation that has been a
    hallmark of the wireless industry's incredible success over the last
    decade. The embedded cost system has produced increasing demand for
    subsidies by incumbent LECs. This trend--reflecting incentives for
    inefficiency inherent in any ``actual'' cost system--should not be
    replicated for competitive carriers. Neither the incumbent nor the
    competitor should receive high-cost support based on their ``actual''
    costs. Rather, as discussed below, both incumbents and competitors
    should receive equal ``per-line'' support based on the costs of the
    most efficient technology for a given geographic area. We welcome the
    Stevens/Inouye bill to the extent it does not include an ``actual''
    cost requirement.
        If you do not address Universal Service Fund growth by
    discriminating against competitors, what should be done? The best way
    to answer that question is to first look at all that is wrong with the
    current high-cost universal service mechanisms--which represent an
    increasing majority of the overall Universal Service Fund. There are
    numerous problems with the high-cost mechanisms, such as: (1)
    incentives for inefficiency; (2) enrichment of incumbent LEC profits;
    and (3) impenetrable administrative complexity. Taken together, these
    problems result in a bloated fund that does not effectively target the
    appropriate levels of support to different high-cost areas. As a
    result, the high-cost support mechanisms do a poor job of ensuring that
    all Americans have access to high-quality, affordable
    telecommunications and information services. Moreover, the high-cost
    support mechanisms undermine the efficient development of competition
    as envisioned by the Act. All of these problems illustrate the need for
    reform.
        As mentioned earlier, efficiency and innovation have been hallmarks
    of the wireless industry. We think universal service policies should
    replicate those values as much as possible. CTIA has long supported
    market-driven efforts to curb demand for universal service subsidies.
    Under CTIA's proposals, both incumbents and competitors would receive
    less support.
        At the FCC, CTIA has proposed combining the current five high-cost
    universal service mechanisms into one mechanism that calculates support
    based on the most efficient technology--whether wireline or wireless--
    in a small geographic area. CTIA is open to other market-driven
    proposals (such as reverse auctions) that would encourage carriers to
    bid down the price of universal service. CTIA also has proposed shorter
    term reforms within the context of the current embedded cost
    mechanisms. For example, CTIA has supported:

            1. Eliminating profit guarantees in the high cost mechanisms
            (We think carriers should get their profits from their own
            customers, not through the universal service mechanisms);

            2. Requiring carriers to combine study areas in a given state
            (The current rules allow large, low-cost incumbents to appear
            small and high-cost by balkanizing their operations within a
            state); and

            3. Transitioning larger rural incumbent LECs to the non-rural
            high-cost mechanisms.

        We are open to other proposals and look forward to a continuing
    dialogue with this Committee and Congress on these important issues.

        The Chairman. Well, thank you very much.
        Our next witness is Joslyn Read, Chairman of the board of
    the Satellite Industry Association.

      STATEMENT OF JOSLYN READ, CHAIRMAN OF THE BOARD, SATELLITE
                       INDUSTRY ASSOCIATION (SIA)

        Ms. Read. Thank you, Mr. Chairman and Co-Chairman Inouye
    and distinguished Members of the Committee.
        I'm head of regulatory affairs for Hughes Network Systems,
    and I am Chairman of the Board of the Satellite Industry
    Association, and will be speaking today in my role as the chair
    of the SIA.
        On behalf of SIA, we would like to thank you again for
    recognizing the critical role that satellite communications
    play in meeting the important broadband needs of customers and
    businesses throughout the United States and the vital
    communication needs of our Nation's first-responders.
        As the Committee Members know all too well, in rural areas,
    where terrestrial-based communications solutions do not reach
    all residents, satellite broadband, satellite television and
    radio, and many other satellite services provider consumers and
    businesses with a wealth of voice, video, data, and other
    applications they otherwise would not have access to from
    terrestrial providers.
        Furthermore, in areas where terrestrial services are
    available, satellite services give consumers all the benefits
    of competition, including greater diversity of service
    offerings, incentives for improving service quality, and
    downward pressure on pricing.
        On behalf of the SIA, I would like to offer our support
    today for two specific provisions in S. 2686.
        First, I'd like to focus on section 252 and the role that
    satellites have played, and will continue to play, in America's
    broadband rollout. In a recent report to this committee, the
    GAO reported that 17 percent of rural households subscribe to
    broadband service, while 28 percent of suburban, and 29 percent
    of urban, households subscribe to broadband service. The
    economics are simply that fewer rural households will ever be
    served by DSL or cable modem service than is ever the case in
    our cities and suburbs.
        Satellite-based broadband is ideal for addressing this
    digital deficit. Satellite service providers today provide
    broadband to more than 330,000 American consumers and small
    businesses, and we can serve more. However, until now, most
    satellite broadband providers have been ineligible to
    participate in many of the USF distribution programs, for two
    reasons. First, because satellite operators typically conduct
    their business as noncommon carriers, and, therefore, cannot
    qualify for U.S. distributions earmarked for common carriers.
    And, second, because the nature of satellite communications
    requires that our network infrastructure be constructed and
    launched before even the first customer can be served.
        This has resulted in a situation where terrestrial network
    providers can potentially build out broadband-capable networks
    with financial assistance from the Universal Service Fund,
    while many satellite service providers cannot apply for like
    assistance. The result is a competitively skewed marketplace.
        Satellite networks have no fiber to lay, and no wireless
    towers to construct to extend our networks to reach new users.
    The ``last mile'' for satellite broadband service is, instead,
    the deployment and activation of satellite customer premises
    equipment.
        S. 2686 is the first legislation that recognizes that
    satellite broadband customers should benefit from the Federal
    incentives that have long been available for rural broadband
    customers using other technologies. By making satellite
    customer premises equipment eligible as a USF project, this
    legislation establishes a competitively level playing field on
    par with our wireline, and wireless competitors. Thank you for
    your leadership in this area.
        Second, Mr. Chairman, I would like to focus for a moment on
    Section 151, the Strategic Technology Reserve portion of the
    bill, which proposes additional funding for Federal, State, and
    local public safety and first-responders to preposition
    communications equipment, including satellite equipment of all
    kinds, to help prepare for future emergencies.
        As we all know, satellite communications has played a
    critical role during the response to each of the natural and
    manmade disasters in recent years. Following the terrorist
    attacks of September 11, when New York City's terrestrial
    communications networks were damaged and overloaded, satellite
    communications services easily maintained connectivity, and
    satellite equipment was quickly deployed to meet urgent needs.
        In 2005, satellite communications provided a lifeline for
    aid workers and victims in the remote islands of the Indian
    Ocean and in the earthquake desolated towns and villages of
    Pakistan.
        Again in 2005, satellite communications proved their
    essential when all other forms of communication were wiped out
    in the Nation's Gulf region following the devastation caused by
    Hurricanes Katrina, Rita, and Wilma.
        Had satellite equipment been more effectively pre-
    positioned and integrated into our emergency communications
    network, many of the communications problems that occurred
    along our Gulf Coast in 2005 and in New York City in 2001 would
    have been substantially mitigated.
        Therefore, we thank the Chairman, the Co-Chairman, and the
    Members of the Committee for creating the Strategic Technology
    Reserve Initiative. This will provide our Nation's first-
    responders with the communications equipment that they need.
        In sum, the Satellite Industry Association would like to
    commend the Chairman and the Co-Chairman on S. 2686, for the
    proposed reforms to the Universal Service Fund system, and for
    its improvement to public safety communications. SIA looks
    forward to working with you and the rest of the Committee
    members and their staffs on this important legislation.
        Thank you.
        [The prepared statement of Ms. Read follows:]

           Prepared Statement of Joslyn Read, Chairman of the Board,
                      Satellite Industry Association (SIA)
        Mr. Chairman, Co-Chairman Inouye, and other distinguished members
    of the Committee, I would like to thank you for holding this hearing
    today on S. 2686 the ``Communications, Consumer's Choice, and Broadband
    Deployment Act of 2006.'' Our telecom laws, while not broken, are
    clearly in need of updating. I commend you on your leadership in
    undertaking that difficult task.
        I am here today in my role as Chair of the Satellite Industry
    Association (SIA). \1\ On behalf of the satellite industry, we would
    like to thank you for again recognizing the critical role satellite
    communications play in meeting the important broadband needs of
    consumers and businesses throughout the United States, and the vital
    communications needs of our Nation's first responders.
    ---------------------------------------------------------------------------
        \1\ SIA is a U.S.-based trade association providing worldwide
    representation of the leading satellite operators, service providers,
    manufacturers, launch services providers, and ground equipment
    suppliers. SIA is the unified voice of the U.S. satellite industry on
    policy, regulatory, and legislative issues affecting the satellite
    business. Additional information can be found at www.sia.org.
    SIA Executive Members include: Artel Inc.; The Boeing Company; The
    DirecTV Group; Globalstar LLC; Hughes Network Systems LLC.; ICO Global
    Communications; Integral Systems, Inc.; Intelsat Ltd.; Iridium
    Satellite LLC; Lockheed Martin Corp.; Loral Space & Communications
    Ltd.; Mobile Satellite Ventures LP; Northrop Grumman Corporation;
    PanAmSat Corporation; SES Americom, Inc.; and TerreStar Networks Inc.;
    and Associate Members; ATK Inc.; EMC Inc.; Eutelsat Inc.; Inmarsat
    Ltd.; IOT Systems; Marshall Communications Corp.; New Skies Satellites
    Inc.; Spacecom Corp.; Stratos Global Corp.
    ---------------------------------------------------------------------------
        Mr. Chairman, as you and Co-Chairman Inouye know all too well, in
    your home states of Alaska and Hawaii--and in other rural areas where
    terrestrial based communications solutions do not reach all residents--
    satellite broadband, satellite television, satellite radio, and a host
    of other satellite services provide consumers and businesses alike with
    a wealth of voice, video, and data services and applications they
    otherwise would not have access to from terrestrial providers.
        Furthermore, in areas where terrestrial services are available,
    satellite services give consumers all the benefits of competition,
    including greater diversity of service offerings, incentives for
    improving service quality, and downward pressure on pricing.
        On behalf of the SIA, I would like to offer our support today for
    two specific provisions in S. 2686:

       Section 252--the Establishment of a Broadband for Unserved
            Areas Account which would designate both satellite service
            providers and satellite broadband consumer premises equipment
            eligible for funding from the USF Account.

       Section 151--the Strategic Technology Reserve Initiative
            which proposes additional funding for federal, state, and local
            public safety and first responders to pre-position or purchase
            communications equipment, including satellite equipment, in
            advance to help prepare for future emergencies.

    Section 252
        First, I would like to focus on Section 252 and the role that
    satellites have played, and will continue to play in America's
    broadband rollout.
        In a recent report to this Committee, the GAO found that
    ``households residing in rural areas were less likely to subscribe to
    broadband service than were households residing in suburban and urban
    areas. Seventeen percent of rural households subscribe to broadband
    service, while 28 percent of suburban and 29 percent of urban
    households subscribe to broadband service.'' \2\ While this does not
    represent discrimination on the part of wireline providers, the
    economics are such that fewer rural households will ever be served by
    DSL or cable modem service, than is the case in our cities and their
    suburbs.
    ---------------------------------------------------------------------------
        \2\ Broadband Deployment Is Extensive throughout the United States,
    but It Is Difficult to Assess the Extent of Deployment Gaps in Rural
    Areas (hereinafter ``GAO Broadband Report''), GAO-06-426, May 2006, at
    12.
    ---------------------------------------------------------------------------
        Satellite-based broadband is ideal for addressing this digital
    deficit. The GAO noted that ``satellite could be a cost-effective
    mechanism to provide broadband infrastructure into rural areas.'' \3\
    Satellite service providers today provide broadband service to more
    than 330,000 American consumers and small businesses--and we could do
    more.
    ---------------------------------------------------------------------------
        \3\ GAO Broadband Report, Page 35.
    ---------------------------------------------------------------------------
        Whether as providers of satellite voice communications or of other
    types of satellite-based telecommunications services, satellite service
    providers are part of the Universal Service Fund contribution system--
    we have been contributing to the USF for years. However, the USF
    provisions currently in the Act and the Commission's rules have in
    practice precluded satellite-based services from participating in many
    USF distribution programs.
        This inefficiency has resulted in a situation where terrestrial
    network providers can potentially build out broadband-capable networks,
    with financial assistance from the Universal Service Fund, while many
    satellite service providers cannot apply for like assistance. The
    result is a competitively skewed marketplace.
        For the first time ever, this legislation, S. 2686, the
    ``Communications, Consumer's Choice, and Broadband Deployment Act of
    2006,'' recognizes that satellite service providers facilitate Internet
    connectivity to America's rural and remote communities, and that these
    satellite service providers should be eligible to participate in
    universal service distribution programs on the same basis as their
    terrestrial competitors.
        Until now, most satellite broadband providers have been ineligible
    to participate in many USF distribution programs for two reasons: (1)
    because satellite operators typically conduct their business as non-
    common carriers, and therefore cannot qualify for USF distributions
    earmarked for common carrier services, and (2) because the nature of
    satellite communications requires that all network infrastructure be
    constructed and launched before even the first customer can be served.
        We have no fiber to lay and no wireless towers to construct to
    extend our networks to reach new users. The ``last mile'' for satellite
    broadband service is instead the deployment and activation of satellite
    customer premises equipment. S. 2686 is the first legislation that
    recognizes that satellite broadband customers should benefit from the
    Federal incentives that have long been available for broadband services
    using other technologies.
        Importantly, many of these satellite customers are in rural and
    remote parts of the United States. By making customer premises
    equipment eligible as a USF ``project,'' your legislation significantly
    enhances satellite's capability to compete throughout rural America in
    a technologically neutral fashion and on a level playing field with our
    wireline competitors. Thank you for your leadership in this area.
        With regard to other elements in the universal service section of
    the bill, we endorse the freedom that S. 2686 would grant the FCC to
    revise existing policies and construct a well-balanced universal
    service contribution and distribution system. In designing such an
    even-handed system, the unique features of different broadband
    technologies, including satellite, must be taken into account.
    Section 151
        Second, Mr. Chairman, I would also like to focus for a few moments
    on Section 151, the Strategic Technology Reserve portion of the Bill
    which proposes additional funding for federal, state, and local public
    safety and first responders to pre-position communications equipment,
    including satellite equipment of all kinds, to help prepare for future
    emergencies.
        As we all know, satellite communications have played a critical
    role during the response to each of the natural and man-made disasters
    in recent years. Following the terrorist attacks of September 11, 2001,
    when New York City's terrestrial communications networks were damaged
    and overloaded, satellite communications services easily maintained
    connectivity and satellite equipment was quickly deployed to meet
    urgent needs. In 2005, satellite communications provided a lifeline for
    aid workers and victims in the remote islands of the Indian Ocean and
    in the earthquake-desolated towns and villages of Pakistan. And most
    recently during last year's hurricane season, satellite communications
    once again proved their essential value when all other forms of
    communication were wiped out in the Nation's Gulf region following the
    devastation caused by Hurricanes Katrina, Rita and Wilma.
        Quite simply Mr. Chairman, while the outages on terrestrial
    networks surged in the days following these events, satellite service
    providers stepped in to seamlessly handle a corresponding surge in
    demand for capacity and service.
        When the terrestrial telephone and broadcast networks went down,
    satellite networks maintained service. Satellites connected emergency
    personnel and first responders. Satellites reconnected communities. And
    satellites enabled the world to witness the devastation of these
    disasters and also the many acts of heroism.
        In addition to the ``mobile satellite'' service providers, the
    ``fixed satellite'' service providers and their resellers stepped in
    immediately to provide instant infrastructure and emergency voice,
    video, and data communications in these hard-hit areas. Satellite
    companies offered a wide range of services, from transportable ATM
    machines to high-speed Internet access for families to stay connected,
    to dozens of organizations, including Federal, State, and local
    government agencies to schools, churches, and local relief
    organizations.
        Small businesses such as retail gas stations and convenience
    stores, and larger businesses such as insurance companies, banks, and
    news organizations also used satellite capacity. For example, one
    satellite provider re-established Wal-Mart's satellite communications
    network, helping Wal-Mart become one of the `life-support systems' for
    local communities during their recovery.
        Satellite operators also reconfigured capacity and service to help
    cellular providers such as Cingular and Sprint Nextel, and long
    distance carriers MCI and AT&T re-establish their networks and provided
    connectivity to mobile vans for relief agencies.
        The satellite television broadcast community also played a key
    role, by helping to ensure there was an efficient method of
    communicating critical information to first responders and the general
    population within the areas affected by Hurricanes Katrina and Rita.
    For instance, a 24/7 dedicated broadcast station was made available to
    FEMA and the Red Cross for disseminating hurricane-related information.
        In addition, over 20,000 satellite phones and terminals were
    deployed to the region in the days immediately following landfall.
    First responders, relief workers, government officials, reporters and
    others quickly demanded additional phones, and despite the impressive
    statistic that I just cited, for each phone and terminal provided,
    countless requests were unmet because equipment supplies were soon
    exhausted.
        Though the performance of satellite networks and equipment were
    impressive, their use was limited by a lack of preparation and
    training. Had satellite equipment been more effectively pre-positioned
    and integrated into our emergency communications network, many of the
    communications problems that occurred in Alabama, Louisiana, and
    Mississippi recently, and in New York City after 9/11 would have been
    substantially mitigated.
        Until recently, satellite communications was only considered as a
    last resort option when terrestrial facilities failed. Until recently,
    the availability of satellite equipment for emergency response had been
    handled largely by relying on whatever excess capacity exists after the
    event. The 2005 hurricane season demonstrated that this type of
    reliance is flawed and ultimately dangerous. Given the advance warnings
    for Hurricanes Katrina, Rita and Wilma, satellite handsets, mobile
    terminals, and small transportable satellite antennas could have been
    better pre-positioned in the region prior to landfall and available for
    immediate deployment in the aftermath.
        Therefore, we commend the Chairman and the members of the Committee
    for learning from these recent disasters and creating the Strategic
    Technology Reserve Initiative which will allocate funding for Federal,
    State, and local first responders and enable them to think
    strategically about the satellite communications equipment, including
    but not limited to satellite telephones, that they will need to
    adequately respond to a disaster, before such an event occurs.
        Satellite products work today. They provide redundancy today. They
    work with other communications systems today. As such, the Government
    needs to facilitate a wider pre-positioned deployment of these assets
    today by ensuring that satellite capacity and equipment become part of
    the comprehensive redundant communications solutions for first
    responders at the planning stages, rather than at the last minute.
        In recent months, there have been calls for a new interoperable
    communications network for federal, state, and local first responders
    and funding for new technologies and networks that can withstand such
    disasters. The satellite industry has heeded those calls. Several
    satellite companies are moving toward deploying hybrid satellite-
    terrestrial networks that will provide greater redundancy and
    interoperability than any previous communications medium. Others are
    enhancing their service provision to configure needed services on a
    moment's notice.
        The satellite industry is working hard to maximize utilization of
    the highly survivable, redundant, and ubiquitous services that are
    uniquely available via space communications today. Interoperability is
    an important goal, but you must ensure operability following a disaster
    before you can benefit from interoperability.  Mr. Chairman and Mr. Co-
    Chairman, we submit to you today that satellite communications provide
    that vital operability when terrestrial networks have been damaged or
    destroyed.
    Closing
        In sum, the Satellite Industry Association would like to commend
    the Chairman and the Committee on S. 2686--for the proposed reforms to
    the Universal Service Fund system and for its improvement to public
    safety communications in preparation for the next natural disaster or
    national emergency. SIA looks forward to working with you and the rest
    of the Committee Members and their staffs on this important
    legislation.
        Thank you.

        The Chairman. Thank you very much.
        Our last witness is Mr. Philip McClelland, senior assistant
    consumer advocate for the Office of Consumer Advocate,
    Harrisburg, Pennsylvania.
        Mr. McClelland?

       STATEMENT OF PHILIP McCLELLAND, SENIOR ASSISTANT CONSUMER
        ADVOCATE, OFFICE OF CONSUMER ADVOCATE; ON BEHALF OF THE
       NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES
                                (NASUCA)

        Mr. McClelland. Thank you. And I appreciate the opportunity
    to speak with you today.
        As mentioned, I am from the Pennsylvania OCA. I also serve
    as the State staff chair on the Universal Service Joint Board.
    Today, I represent our National Association of State Utility
    Consumer Advocates. We appreciate the opportunity to testify on
    this reform of universal service with S. 2686 and for
    continuing to consult with the consumers on these important
    issues.
        Of course, everybody's mentioned that we've had universal
    service under the 1996 Act for 10 years, and the USF has grown
    from about 1.8 billion to 6.9 billion. State and Federal
    programs are paid for by the consumers that we represent, and
    are intended to benefit them, as well. I've attached some
    charts to the testimony, showing the outlays of the Federal
    fund.
        S. 2686 does respond well to some of the issues that we've
    developed in the last 10 years. As you know, for example, it's
    been harder to assess interstate-only revenues over the years.
    The debates over telecom information and VoIP services have
    tended to shrink the revenue base. Growing payments to wireless
    carriers were also a surprise, and they now take about 16
    percent of the Federal high-cost payments. Broadband, of
    course, has grown in importance. And, 10 years out, it's
    important and useful to go back and take another look at the
    Act and all the universal service provisions.
        NASUCA generally supports the changes proposed by S. 2686.
    We have a few suggestions of ways to further strengthen the
    bill.
        It's important to expand the revenue base. The contribution
    factor has now increased to about 10.9 percent. Of course, with
    the expansion, that should fall. Particularly, we appreciate
    the language limiting the contribution from residentials,
    family plans, and lifeline customers. Low-income customers have
    often been exempted from such assessments. And NASUCA has been
    concerned about equal assessments on phone numbers, regardless
    of usage, as potentially being unfair to some customers. And
    language is included to address these issues.
        We also recognize that the bill would allow Federal USF
    assessments to be applied to both intrastate and interstate
    revenues. And that's good. That should resolve some of the
    issues. We also suggest, if this change is going to be made,
    that State Universal Service Funds should also be offered the
    opportunity to assess both intra- and interstate revenues. They
    have had the same limitation on intrastate-only. It has
    conflicted with their ability to sustain their programs, as
    well.
        On the broadband support, one of the principal concerns
    with past issues of broadband expansion of the USF has been the
    potential open-ended cost. Establishing a $500 million fund
    limits those concerns and does appear to be a positive way to
    approach this issue.
        It's also important that all carriers receiving USF should
    offer broadband. Most do. But sometimes the most rural
    customers are left out. It was not entirely clear, from our
    reading, that the bill was intended for those supported
    carriers, that all lines would receive broadband. We would
    suggest that that should be made clear. And we think that's the
    intention of the bill.
        For eligible telecom carriers, there are some new
    restrictions proposed. We think those are good ones. As
    mentioned in our testimony, right now a competitive ETC
    receives the same support as an incumbent ETC. Receiving the
    same support with multiple supported carriers for multiple
    lines in one place can create great amounts of support, both in
    that area and then for the fund, in general. We appreciate the
    effort to contain those. We do feel that, in the future--and
    it's awful hard to predict how the fund might grow and what
    might come next--that the FCC should have a full toolbox of
    potential remedies to restrict the size of the fund, even as we
    broaden its base and lower the contribution factor.
        Two final issues. We recognize the importance of broadband.
    We think network neutrality, particularly as we are--would now
    be supporting broadband, remains an important issue. We think
    supported services certainly should have that opportunity. We
    also appreciate, in this bill, the lack of State pre-emption on
    consumer protections. We have asserted, in our February
    hearing, for example, that it was not appropriate to penalize
    consumers by having any special exemptions on State consumer
    protection laws. We're happy to see that not included.
        Thank you.
        [The prepared statement of Mr. McClelland follows:]

      Prepared Statement of Philip McClelland, Senior Assistant Consumer
       Advocate, Office of Consumer Advocate; on Behalf of the National
            Association of State Utility Consumer Advocates (NASUCA)
        My name is Philip McClelland and I am a Senior Assistant Consumer
    Advocate with the Pennsylvania Office of Consumer Advocate. I also
    serve as the State Staff Chair on the Universal Service Joint Board.
    The Pennsylvania Office of Consumer Advocate is charged with the
    responsibility of representing Pennsylvania consumers in state and
    Federal proceedings which may affect rates and service for electricity,
    gas, telephone and water service. My office is also a member of the
    National Association of State Utility Consumer Advocates (NASUCA), an
    organization of 44 state utility consumer advocate offices from 42
    states and the District of Columbia, charged by their respective state
    statutes with representing utility consumers before state and Federal
    utility commissions and before state and Federal courts. I greatly
    appreciate the opportunity to testify at this legislative hearing on
    the prospects for reform of universal service in light of the
    provisions of The Communications, Consumer's Choice and Broadband
    Deployment Act of 2006.
    I. Introduction
        First, I would like to commend Chairman Stevens and Senator Inouye,
    the members of the Committee, and your staffs for continuing
    discussions on these issues which have lead to the introduction of S.
    2686 which takes on a number of important issues concerning universal
    service. I and other members of NASUCA truly appreciate your continuing
    efforts to seek the views of consumers on these important issues. We
    look forward to continuing to work with you in developing
    telecommunications policies and legislation that benefit all consumers
    and the Nation as a whole. I am testifying today on behalf of NASUCA.
    II. Background
        The universal service provisions of the Telecommunications Act of
    1996 have been in effect for more than 10 years. The Federal and state
    universal service funds have brought a number of benefits to consumers.
    NASUCA and its members represent the consumers who pay for the USF and
    who are intended to receive the benefits as well. Federal USF outlays
    have now grown from $1.8 Billion in 1997 to $6.9 Billion in 2005. \1\
    We are mindful of balancing the benefits to consumers with the costs
    that these programs impose.
    ---------------------------------------------------------------------------
        \1\ Attached are various graphs and charts indicating outlays on a
    national and state basis as Appendices A and B.
    ---------------------------------------------------------------------------
        During the course of these 10 years, issues have developed that
    were difficult to anticipate when the 1996 Act was passed. Notably, it
    has become increasingly difficult to segregate revenues by
    jurisdiction. This has caused problems in accurately assessing Federal
    USF fees--and for consumers to understand how their USF surcharge was
    calculated on the bill. There has been a general concern that assessing
    only interstate telecommunications services will make it more difficult
    to sustain the operation of the fund.
        Adding to this problem has been a complicated debate concerning
    what services are telecommunications services and what services are
    information services. This definitional discussion has limited what
    revenues can be assessed and what services can be supported. It has
    been difficult to determine what role the growing market for Voice over
    Internet Protocol (VoIP) and other software-defined services should
    play related to the USF.
        Further complicating the management of the USF was the decision
    that it should be subject to the Anti-Deficiency Act. If applied, this
    would effectively restrict the ability of the Universal Service
    Administrative Company (USAC) to fund completely the demands upon the
    USF based upon incoming revenues.
        Particularly important, and relatively unexpected, is the growing
    payments to wireless carriers as Competitive Eligible
    Telecommunications Carriers (CETCs). \2\ Wireless carriers received
    $0.5 Million in High Cost Support in 1999 and $637 Million in such
    support in 2005. The wireless industry has grown dramatically in high
    cost areas and now receives 16 percent of all Federal USF high cost
    payments disbursed.
    ---------------------------------------------------------------------------
        \2\ S. 2686 appears to change the designation of Eligible
    Telecommunications Carriers to Eligible Communications Carriers. I will
    use the term ECC in the remainder of this testimony.
    ---------------------------------------------------------------------------
        It is not surprising that 10 years out it is time to reexamine the
    statutory rules for universal service. It speaks well of the ambitious
    program that was passed in 1996 that it needs relatively minor repair
    in 2006.
        NASUCA generally supports the changes proposed by S. 2686 in
    universal service. It is important that many of these changes, which
    have been long debated, be passed into law in the near future. The Bill
    reflects a careful consideration of many universal service issues and
    maintains the successful features of universal service that have served
    the country well over many years. NASUCA will also suggest ways in
    which S. 2686 may be modified to further strengthen its usefulness.
    III. The Funding Base
        As I mentioned earlier, it is important to recognize the growth in
    the telecommunications network that has taken place in the past 10
    years. NASUCA has long called for an expansion of the base upon which
    USF funding is calculated. S. 2686 achieves that goal by drawing in all
    telecommunications, broadband and VoIP revenue to the funding base.
        The current contribution factor announced by the FCC is 10.9
    percent on interstate revenues. This has grown from 5.7 percent in the
    fourth quarter of 2000. Such an increase in the factor may drive
    consumers from the assessed base of interstate telecommunications
    services toward other services. Broadening the base will ensure that
    all sectors of the telecommunications industry contribute to the
    support of universal service, and will certainly serve to limit the
    size of such a factor in the future.
        NASUCA also recognizes and supports the provision that the FCC
    should adjust the contribution requirements related to low volume
    residential customers, family plans, and lifeline services. NASUCA is
    concerned that, if we migrate from the current revenue--based system to
    some other basis for contributions, the residential customer--
    particularly the low-use residential customer--may pay an unreasonable
    share of USF costs. For example, assessing contributions based on
    telephone numbers may assess two telephone lines equally, even though a
    business line takes a thousand calls a day, while a residential line is
    rarely used. We appreciate the effort to achieve fairness on these
    issues.
        Exempting Lifeline customers from the USF assessment is a
    particularly important provision. Lifeline customers receive a
    reduction in their telephone bill so they may continue to afford
    service. Such customers have often been exempted from other assessments
    in order to maintain their service.
        NASUCA recognizes that S. 2686 would allow the Federal USF
    assessment to be applied to both intrastate and interstate revenue. We
    also recognize in the Bill the effort to maintain state universal
    service funds as well. NASUCA suggests that, if the law is changed so
    that the Federal USF can be assessed against intrastate and interstate
    revenues, it would also be equitable to allow state universal service
    funds to enjoy the same funding base. Continuing to restrict state
    universal service funds to assessing only intrastate revenues will
    continue the jurisdictional and definitional problems I mentioned
    earlier, and will complicate the ability of states to sustain their
    important universal service programs.
    IV. Broadband Support
        NASUCA recognizes that S. 2686 also establishes support mechanisms
    related to broadband service. In this manner, the assessment against
    broadband revenues is balanced with support for broadband service as
    well. A $500 Million fund is created to support broadband in unserved
    areas and a separate requirement is created that would require carriers
    receiving USF funds to offer broadband services within five years of
    enactment, subject to waiver.
        Many parties have carefully considered whether the USF should be
    expanded to support broadband services. One of the principal concerns
    with such expansion of the USF has been cost. A broad determination
    that broadband services should be supported under existing law would
    trigger financial consequences that could not be easily predicted.
    Establishing a set $500 million fund avoids these concerns and is a
    positive way to approach this problem.
        NASUCA also recognizes the importance of requiring all carriers
    receiving USF funding to offer broadband services as well. DSL--based
    services are now deployed on a widespread basis by wireline carriers,
    and wireless broadband service is beginning to be rolled out. Even so,
    it is appropriate to encourage telecommunications carriers to offer
    such services throughout their service areas within five years. Often
    it has been a problem that when carriers begin offering broadband
    services in a particular service territory, it may be many years until
    customers located in more remote locations receive these same services,
    if ever.
        It is not entirely clear whether S. 2686 requires all or only some
    portion of the carrier's customers to have access to broadband services
    within any period of time. NASUCA suggests that S. 2686 should be very
    clear that all carriers receiving USF support have an obligation to
    provide broadband service throughout their designated service area
    within a set time period.
    V. Anti-Deficiency Act Exemption
        Another important part of S. 2686 is the clear exemption from the
    Anti-Deficiency Act provisions. NASUCA has also consistently supported
    taking such a step.
        NASUCA is concerned that the application of such restrictions would
    substantially interfere with USF recipients receiving the funding that
    they require. Various recipients of USF funds have a number of
    obligations that they must meet and the application of the Anti-
    Deficiency Act would create a hardship in this matter. Application of
    the Anti-Deficiency Act also increases the amounts that must be
    collected from consumers to support the USF. S. 2686 appropriately
    resolves these issues by exempting the USF from the requirements of the
    Anti-Deficiency Act.
    VI. Eligible Communications Carrier Restrictions
        NASUCA also recognizes that S. 2686 contains requirements that
    would apply to new ECCs. NASUCA, as noted above, has been concerned
    with the growing size of the USF. NASUCA supports the new conditions to
    be applied to ECCs through S. 2686.
        Presently, any ECC operating in a high cost area is able to receive
    the same per line support as the incumbent ECC in that same area.
    Multiple ECCs may be designated in an area and receive the same level
    of support as the incumbent. The cost of universal service in that area
    and the overall size of the USF will increase accordingly. This is the
    effect of having multiple supported ECCs in high cost areas.
        NASUCA recognizes that competition is good for consumers. However,
    NASUCA is concerned about the level of competition subsidy that should
    be applied in high cost areas. Having multiple ECCs in any area
    competing for consumer business--all supported by the USF--creates an
    advantage for consumers in that area, but creates a huge burden on the
    overall fund which must be paid for by all consumers in the nation.
    NASUCA cautions that USF support to multiple networks and lines within
    a high cost area may not be a wise use of USF resources. Adding the
    statutory ECC conditions listed in S. 2686 will be helpful, but NASUCA
    suggests that it may be necessary to safeguard the USF through other
    limitations on high cost support as well.
        S. 2686 has broadened the base from which contributions will now be
    recovered. It may also be helpful to recognize the need for other
    methods to be applied on the distribution side as well. Throughout the
    10 years of the USF various changes have occurred that have increased
    the size of the fund. In order to anticipate the needs of the future,
    it may be necessary to facilitate other regulatory actions to limit the
    size of the USF as well. Accordingly, S.2686 should not limit the tools
    available to the FCC and Joint Board in fashioning appropriate
    responses to future distribution challenges faced by the USF.
    VII. Broadband Support and Network Neutrality
        As indicated above, NASUCA recognizes the importance of offering
    broadband to consumers. The broadband support requirements in S. 2686
    are reasonable methods for encouraging the deployment of broadband to
    all consumers in the United States.
        In order to realize the full benefit of broadband networks, NASUCA
    believes it is important that consumers maintain the right to use
    broadband services in a network that is open and neutral to consumers
    and content providers. It would be unfortunate if the broadband
    deployment supported by the bill, and broadband services in general,
    were restricted in a manner that would lessen the great benefit the
    Internet has brought to consumers. While the broad topic of network
    neutrality may be best left to another hearing, NASUCA wishes to raise
    this issue in the context of Universal Service as well.

                   Federal Universal Service Support Per Line Support in Each State 2005 Disbursements
    ----------------------------------------------------------------------------------------------------------------
                                                       Low       Rural    Schools &
                                         High Cost    Income     Health   Libraries    Total                 Monthly
                   State                   Support   Support    Support    Support    Support   Total Lines  Support
                                           ($ in      ($ in      ($ in      ($ in      ($ in                   Per
                                         millions)  millions)  millions)  millions)  millions)                 Line
    ----------------------------------------------------------------------------------------------------------------
     1.  Alabama                            $109.3       $3.2       $0.0      $28.0     $140.5    2,275,897    $5.14
     2.  Alaska                             $120.3       $7.4      $14.9      $15.9     $158.5      414,396   $31.87
     3.  American Samoa                       $2.3       $0.1       $0.0       $2.4       $4.8       10,872   $36.79
     4.  Arizona                             $74.6      $20.3       $0.7      $36.0     $131.6    2,577,209    $4.26
     5.  Arkansas                           $141.0       $2.4       $0.1      $15.7     $159.2    1,371,860    $9.67
     6.  California                          $98.9     $304.7       $0.5     $220.8     $624.9   21,285,036    $2.45
     7.  Colorado                            $79.3       $3.5       $0.1      $11.3      $94.2    2,606,818    $3.01
     8.  Connecticut                          $2.2       $5.3       $0.0      $19.3      $26.8    2,135,021    $1.05
     9.  D.C.                                 $0.0       $0.9       $0.0      $10.8      $11.7      791,292    $1.23
    10. Delaware                              $0.3       $0.3       $0.0       $0.4       $1.0      546,439    $0.15
    11. Florida                              $91.5      $17.8       $0.1      $53.4     $162.8   10,356,878    $1.31
    12. Georgia                             $111.7       $8.3       $0.1      $50.1     $170.2    4,611,880    $3.08
    13. Guam                                 $19.2       $0.4       $0.0       $3.1      $22.7       67,059   $28.21
    14. Hawaii                               $29.5       $0.7       $0.3       $1.8      $32.3      665,486    $4.04
    15. Idaho                                $55.1       $3.9       $0.2       $2.8      $62.0      714,999    $7.23
    16. Illinois                             $63.5       $9.3       $0.2      $73.4     $146.4    7,323,440    $1.67
    17. Indiana                              $56.6       $5.7       $0.1      $12.5      $74.9    3,492,042    $1.79
    18. Iowa                                 $90.3       $6.2       $0.2      $10.1     $106.8    1,540,622    $5.78
    19. Kansas                              $178.7       $3.1       $0.3      $10.6     $192.7    1,380,168   $11.64
    20. Kentucky                             $83.6       $7.5       $0.7      $26.5     $118.3    2,003,264    $4.92
    21. Louisiana                           $111.2       $2.4       $0.0      $41.5     $155.1    2,268,720    $5.70
    22. Maine                                $28.8       $8.8       $0.1       $9.1      $46.8      808,894    $4.82
    23. Maryland                              $4.3       $0.5       $0.0      $12.7      $17.5    3,606,266    $0.40
    24. Massachusetts                         $3.6      $14.3       $0.0      $21.0      $38.9    3,779,199    $0.86
    25. Michigan                             $53.6      $11.4       $0.7      $34.7     $100.4    5,688,091    $1.47
    26. Minnesota                           $113.4       $6.0       $0.8      $19.9     $140.1    2,703,043    $4.32
    27. Mississippi                         $209.3       $3.6       $0.1      $29.4     $242.4    1,328,966   $15.20
    28. Missouri                             $85.2       $5.4       $0.1      $36.3     $127.0    3,247,315    $3.26
    29. Montana                              $76.7       $2.6       $0.5       $3.8      $83.6      506,462   $13.76
    30. N. Mariana Is.                        $0.7       $0.1       $0.0       $1.4       $2.2       24,480    $7.49
    31. Nebraska                             $55.9       $2.4       $0.7       $6.3      $65.3      815,003    $6.68
    32. Nevada                               $29.6       $4.1       $0.0       $3.2      $36.9    1,267,684    $2.43
    33. New Hampshire                         $8.7       $0.6       $0.0       $1.7      $11.0      754,305    $1.22
    34. New Jersey                            $1.3      $14.5       $0.0      $39.4      $55.2    5,983,090    $0.77
    35. New Mexico                           $58.5      $10.7       $0.3      $17.8      $87.3      940,723    $7.73
    36. New York                             $51.8      $52.5       $0.0     $298.3     $402.6   11,284,257    $2.97
    37. North Carolina                       $80.2      $14.5       $0.2      $37.0     $131.9    4,596,547    $2.39
    38. North Dakota                         $62.7       $3.8       $0.5       $3.0      $70.0      347,899   $16.77
    39. Ohio                                 $37.8      $35.0       $0.0      $57.4     $130.2    6,372,077    $1.70
    40. Oklahoma                            $120.2      $32.4       $0.1      $44.0     $196.7    1,732,719    $9.46
    41. Oregon                               $68.5       $7.3       $0.0      $11.4      $87.2    1,933,674    $3.76
    42. Pennsylvania                         $65.5      $19.2       $0.1      $67.1     $151.9    7,345,084    $1.72
    43. Puerto Rico                         $133.8      $13.3       $0.0       $3.0     $150.1    1,180,127   $10.60
    44. Rhode Island                          $0.0       $4.6       $0.0       $6.9      $11.5      491,107    $1.95
    45. South Carolina                       $76.3       $2.9       $0.0      $27.6     $106.8    2,174,893    $4.09
    46. South Dakota                         $77.8       $7.3       $0.5       $5.4      $91.0      348,183   $21.78
    47. Tennessee                            $54.7       $6.1       $0.1      $59.5     $120.4    3,085,923    $3.25
    48. Texas                               $230.0      $72.3       $0.1     $274.2     $576.6   11,590,562    $4.15
    49. Utah                                 $23.6       $2.9       $0.4       $7.5      $34.4    1,056,543    $2.71
    50. Vermont                              $35.2       $2.8       $0.0       $1.2      $39.2      407,202    $8.02
    51. Virgin Islands                       $22.6       $0.2       $0.1       $3.9      $26.8       69,425   $32.17
    52. Virginia                             $87.3       $2.3       $0.3      $25.2     $115.1    4,290,319    $2.24
    53. Washington                           $94.4      $19.8       $0.1      $16.7     $131.0    3,419,234    $3.19
    54. West Virginia                        $66.3       $0.7       $0.1       $7.7      $74.8      980,333    $6.36
    55. Wisconsin                           $130.2       $8.8       $1.0      $21.0     $161.0    3,089,638    $4.34
    56. Wyoming                              $56.6       $1.4       $0.1       $0.7      $58.8      289,052   $16.95
    ----------------------------------------------------------------------------------------------------------------
        TOTAL                             $3,824.2     $808.5      $25.5   $1,861.8   $6,520.0  165,977,717    $3.27
    ----------------------------------------------------------------------------------------------------------------
    Note: Numbers may not add due to rounding. Annual support amounts less than $50,000 show as $0 due to rounding.
      Support amounts shown are actual amounts disbursed. Amounts assessed and collected may be higher.
    Source: USAC 2005 Annual Report; NECA 2005 Annual USF Filing.

        The Chairman. Thank you very much. And thank you all.
        Do you have any questions, Senator Inouye?
        Senator Inouye. We have been advised that they'll be voting
    soon, but, Mr. McClellan, if the FCC adopts this number-based
    contribution methodology, would it be fair to the low-income/
    low-user people?
        Mr. McClelland. Well, Senator, we think not. And
    particularly--and, as you know--we have a revenue-based system.
    The more you use, the more you consume, the more you pay. Going
    to lines-only, assuming roughly equal numbers, of course, falls
    heavier regardless of usage and regardless of revenue.
        Our association has suggested, if there's going to be a
    number assessment, it should probably be added to some other
    broader assessments that are more sensitive to usage. So, yes,
    we are concerned about the low-income small-user.
        Senator Inouye. Thank you very much.
        Ms. Bloomfield, you support that carriers ineligible to
    receive broadband support unless they have deployed broadband
    service within a service area within 5 years. Without that
    provision here, what would be the impact?
        Ms. Bloomfield. Well, broadband deployment in these rural
    markets, Senator, are very difficult. We've heard a lot of
    numbers, kind of, being bantered around today. We've got--our
    companies deploy broadband to about 93 percent of their
    markets. I think what the Committee was trying to do with the
    draft is really get out to how do you hit that last 7 percent,
    which is our--obviously, your highest-cost market areas. I
    applaud the effort of looking at tying broadband to universal
    service and making some requirements so that you see the
    technology evolve forward. We also are very big fans of
    whatever technology may work. It may be fiber, it may be DSL,
    it may be copper, it may be some use of satellite and wireless.
    I think all of the rural markets of all the members of this
    committee are so varied. So, I think that challenges that last
    7 percent. I do think that having broadband and universal
    service be tied together actually makes sense if it really is
    the commitment of Congress to ensure that all Americans have
    access to broadband services.
        Senator Inouye. Thank you very much.
        Mr. Largent, your association supports the proposal on
    contribution based on numbers. Is that fair?
        Mr. Largent. Well, Senator Inouye, we believe it is. We
    think that, on the contribution side, you need as wide a base
    as possible. And our suggestion allows for that. Our proposal
    also has a number of consumer benefits in the form of
    exemptions for, and safe harbors for, low-income and low-
    revenue consumers. So, we allow those exemptions.
        Under a number-based system, customers in rural areas will
    no longer be penalized when they call beyond their own areas.
    And the average residential customer is still only going to be
    paying roughly the same amount that they're paying today under
    a number-based system.
        Senator Inouye. Ms. Read--thank you very much, Mr.
    Largent--how costly is consumer equipment necessary to receive
    broadband over satellite? Is that an expensive thing?
        Ms. Read. Satellite equipment for customers for broadband
    varies by the different satellite system that provides it.
    Broadband can be provided over mobile satellite terminals,
    mobile satellite handsets, and over fixed satellite dishes, if
    you like. So, the answer really needs to come from the
    different types of mobile-satellite and fixed-satellite
    environments.
        Senator Inouye. But you think it's within the reach of
    consumers?
        Ms. Read. I would say certainly, speaking on behalf of
    Hughes, which is a major provider of satellite broadband
    throughout the United States and in rural areas, we do believe
    it's within reach. As the association has said in its
    statement, we believe that, even though satellite broadband
    providers have distributed their services and there has been
    reasonably good take-up, we believe that we are competitively
    disadvantaged with regard to the financial assistance to the
    USF system. As the gentleman from CTIA mentioned, the satellite
    industry is a net payor and not a net receiver in the system.
        Senator Inouye. Thank you very much.
        Mr. McCormick, what effect will the growth of Voice over
    Internet Protocol have on the Universal Service Fund if no
    action is taken?
        Mr. McCormick. Senator Inouye, it's imperative that
    Congress undertake legislation to capture contributions from
    all who provide these kinds of services. Should Voice over
    Internet Protocol traffic be able to ride free, not having to
    contribute to the Universal Service Fund, of course, it would
    then be artificially priced lower than other services, and the
    marketplace might well gravitate to that, and you would see a
    collapse in the Universal Service Fund.
        So, it's imperative that Congress make sure that all
    services contribute to universal service.
        Senator Inouye. Mr. McSlarrow, that would affect you.
    What's your position on that?
        Mr. McSlarrow. Our position is that anything with a
    telephone number should pay into the fund, so it doesn't matter
    if it's traditional circuit-switched telephone, which we also
    offer, or VoIP, as Mr. McCormick just discussed; they all
    should contribute into the fund. So, we do it now, voluntarily,
    but we agree that it should be placed into law, as this bill
    does.
        Senator Inouye. May I submit my questions?
        The Chairman. Yes. Senator Inouye will submit the balance
    of the questions. We may submit some to you, also.
        The vote has already started, so let me just make this
    statement. The two of us that are left here at the table, we're
    the two that started the Universal Service Fund, you'll recall.
    And, over the years, we've watched it expand. I think the
    interesting thing about today's hearing is there's no one at
    the table that says there should be no Universal Service Fund.
    And we have--I can tell you, we have no such call--there is no
    such call anymore from the Members of this Committee. There
    were, 2 years ago. So, I think that the hearings we've been
    through, the meetings we've been through, the listening
    sessions we've been through have all brought us to the same
    conclusion: there must be some mechanism to satisfy the demand
    of the public, that access to modern communications is now an
    American right. And we intend to see that this bill preserves
    that right.
        And we appreciate all that you've done to prepare your
    statements. We'll go over them, as I indicated.
        But, very clearly, you know, the task now is a different
    one than when we started. When I think of some of the things
    that I used to worry about, one of my daughters having a flat
    tire on an interstate freeway and having to walk miles to the
    telephone to call, or ask some passing automobile to take her
    to the phone, the dangers of areas that we live in, in terms of
    snow machining. I've told--you all know the story, I'm sure,
    about the snow machine that dropped into a crevasse right in
    the Mount McKinley area, and suddenly, as his machine wedged in
    the crevasse, he remembered that he had a cell phone, dialed 9-
    1-1, and a satellite picked it up, and he was picked out of the
    crevasse in about 30 minutes. You know, the world has changed,
    and that's the safety factor now in communications that is
    assured by Universal Service Funds and that is an accepted
    position for the American people. And I think it will survive,
    in terms of the consideration of this bill.
        So, we do thank you very much. We're going to review this.
    We have given out, to the press, and will make available to
    you, also, the revised schedule for our hearings. But we intend
    to postpone them just 1 week, really, that is the net result of
    our conversation here today.
        But, thank you very much for your being with us and for
    waiting so long. I appreciate it.
        [Whereupon, at 1 p.m., the hearing was adjourned.]
                                A P P E N D I X

                                    `Olelo Community Television
                                     Honolulu, HI, May 18, 2006
    Hon. Daniel K. Inouye,
    Co-Chairman,
    Senate Committee on Commerce, Science, and Transportation,
    Washington, DC.

    Aloha Senator Inouye,

        Thank you again for attending the Youth Xchange Awards Banquet last
    month, we were honored to have you there.
        I am writing in support of the Alliance for Community Media's
    position (testimony attached) regarding S. 2686, the Communications,
    Consumer's Choice, and Broadband Deployment Act of 2006.
        `Olelo is in a very fortunate position in that we are able to serve
    Public, Education and Government (PEG) sectors on Oahu and in many
    cases, expand our services beyond traditional PEG Access models. We
    currently manage six community media centers on Oahu and six channels
    dedicated to Public, Educational and Government programs. Two of these
    channels are dedicated to educational programs. As you may know, our
    early work with Searider Productions helped them to grow into one of
    the most respected media education programs in the state. We are
    actively partnering with other schools on Oahu to replicate the
    successes of Searider Productions. Every election year, we offer an
    avenue for candidates to produce messages to inform the electorate. We
    provide production resources for the cablecast of Legislative and City
    Council programs and are seeking to expand those services via Internet
    archiving. We facilitate productions for non-profit organizations and
    other groups and agencies, such as the local office of HUD, to ensure
    their messages are heard. We reach out to the under served in our
    community and offer training and channel time to all, regardless of
    resources or standing.
        This is a brief sampling of our efforts that have contributed to
    the creation of a stronger, more informed community. We are concerned
    that the similar efforts of many PEG Access centers throughout the
    country will be severely affected if this legislation is passed in its
    current form. Thank you for the opportunity to comment.
            Sincerely,
                                             Keali 'i S. Lopez,
                                                     President and CEO.
                                     ______

       Prepared Statement of Suzanne St. John-Crane, Executive Director,
     Community Media Access Partnership (CMAP); on Behalf of The Alliance
                              for Community Media
        Good morning, Chairman Stevens, Senator Inouye and Members of the
    Committee. I am Suzanne St. John-Crane, Executive Director of CMAP,
    which provides complete Public Educational and Government Access
    services for Gilroy of Santa Clara County, and Hollister and San Juan
    Bautista of San Benito County, California. I have been a member of the
    National Board of Directors of the Alliance for Community Media for the
    past two years.
        I want to thank Chairman Stevens for inviting me to testify today
    on behalf of the Alliance for Community Media, a national membership
    organization representing 3,000 Public, Educational and Governmental
    (PEG) Access television centers across the nation. Those centers
    include the more than 1.2 million volunteers and 250,000 community
    groups annually that provide PEG Access television programming in local
    communities across the United States. Local PEG programmers produce
    20,000 hours of new programs per week--that's more new programming than
    all of the broadcast networks combined.
    PEG Support
        We are pleased to see that there is funding for PEG based on gross
    revenues. This ties PEG funding to the market forces which drive
    pricing and the number of subscribers. It also eliminates the need for
    future adjustment of PEG support.
        One percent PEG support above the franchise fee is a strong step in
    the right direction. It will leave many, though not all, of our members
    whole. There would be difficulty in the smaller towns and rural areas
    where funding above 1 percent is necessary for basic operations. There
    is a level of funding below in which the doors just don't open. One
    percent funding will also reduce real funding in many communities which
    have made concessions to incumbent operators in exchange for PEG
    support or which have allowed them to provide in-kind support for PEG
    in-lieu of cash payments.
        For this reason, the Alliance is offering language which recognizes
    these existing agreements. Our Do No Harm amendment is designed to
    prevent reduction or elimination of PEG services in such communities.
    My own community is a good example of why this is necessary.
        Our PEG station, CMAP, has 13,000 cable subscribers in a service
    area of 90,000 residents. We manage four channels that cablecast
    twenty-four hours a day, seven days a week. Unlike a center serving a
    large metropolitan area, a 1 percent of gross revenue funding scheme
    would reduce our annual operating budget by two-thirds. In other words,
    1 percent would close our doors. We currently receive 3 percent of
    gross revenue above franchise fees. In addition to 1 percent, we
    receive:

       A percentage of franchise fees from both Hollister and
            Gilroy;

       A $700,000 capital equipment grant;

       Connection to the cable provider's head-end;

       An Institutional Network serving fifty public buildings in
            the three cities. Our school districts and cities use this
            system for voice and data transmission as well as emergency
            services, saving them tens of thousands of dollars a year. CMAP
            has the ability to transmit live programming from these fifty
            sites.

        The language in this bill doesn't protect our current funding
    levels, nor does it protect the existing services we heavily depend
    upon for our operations.
        CMAP is far from unique in its dependency on franchise fees and
    negotiated services. Here's how 1 percent funding will harm PEG in
    California alone:

       Media Center in Palo Alto serving four cities would see a 40
            percent loss in funding;

       Santa Maria and Lompoc, 64 percent loss in funding;

       Santa Rosa Media Center; 42 percent loss in funding;

       Ventura Community TV would see a 45 percent loss in funding;

       Monterey Community Television, a 55 percent loss in funding;

       Pacifica Community TV, a 47 percent loss in funding.

        Centers in other parts of the country will suffer similar fates.
    For example, Arlington Community TV and Fairfax Access in Virginia
    would both be severely damaged. Arlington Independent Media, the Public
    Access organization, has base funding of 1 percent. But additional
    benefits for the County include:

       Annual operating grants;
       Capital equipment grants;
       Studio space in the Comcast building;
       Operating support for the Educational channel; and
       Operating support for I-Net services.

        These services were negotiated in lieu of other payments by
    Comcast, but would be lost under the funding of this bill. Combined
    total loss is $855,000 per year.
        The I-Net is used for Arlington County's primary Emergency
    Preparedness Network, connecting all EMT, firehouses, police, and
    emergency responders. The County I-Net is being interconnected with
    Alexandria, Falls Church, Fairfax, and the rest of Northern Virginia as
    the primary interconnected network for Homeland Security and Emergency
    Response. If there is no provision for I-Net in this legislation, the
    cable operator is in a position to name its price for future use--since
    the county cannot afford to build a duplicate system. These new charges
    would be subtracted from the franchise fees. Without revision, this
    funding system would be a disaster.
        Similarly affected would be most PEG Access centers in Minnesota
    including:

       CTV 15 of Roseville,
       St. Paul Neighborhood Network;
       Townsquare Television--serving seven cities;
       Suburban Community Channels serving 12 cities;
       North Metro community TV serve seven cities;
       Quad Cities Community TV serving four cities;
       Stillwater Community TV serving five cities; and
       Burnsville-Egan Community TV.

        In Oregon harm would be caused to communities served by:

       Capital Community TV;
       Portland Community Media;
       Metro East Community TV; and
       Tuolumne County Television.

        This list is only the tip of the iceberg when it comes to centers
    that will be crippled, if not closed, by the PEG language in this
    legislation.
        This can all be fixed by one, simple amendment to this Act and
    which is being offered by the Alliance for Community Media. Our ``Do No
    Harm'' amendment would not harm the bottom line of video providers, but
    would do much to capture and protect those services unintentionally
    left out of the currently proposed legislation.
        Additionally, we ask that the franchise fee revenue base not be
    reduced. A reduced franchise fee revenue base would reduce LFA
    financial support for PEG. The Alliance supports the recommendation of
    the municipal organizations fully in this matter.
    PEG Channel Capacity
        We think it is a good idea that the video competitors match the
    existing number of PEG channels in most cases. It saves negotiation
    time and offers a level playing field. There are a number of
    adjustments we would suggest.
        Communities Without PEG Capacity. Communities without cable
    operators should be able to establish PEG channels with national
    franchisees by following a rule-making of the FCC. We suggest that the
    FCC rule-making establish a minimum to be followed in those few areas
    which do have a cable operator, but which do not yet have PEG channels.
    This is sometimes the case in smaller communities which did not have
    the expertise or wherewithal to negotiate for them under older
    franchises. We can pump oxygen into these needy communities! No one
    wants to see innovation, development or democracy permanently stifled
    in underserved areas--often rural and smaller cities and towns with few
    other media resources.
        The amount of bandwidth necessary to serve community needs
    increases with the number of subscribers:

       A system of 10,000 subs may be served adequately with two or
            three PEG channels out of 72 analog channels, or about 4
            percent.

       In Manhattan/New York City with 500,000+ subscribers,
            community needs are barely met with nine analog PEG channels of
            a 72-channel system at the time of franchise.

        The National Standard for PEG channel capacity developed by the
    Alliance would provide a bell-curve in which the vast majority of
    systems would have four PEG channels. The needs of both smaller and
    larger communities are met by balanced, market-based tests.

       We ask the Committee to recommend that the FCC consider the
            Alliance's National Standard sliding-scale (available on
            request) in any proposed rule-making on PEG channel capacity.

    IPTV as Cable Service
        Although at first glance, this language might not seem like a PEG
    issue, the Alliance recognizes that the law must be crystal clear that
    so-called ``IPTV'' type services are subject to the terms of this
    national franchising model and that there is no ``escape hatch'' for
    new entrants to exercise. In particular, we would be greatly concerned
    if this question were left open to interpretation by the Federal
    Communications Commission. Without this assurance, we recognize new
    entrants would take advantage of this loophole and render the balance
    of the Act essentially meaningless. Already, the same phone companies
    which have pressured Congress for this legislation have sought rulings
    which would exempt them from its provisions in Connecticut, Oklahoma
    and other states--an incredible act of political cynicism! From our
    perspective, a clear Congressional statement including IPTV or other
    future technologies under these provisions is a fundamental requirement
    for a balanced and equitable law.
        A Word On Percentages. Any public interest requirement for channel
    capacity needs to have meaning despite expected migration of video
    delivery services to the information services silo. As technology moves
    forward, there will be market pressure to satisfy PEG requirements with
    fewer bandwidth resources by not passing along the advantages of
    innovation. This is often already the case. The number of PEG channels
    generally remains fixed at 1984 levels even as digital technology
    provides ten times as many channels in the same space. The digital
    channels often involve new capabilities for commercial programmers not
    offered to community programmers.
        Fixing PEG at a reasonable percentage of bandwidth based on current
    channel allotments eliminates this tendency and prevents PEG capacity
    from being redefined out of existence. More importantly, it eliminates
    regulatory language which might arbitrarily favor one use of technology
    over another.
       The use of bandwidth percentages allows a community to align
            itself with the most current, innovative technology a new
            system provides while eliminating the need to ever redefine
            public interest capacity obligations. Within this framework,
            communities will be able to evolve resources which are
            comparable in basic function and accessibility to those of
            other system users for years to come.
    Interconnection
        The Alliance rates the language on interconnection as excellent.
    Without such language, many PEG centers would see their funding quickly
    dissipate as they pay the additional new expense. Some would be left to
    choose which provider to connect with and which not. We are also
    pleased that a mechanism is provided for cost saving deals between
    providers which do not hurt the PEG facilities.
    Marketing and Promotion
        The Alliance very much appreciates the attention being given to
    comparability of listings, identifications and accessibility for PEG
    programming.
    Network Neutrality
        Recently, the Alliance was given a demonstration of a proposed
    system for whose method of delivery is via the Internet. The signal to
    the home is via older twisted-pair in some areas. More importantly, the
    signal from PEG to the provider is across the Internet via T-1 line.
    Our channel signal to the video provider is to be carried across the
    open Internet.
        What does this have to do with network neutrality? When your
    community channel is on the information superhighway with all the other
    voice, data and video signals, it will make a difference if it is lined
    up at a toll-booth while the Disney Channel is waved through at high
    speed. This will leave smaller providers--PEG channels, the public at
    large and the small, innovative companies who have really made the
    Internet what it is--with grainy picture, undependable or slow delivery
    and virtual invisibility. More importantly, the law must protect unfair
    treatment of public interest programming by operators seeking to give
    every advantage to their own financial interests.
        It is tough to serve the community with so little funding for
    equipment, staff or production, but across the country our member PEG
    stations have done an admirable job. The one thing that has never been
    an issue is signal carriage. In theory, all PEG channels had to be
    carried on an equal basis with commercial channels. One could not buy
    special status. One could not pay to have another's channel dimmed.
    Channels, on the most basic level, had to rise or fall on the content
    of their own character. They should not have to rise or fall according
    to the content of the community's bank account.
    Citizenship and Access to Broadband Communications
        The Alliance has an interest in inclusion of stronger language on
    build-out, redlining or other such non-discriminatory provision,
    however termed. Any new legislation should anticipate inevitable market
    imbalances and should have tests for identifying those imbalances. It
    should provide concrete methods to bring comparability of price and
    service to all communities. PEG is dialogue, not a monologue. PEG is
    devalued by the absence of any community at the table. To the degree
    that PEG represents a democratic process, the absence of any segment of
    our society is a critical problem the solution to which is one of the
    primary responsibilities of good government.
    Municipal Communications Systems
        The Alliance hopes that the Committee will include a reasonable
    standard for municipal communications systems. Private investors are
    reasonably protected. The potential of municipal entry can be a
    positive market force, particularly in those areas which, for whatever
    reason, have inadequate competition. It also provides an opportunity
    for remedy in areas where there is inadequate service or perceived
    lower profitability.
    Transition Time Needed
        At the time of enactment of the Texas franchising legislation, the
    local cable company was in renegotiation with San Antonio. When the
    existing franchise expired, Time Warner broke off negotiations, applied
    for and received a state-wide franchise. They announced with little
    warning that they would no longer provide the studio, staffing or other
    in-kind support for Public Access that had been required under the
    local franchise, but which was not required under the new state-wide
    franchise. This had the immediate result of diminishing the resources
    of the people who owned the PROW. However, its effects, unintended by
    the statute's authors, went much further. In the few days between the
    announcement of the change and its implementation by the cable company,
    the City was unable to acquire equipment, allocate funding and put the
    equipment in place. The channel went dark. The cable company then
    invoked fallow time provisions which allowed them to take the channel
    back for their own programming use. The City of San Antonio and its
    citizens are forced to patch together enough production resources to
    program the minimum number of hours required under the state franchise
    law just to regain the channel they had operated for years.
        The law was intended to keep existing PEG resources whole. It was
    intended to allow those without PEG resources a reasonable process to
    secure them. Its very first implementation led to a loss of existing
    resources, both financial and channel capacity.
        This Act should provide a transition mechanism to prevent
    unintentional loss of PEG services.
    State and Federal Laws
        We would like to see clear language that Federal PEG minimums
    supersede state and local ordinances. In this way, we can avoid a
    bidding war between states in which the broader public interest is
    traded out for higher placement on a provider's service rollout
    calendar. This idea harmonizes with the stated desire of Congress and
    Industry to simplify the patchwork of state level regulation.
    Conclusion
        The Alliance for Community Media recognizes the hard work that has
    brought us to this point. We want to see competition and innovation. We
    want to see greater access for our children to the tools which will do
    much to determine what their potentials are as human beings. We
    reaffirm our relationship to you, the Congress which, in great
    foresight, protected the public interest in this great new
    communications system. We reaffirm our permanent relationship the big
    cities and the small towns in which we live and to the governments
    which we, as free people, have chosen to represent our interests.
        We hope that you will continue this conversation with us as we,
    together, design, not a television system, but a brave new world. We
    welcome your questions and comments.
                                     ______

        Prepared Statement of Hon. Curt Pringle, Mayor, City of Anaheim
        As the Mayor of the City of Anaheim, California, I respectfully
    submit this written testimony to the United States Senate Committee on
    Commerce, Science and Transportation, supporting its hearing on The
    Communications, Consumer's Choice and Broadband Deployment Act of 2006.
        I support the spirit under which the Senate is updating the
    Communication Act of 1934; a reflection of the rapidly advancing
    technological environment in which we live today. However, I
    respectfully disagree with the use of franchise fees as the method with
    which to ``facilitate'' a city-wide deployment of new technology
    services, internet, broadband television or others. First, the use of
    franchise fees is an arcane method of securing city-wide service and
    enabling cost recovery (both by cities and technology providers) that
    restricts the free-flow of this dynamic marketplace. Second, the use of
    a franchise model diminishes the competition in the marketplace that
    has fostered the race to continuously advance the internet technology
    that we use daily. Lastly, the current and proposed franchise fees are
    tantamount to a flat five percent tax on income, and when passed
    through to the consumer, a five percent tax based on product usage.
        Anaheim is a recent entrant into the discussion of how best to
    provide technology services on a city-wide basis. We now have two model
    agreements on which I base my testimony. Our recent analysis of this
    issue has led the city to the following three key decision factors: (1)
    to best serve residents subscription rates must be kept low, lower than
    similar services, (2) through appropriate stewardship, leverage city
    assets to facilitate the wide deployment of the product (3) approach
    the deployment of these products utilizing a business market model that
    does not utilize the city's general funds or burden taxpayer resources.
        In our first agreement, completed more than six months ago, the
    city undertook a comprehensive analysis of how best to provide city-
    wide WiFi Broadband Internet access. As such, the city entered into a
    contractual agreement with EarthLink to become the first city in the
    Nation to provide city-wide broadband access to our community of more
    than 350,000 residents. (Attachment 1) * Current marketplace
    competition compels EarthLink to maintain prices at an economical level
    and continue technological development to satisfy customer demand. With
    this recent agreement as an example, I posit that an ``arms length''
    contractual agreement accomplishes the same as a franchise agreement,
    ensuring cost recovery for direct impacts and preserving aesthetic
    approval of design and placement.
        The City of Anaheim also recently entered into an agreement with
    AT&T to allow for the deployment of their Interntet Protocol Television
    (IPTV) services. (Attachment 2) * As was done with EarthLink, the AT&T
    agreement calls for a removal of franchise fees, preserves the City's
    rights-of-way controls and aesthetic requirements and fosters
    competition within the city for the provision of video services.
        First, these agreements were accomplished via the removal of
    outdated barriers to competition under the franchise model. Franchise
    fees are a relic of the past. Originally established as a method for
    local governments to recoup costs associated with the utilization of
    city infrastructure, a mutually beneficial agreement was developed
    effectively granting a monopoly to those original companies. By
    limiting new entrants to build-out or franchise fee requirements,
    established companies are able to maintain de facto monopolies within
    their territories. Eliminating these monopolies is crucial to
    establishing market-share competition and continued technology
    development.
        Second, many of today's arguments favor ``leveling the playing
    field.'' However, what many of these organizations mean by this is in
    fact to charge a franchise fee to all new entrants to video service
    delivery. We agree that each of the video service providers should be
    treated equally, but we do not believe the way to do so is to impose a
    franchise fee, to all providers.
        Lastly, while the bill expands opportunities and helps to encourage
    robust competition, it ratifies an income tax on companies. In this
    case, the fee is based on the overall revenues of the video service
    provider, not the cost to the local entity of providing the right of
    way for the cable or fiber optic wire. Unfortunately, the end consumer
    is the one ``stuck footing the bill'' as these franchise fees appear
    directly on consumer billing statements as a pass-through tax for the
    company. Furthermore, consumers will pay a higher ``fee'' under this
    bill if they consume more services even though their burden to the
    local entity will be exactly the same. As with any tax, the people
    should have a say.
        I believe the true reason cities are siding with cable operators is
    to protect general fund revenues without having to directly purvey a
    tax. Cities have become highly dependent upon the franchise fee
    structure as a source of revenue. If a city chooses to preserve this
    revenue, a jurisdiction can assess a utility tax thus allowing each
    community to decide for itself whether or not it chooses to tax itself.
    The Federal Government should not remove the autonomy of local
    governments by making this tax decision for each and every local
    community.
        In conclusion, in the 21st century, technology is changing on
    nearly a day-to-day basis. To the extent that government needs to be
    involved in the marketplace in order to be responsible stewards of the
    public interest, government leaders at all levels should be working to
    create a business environment that can nimbly respond to market changes
    that result from some new exciting technological breakthroughs. In the
    past, competition has been stifled in the world of video services due
    to government regulations. I believe that this bill helps to propel
    this discussion and at the same time, takes into account the many
    market forces that will help to make competition a reality.
        I respectfully request that Congress implement reforms that allow
    the American consumer to benefit from increased competition in the
    marketplace, enjoying new delivery methods and potentially lower costs
    for those services. We invite the Committee to review our comments to
    the FCC or to visit our city and see a local community that is able to
    deliver quality video service without a franchise fee, giving its
    residents real choice in the marketplace. (Attachment 3) *
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        * The information referred to has been retained in Committee files.
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