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



                                                       S. Hrg. 109-1128
 
     S. 2686, THE COMMUNICATIONS, CONSUMER'S CHOICE, AND BROADBAND 
                    DEPLOYMENT ACT OF 2006 (PART I)
=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 18, 2006

                               __________

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




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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

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

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

                               Witnesses

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

                                Appendix

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


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

                              ----------                              


                         THURSDAY, MAY 18, 2006

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:15 a.m. in 
room SD-106, Dirksen Senate Office Building, Hon. Ted Stevens, 
Chairman of the Committee, presiding.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   Video franchising;
   Network Neutrality; and
   Universal service.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         Prepared Statement of Gene Kimmelman, Vice President, 
           Federal and International Affairs, Consumers Union
Summary
    Consumers Union,\1\ Consumer Federation of America,\2\ and Free 
Press \3\ appreciate the opportunity to testify on the Communications, 
Consumer's Choice, and Broadband Deployment Act of 2006 and the need 
for expanded consumer choice and access to competitive video and 
broadband services. We agree with and support the goals of the 
legislation: to expand viable, affordable competitive video offerings 
and increase access to vital broadband services.
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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.
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    \4\ ``Broadband Reality Check: FCC Ignores America's Digital 
Divide,'' Free Press, August, 2005.
    \5\ ``Broadband Deployment is Extensive throughout the United 
States, but it is Difficult to Assess the Extend of Deployment Gaps in 
Rural Areas,'' GAO-06-426, Government Accountability Office, May 2006.
---------------------------------------------------------------------------
    The deplorable state of competition within the video and broadband 
marketplace is the result of the failed policies of the 1996 
Telecommunication Act, which did too little to promote meaningful 
competition in wireline communications services and went too far in 
deregulating cable rates. The result has been an explosion in mergers 
that have reduced competitive market options. Moreover, the Federal 
Communications Commission's (FCC) decision to deregulate broadband 
services has eliminated the possibility for markets to grow alternative 
wireline broadband providers and provided cable and telephone companies 
with both unprecedented power and an irresistible incentive to 
discriminate against Internet-based content and service providers that 
could compete with their own offerings.
    Given the interest of the telephone companies in offering video 
services and the growing interest among communities in providing 
broadband services as an alternative to incumbents, Congress has a 
unique opportunity to correct the failed polices of the FCC and the 
1996 Act by promoting competition that will both discipline cable rates 
and ensure that consumers not only have access to broadband, but also 
unfettered access to the competitive services offered via broadband 
wires. Congress also has the responsibility not to repeat the mistakes 
of the 1996 Act: prematurely deregulating rates and eliminating 
nondiscrimination rules before competition actually unfolds.
    To serve consumers' interests, the public policy goal must be to 
maximize, as rapidly as possible, the benefits of new technologies and 
competitive markets to every American household. Without significant 
changes, however, S. 2686 is likely to make the majority of consumers 
worse off than they are now, bringing higher, not lower, video and 
broadband prices; reducing consumer protections; limiting access to 
competitive video and Internet-based service providers; and imposing 
greater barriers to municipally offered broadband services.
Consumers Who Most Need Competition Will Be the Least Likely to Receive 
        It
    Because the legislation does not require new video service 
providers operating under the streamlined franchise process to offer 
service to all consumers, new entrants will be free to offer service to 
only wealthy neighborhoods, leaving behind middle and low-income 
consumers who most need cable rate relief. The bill's default franchise 
provisions triggered after 30 days of the franchise application 
effectively eliminate the existing authority of communities to require 
that video providers serve all residents--something virtually every 
franchising authority has required of video service providers.
    To ensure that the benefits of competition come to those who need 
it most, the legislation should require telephone companies entering 
the video market to build out their services to all consumers within a 
franchise area over a reasonable period of time, with appropriate 
accommodations for very low-density areas. This is not only critical to 
ensure that video competition disciplines cable rates, it is also 
central to reversing the alarming trends of inadequate competition in 
the broadband market. Next generation cable services bring broadband as 
well. Absent a build-out requirement, underserved areas will be 
permanently stranded on the wrong side of the digital divide.
    As we noted in our earlier testimony, skepticism that telephone 
companies will offer their video services to all residents rather than 
just the wealthiest is particularly warranted given SBC's statements 
last year that it would roll out Project Lightspeed, the company's IPTV 
video offering, to 90 percent of its high-value customers--those 
willing to spend up to $200 on communications services per month on a 
large bundle of video, voice and data services--but only to 5 percent 
of its low-value customers. Similarly, Verizon's conduct to date 
strongly suggests it is seeking franchise agreements for its FiOS 
service in only the wealthiest counties in the country.
    To effectively enhance competition and ensure that its benefits 
come to all consumers, any franchising legislation must require new 
entrants to build-out their services to all consumers over a reasonable 
period of time. Particularly in areas where telephone companies already 
have facilities, build-out should be timely and mandatory.
    In the absence of build-out requirements, Congress should establish 
financial incentives for new entrants to serve the entire community. 
Telephone companies that do not agree to serve the entire community 
should be required to provide sufficient financial resources to local 
communities, in addition to reasonable rights-of-way fees paid, for use 
in fostering alternative means of ensuring broadband competition. Those 
resources could be used to establish community broadband networks, 
competitive commercial services to areas unserved by the new entrant, 
or other means of assistance to help low-income consumers access 
advanced telecommunications services at affordable prices and meet 
local community communications needs.
Consumers May See Their Cable Rates Rise, Not Fall; Affordable Basic 
        Broadcast Tier Is Eliminated
    By striking Section 623, the bill eliminates the few protections 
against cable price gouging that remain in current law. Regardless of 
whether there is any competition in a market, S. 2686 strikes the 
requirement that providers charge uniform rates across the franchise 
area. Equally troubling, the legislation inexplicably eliminates the 
authority for localities to regulate rates for the basic tier, which 
includes local broadcast stations and public access programming, and 
eliminates entirely any requirement that a basic tier be offered.
    Consumer experience with deregulation in the absence of competition 
demonstrates that rate deregulation without adequate competition leads 
to skyrocketing prices. The presence of two satellite providers has not 
been sufficient to police cable rates; in fact, the availability of 
satellite has only a marginal impact on prices. Not only would the 
legislation virtually guarantee that basic cable rates will soar in 
some areas, the elimination of uniform rate requirements creates both 
the incentive and the ability for cable providers to increase rates 
charged to lower income populations to subsidize price breaks for the 
wealthier consumers they are trying to attract. Under the legislation, 
an incumbent cable provider could lower rates in areas served by new 
competitors and raise them elsewhere to offset losses from those 
discounts. Regardless of whether any competition exists, cable is given 
free-reign to price discriminate. Consumers who are not served by the 
new Bell competitor would be hit twice--they will lack a competitive 
alternative to the incumbent and they may face higher cable rates and 
declining service quality. During a March 2006 House Telecommunications 
and Internet Subcommittee hearing, Kyle McSlarrow, the head of the 
National Cable and Telecommunications Association refused to pledge 
that cable providers would not increase rates to some consumers if 
uniform rate regulation was eliminated. If Congress does not require 
that new market entrants build out to all consumers, it must, at a 
minimum, require that cable incumbents maintain a uniform rate 
structure.
    Moreover, eliminating the requirement for an affordable basic cable 
tier could severely disadvantage consumers. Basic cable allows 
consumers to affordably access their local broadcast stations where 
over-the-air reception is poor, and provides them with affordable 
access to community programming. In addition, under current law, 
consumers who want to buy only pay channels, like HBO, need only buy 
the basic tier, not expanded basic to access those channels.
    Without the basic tier requirement, video service providers could 
locate broadcast stations within the expanded basic tier, dramatically 
increasing costs to those consumers who merely want access to local 
broadcast and public access channels. Worse, consumers who only want 
individual for-pay channels could now be required to buy the costly 
expanded basic tier to do so. Finally, even where cable companies opt 
to maintain a basic tier, the bill's elimination of local authority to 
regulate prices for that tier will result in substantial rate hikes.
    By striking Section 623 from the Communications Act, S. 2686 
effectively deregulates cable even where no competition exists. The 
impact on consumers would be devastating.
Consumers May Be Denied Service Upgrades by Incumbent Cable 
        Providers
    The legislation allows incumbent cable providers to jettison their 
existing franchise obligations, including existing build-out and 
upgrade requirements, by making them eligible for the streamlined 
franchise process as soon as another video service provider applies for 
a new franchise agreement, even if that new market entrant offers 
service to just one household in the franchise area. And upon 
expiration of their existing franchise agreement, cable providers may 
use the streamlined franchise process even if no other competitor has 
entered its market. Allowing incumbent providers to backslide on their 
existing franchise obligations would have devastating impacts in any 
community where the new video entrant is not providing service 
throughout the community. If a telephone company offers its video 
service in only part of a franchise area, as allowed under the 
legislation, an incumbent cable provider will have both the ability and 
the financial incentive to offer service upgrades only to competitive 
areas while denying them to customers in neighborhoods not served by 
the new entrant. While the National Cable and Telecommunications 
Association has pointed out the importance of providing network 
upgrades in an equitable and non-discriminatory manner,\6\ it has 
refused to pledge that cable providers will not to deny service 
upgrades or withdraw service to currently served areas if a national 
system of franchising is adopted.\7\
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    \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.
---------------------------------------------------------------------------
    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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