[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
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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\
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\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.
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\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.
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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.
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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.
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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\
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\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.
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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.
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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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