[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                  FULL COMMITTEE HEARING ON ADVANCING
                 THE INNOVATION AGENDA: THE PERSPECTIVE
                         OF THE TECHNOLOGY AND
                      TELECOMMUNICATIONS INDUSTRY

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 7, 2007

                               __________

                          Serial Number 110-5

                               __________

         Printed for the use of the Committee on Small Business


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


JUANITA MILLENDER-McDONALD,          STEVE CHABOT, Ohio, Ranking Member
California                           ROSCOE BARTLETT, Maryland
WILLIAM JEFFERSON, Louisiana         SAM GRAVES, Missouri
HEATH SHULER, North Carolina         TODD AKIN, Missouri
CHARLIE GONZALEZ, Texas              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              MARILYN MUSGRAVE, Colorado
RAUL GRIJALVA, Arizona               STEVE KING, Iowa
MICHAEL MICHAUD, Maine               JEFF FORTENBERRY, Nebraska
MELISSA BEAN, Illinois               LYNN WESTMORELAND, Georgia
HENRY CUELLAR, Texas                 LOUIE GOHMERT, Texas
DAN LIPINSKI, Illinois               DEAN HELLER, Nevada
GWEN MOORE, Wisconsin                DAVID DAVIS, Tennessee
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
BRUCE BRALEY, Iowa                   VERN BUCHANAN, Florida
YVETTE CLARKE, New York              JIM JORDAN, Ohio
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


WILLIAM JEFFERSON, Louisiana         DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas                 ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin                SAM GRAVES, Missouri
YVETTE CLARKE, New York              TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


WILLIAM JEFFERSON, Louisiana         LYNN WESTMORELAND, Georgia, 
RICK LARSEN, Washington              Ranking
DAN LIPINSKI, Illinois               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               STEVE KING, Iowa
GWEN MOORE, Wisconsin                MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


JUANITA MILLENDER-McDONALD,          LOUIE GOHMERT, Texas, Ranking
California                           LYNN WESTMORELAND, Georgia
CHARLIE GONZALEZ, Texas
RAUL GRIJALVA, Arizona

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES


PANEL I
Archey, William T., American Electronics Association (AeA).......     3
Bond, Philip J., Information Technology Association of America 
  (ITAA).........................................................     5
Seiffert, Grant, Telecommunications Industry Association (TIA)...     7
Zesiger, David, Independent Telephone and Telecommunications 
  Alliance (ITTA)................................................     8

PANEL II
McCormick, Jr., Walter B., U.S. Telecom Association (USTELECOM)..    24
Bloomfield, Shirley, National Telecommunications Cooperative 
  Association (NTCA).............................................    25
Cimerman, Richard, National Cable and Telecommunications 
  Association (NCTA).............................................    27
Comstock, Earl, COMPTEL..........................................    30

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    38
Chabot, Hon. Steve...............................................    40
Altmire, Hon. Jason..............................................    41
Archey, William T., American Electronics Association (AeA).......    42
Bond, Philip J., Information Technology Association of America 
  (ITAA).........................................................    46
Seiffert, Grant, Telecommunications Industry Association (TIA)...    53
Zesiger, David, Independent Telephone and Telecommunications 
  Alliance (ITTA)................................................    57
McCormick, Jr., Walter B., U.S. Telecom Association (USTELECOM)..    60
Bloomfield, Shirley, National Telecommunications Cooperative 
  Association (NTCA).............................................    64
Cimerman, Richard, National Cable and Telecommunications 
  Association (NCTA).............................................    71
Comstock, Earl, COMPTEL..........................................    88

Statements for the Record:
Women Impacting Public Policy....................................    99

                                  (v)

  


       FULL COMMITTEE HEARING ON ADVANCING THE INNOVATION AGENDA:
   THE PERSPECTIVE OF THE TECHNOLOGY AND TELECOMMUNICATIONS INDUSTRY

                              ----------                              


                        WEDNESDAY, MARCH 7, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 9:05 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chairwoman of the Committee] Presiding.
    Present: Representatives Velazquez, Jefferson, Shuler, 
Gonzalez, Bean, Cuellar, Lipinski, Altmire, Braley, Clarke, 
Johnson, Sestak, Chabot, Fortenberry and Davis.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. I am very pleased to call to order 
this morning's hearing on technology and telecommunications 
policy issues. Let me just say that, because of the weather out 
there and the fact that we are going to have a joint session of 
Congress today with King Abdullah, we are going to go ahead and 
start this hearing. But let me just mention the fact that this 
is not going to be the first and only hearing on this issue; 
that we are going to be seeing each other quite often, and we 
are eager to learn more about technology and telecommunications 
as it relates to small companies in our Nation.
    So these sectors are a major contributor to the U.S. 
economy and an engine for growth. The IT sector contributes 
nearly $1 trillion to the U.S. GDP each year, and, despite the 
size, will grow at more than 5 percent per year until 2009. The 
technology industry employs more than 3 million Americans. 
According to the AeA, these jobs pay 85 percent more than the 
average private sector job. These occupations which come with 
benefits like health care and retirement are the types of 
opportunities that we in Congress continue to talk about the 
economy's needing to create.
    It is clear that innovation is leading the way in today's 
economy, and that small tech companies are at the forefront of 
this boom, employing over half of the Nation's scientists and 
engineers. Small research and development-oriented firms are at 
the heart of the industry's innovative core. Companies both 
small and large have helped usher in the information wave. 
Characterized by competition and similarly continual 
reinvention of goods and services, the information economy has 
changed the way we go about our daily lives from artwork to 
education and recreation.
    In order to sustain the environment that facilitated this 
rapid development, a number of challenges must be overcome. 
From workforce and broadband access to tax and international 
trade, we cannot stress enough the importance of effective 
policies in these areas.
    This morning we begin the committee's work on technology 
and communications issues and take our first step towards 
transforming the American business environment for innovation. 
I can tell you that this committee intends to be very engaged 
in this area. Small businesses are some of the larger consumers 
and producers of advanced technology products. Given our role 
in this Nation's economy, our focus will include American 
competitiveness and broadband policy. It only makes sense that, 
as Congress begins its work on advancing innovation and 
enhancing U.S. competitiveness, the interests of small business 
are a priority. This committee will ensure real needs are taken 
into account in the policy process. Our country's continued 
leadership in technological development depends on it.
    I would like to thank all of the witnesses for their 
testimony today and invite you to continue to work with our 
committee as these issues develop.
    Chairwoman Velazquez. I now recognize Mr. Chabot for his 
opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. Thank you very much, Madam Chair.
    I want to wish everyone a good morning, and we want to 
thank our witnesses for adjusting their schedules to be here an 
hour earlier than had originally been planned.
    I also want to thank Chairwoman Velazquez for calling this 
important hearing. Ensuring that small businesses have access 
to innovation and technology and that those small businesses 
that provide it are not unduly burdened by regulations is 
critical not only for small business owners and their 
employees, but for our Nation's economy as a whole.
    Over the last decade or so, the way we communicate with one 
another has fundamentally changed. Information can be sent from 
one coast to the other instantly via e-mail and the Internet. 
Businesses can have staff meetings on line with employees 
thousands of miles away, and with the right equipment, massive 
amounts of data can be analyzed, sorted, stored, and accessed 
from nearly anywhere on Earth.
    The United States is not alone in this revolution. 
Technology has allowed an increasing number of businesses to 
become global. E-commerce and the underlying infrastructure and 
technology that support it have allowed the smallest of mom-
and-pop shops across the U.S. to sell their wares across the 
globe. Technology also enables small businesses to quickly 
adapt to ever-changing conditions simply by going to their 
computer and reading the latest developments in their industry. 
In this new economy, innovations are just as likely, if not 
more so, to come from small businesses on Maple Street in 
Hanover Township, Ohio, or Main Street in Shawnee, Oklahoma, 
than the major corporations traded on Wall Street. Because of 
this fact, we must constantly ensure that all companies, large 
and small, rural or urban, have access to the technology and 
telecommunications infrastructure that drives commerce in our 
country.
    Nearly all industries utilize this infrastructure either 
directly or indirectly. A healthy economy relies on free and 
fair competition between companies, and we must ensure that all 
businesses have the opportunity to compete with one another as 
well as against their foreign counterparts.
    In addition to ensuring equal access to technology, we must 
see to it that the next generation, today's students, are well 
prepared to take the reins as retirements occur. We need 
engineers, technicians, computer scientists, and a whole host 
of technologically savvy people who have the desire and the 
knowledge to be the innovators of tomorrow.
    While ensuring a fair marketplace in which businesses are 
held accountable, we must also prevent these small businesses, 
these technological leaders, from being slowed by burdensome 
Federal regulations. Red tape can stymie even the most 
innovative of companies by diverting much-needed resources, 
especially those in small businesses, away from innovation and 
invention and into accounting and compliance.
    With these new innovations and technology come new 
challenges that must be met. We are here today to identify some 
of these challenges and to discuss possible solutions that will 
enable small business to continue to compete effectively in the 
global marketplace in the face of changing technology.
    Again, I thank Madam Chair Velazquez for holding this 
important hearing. We want to thank all of the witnesses for 
taking their time to come here and testify and to share their 
priorities with us, and I yield back the balance of my time.
    Chairwoman Velazquez. Thank you, Mr. Chabot.
    Chairwoman Velazquez. Our first witness is Mr. William 
Archey. He is president and CEO of AeA, the Nation's largest 
high-tech trade association. AeA represents 2,500 electronics, 
information technology, semiconductor, and communications 
companies.
    Mr. Archey, you will have 5 minutes. The green light means 
you have 5 minutes, and then the red light means your time is 
up.

  STATEMENT OF WILLIAM T. ARCHEY, PRESIDENT AND CEO, AMERICAN 
                    ELECTRONICS ASSOCIATION

    Mr. Archey. Thank you very much, Madam Chairwoman and 
members of the committee.
    As the Chairwoman noted, I am here representing 2,500 
member companies of which 82 percent of our member companies 
have revenue of less than $100 million. Indeed, about 75 
percent have less than 50 employees. So we represent most of 
the big guys, but we also represent a large number of small 
companies.
    I would just like to note that we started dealing with the 
issue of competitiveness and innovation 2 years ago. It remains 
the single biggest priority for AeA as an institution and for 
our board of directors. Two years ago we issued our paper 
called Losing the Competitive Advantage?: A Challenge for 
Science and Technology in the United States, 2 years ago last 
week. I would note, as I did to the board of directors at the 
time, that you could have had a meeting on competitiveness on 
Capitol Hill in February 2005 and hold it in a phone booth. One 
of my board members said I should not use that analogy because 
he said there is an entire generation who have no idea what a 
"phone booth" is.
    One of the things that we are going to be doing, in fact, 
the week after next is we are reissuing our paper, only it is 
going to be re-titled Still Losing the Competitive Advantage: 
It is Time to Act, and the emphasis is going to be on 
recommendations. The paper that we issued 2 years ago was on 
what is the nature of the problem, because it was our view 
recommendations were going to come fast and furious, but there 
was a considerable ignorance of what was the challenge and what 
were the problems that the country is facing particularly in 
the high-tech industry.
    I would also note that we have worked this issue in an 
extraordinarily bipartisan way. We have worked at the White 
House. We were the cosponsor of the Republican summit that was 
sponsored by Republican members of the House Science Committee. 
We also worked very closely within Anna Eshoo and George Miller 
and the then-Minority Leader Pelosi. Indeed, I had the 
privilege and pleasure of briefing the entire Democratic House 
delegation from California, and Ms. Pelosi has made some rather 
good public statements about the work that we have done and the 
paper that we have produced.
    I would just like briefly to say that where we are right 
now is that, in our new paper that is coming out, we basically 
have got a small number of priorities. The first is an increase 
in the number of students majoring in science, technology, 
engineering, and math--or STEM jobs--via a number of the Senate 
programs. The goal is to have 100,000 new students with STEM 
degrees. This is only going to happen if we improve the quality 
of teaching as well through teacher education programs, which 
also need to be funded.
    The ability of all companies, small, medium and large, to 
be able to track and retain foreign nationals and to keep them 
by reforming the entire visa and green card process, an 
increase by as much as 10 percent a year for Federal funding of 
basic research in the physical sciences. It is that research by 
the United States Government over 40 years ago, 50 years ago 
that made the United States into the technological powerhouse 
it became. We need to get back to some of these things, 
particularly R&D and the physical sciences.
    A strong and permanent R&D tax credit.
    An expansion and improvement in the SBIR program that 
directly benefits small companies that often need financial 
assistance in bringing innovation to market.
    An increase in broadband deployment, which is critical to 
enhancing productivity and innovation within the economy. We 
need to make the advanced broadband accessible and affordable. 
We are way behind the rest of the world. Indeed, a study came 
out 2 weeks ago. The United States is 17th in the world in 
terms of broadband deployment. We are way behind. South Korea 
leads the world.
    Then, finally, changes in the Sarbanes-Oxley, Section 404 
to make it less costly for small business to comply. This has 
been a huge issue for our small companies.
    I would like to conclude by just quoting a member company 
of ours, $4 million in revenue, who sent me an e-mail and said, 
quote, "We need to be eliminating barriers to finding and 
developing talented employees. If you do this one thing, we can 
figure out how to work around all of the other system failures 
that stifle growth and the improvement of the human condition 
across the Nation."
    On that note, Madam Chairwoman, thank you for the time.
    Chairwoman Velazquez. Thank you, sir.
    [The prepared statement of Mr. Archey may be found in the 
Appendix on page 42.]
    Chairwoman Velazquez. Our second witness is Mr. Philip 
Bond. Mr. Bond is president and CEO of the Information 
Technology Association of America. ITAA is the largest of all 
the IT trade associations, representing 325 leading software 
services, Internet, electronic, commerce, and systems 
integration companies.
    Welcome, sir.

  STATEMENT OF PHILIP J. BOND, PRESIDENT AND CEO, INFORMATION 
               TECHNOLOGY ASSOCIATION OF AMERICA

    Mr. Bond. Thank you, Madam Chairwoman, and thank you to the 
members of the committee. It is a privilege to be with you this 
morning. I will try to be brief.
    I want to start, though, by commending you for having this 
hearing and your interest and your record in this, including 
reports that have come from both sides of the aisle over the 
years out of this committee. If, indeed, we are to remain as 
the innovation headquarters of the world, which we have been 
for some time now, it will be because of the small business 
community that drives that innovation.
    As you mentioned, ITAA represents a range of sizes of 
companies, much like my colleague at AeA. We also have a 
partnership with regional IT associations, 48 of those across 
the country, so we are probably in everybody's district by 
partnership with local regional groups.
    Well, as has been mentioned, the U.S. is the leader in 
innovation and has benefited throughout the culture and society 
and economy from all of these innovations, whether it is having 
music that connects to your sneakers, or whether it is the 
emerging biotech sector, all of these driven largely by IT-
enabled innovation. That innovation, however, cannot flourish 
in a vacuum, and so I would like to focus really quickly on a 
few issues.
    I would affiliate myself, associate myself, with the 
remarks that Bill Archey made as well. I think there is great 
consensus among the IT and, indeed, the telecom industries on 
many of the points that Bill made, but I am going to reflect a 
couple of different views based on the fact that many of our 
members are contractors and providers of IT and services to 
government at both the State and Federal levels. So I will 
mention two that are important, and that is base, and then four 
others real quickly for your consideration.
    The first is regarding SBA's definition and its size 
standards. This is extremely important to those serving the 
government. The current standard is $23 million in revenue, and 
if a very small contractor is fortunate enough to get a piece 
of a multi billion-dollar contract, they could suddenly vault 
out of the small status, and yet they certainly are not ready 
to go compete with the multinationals of the world. That is 
something that we have been talking to the SBA about for some 
time and look forward to some changes there, especially for 
those serving the public sector.
    Second, again critical to IT firms serving the Federal 
Government, there is a law on the books set to go into effect 
in 2011 which mandates a 3 percent withholding tax on all 
payments to contractors for goods and services. While we think 
this will just be built into higher costs ultimately if it goes 
into effect, it could be especially harmful to the small 
contractor who, again, may be fortunate enough to get a big 
contract, and the 3 percent withholding which is held then by 
the IRS for 12 to 15 months is more than they can afford with 
their cash flow, so the impact on small business of having to 
set aside at the outset and withhold 3 percent of the contract 
value could be detrimental. So that is the second one I would 
like to mention, and this is something that your report, Madam 
Chair, last year noted at the end of the year, your 2006 final 
report on the important innovations small contractors bring to 
the table, and we do not want to do anything to disadvantage 
them.
    Third, I would like to say a little bit more about the 
importance of extending the ban on discriminatory Internet 
taxes. Again, citing your 2006 year-end report, Madam 
Chairwoman, you noted the impact that this could have on small 
businesses who now use that medium to reach the globe, as Mr. 
Chabot mentioned in his opening statement. And so anything at 
this time when we are 17th in broadband deployment--anything 
that adds weight to the Internet medium, I think, would be 
negative for our country, so we urge the extension of that.
    Fourth, I want to mention the pursuit of the best and 
brightest. This includes both immigration and education. Mr. 
Chabot and others have mentioned the import of education, but 
we need access to the best and brightest. I think the question 
boils down to do they stay or come to America and create jobs, 
or do they stay in their country of origin and create jobs? 
Indeed, some are predicting shortages of as many as 10 million 
workers. Here we need the best and brightest to be welcome and 
then, of course, build our own supply here domestically.
    I do think, when it comes to immigration, it is worth 
noting that a national venture capital study found that, over 
the last 15 years, one out of four VC-backed companies became 
public. One out of four were started by somebody new to 
America. And so I think immigration is important. Obviously I 
am referencing the H1B visas, but also the green cards, but 
again, this has to be coupled with education. More on that in a 
bit.
    I did want to note that we put out a little booklet that is 
educational here, A Passport to Prosperity, the number of 
foreign-born folks who have come here and created jobs and 
prosperity in our economy. It is a powerful point.
    The fifth of my six points is R&D and funding for R&D. This 
is very difficult in the budgetary environments you have to 
operate in, I appreciate that, but it is also a great 
bipartisan agreement that basic R&D needs to be increased, and 
that is the role of government.
    Finally, I want to talk about the sourcing of work, and 
again, this has the link to education. As Mr. Chabot noted, in 
a networked global economy, work can move anywhere, placing the 
right talent in the right location. It may be here; it may be 
in other countries, and it is important that our companies have 
access to that sourcing to be competitive in a hypercompetitive 
world. In fact, there is now a movement towards some more 
domestic sourcing that we are just finishing up a study on that 
we will share with Capitol Hill. It points out that just with 
government IT growth alone, there is not going to be enough 
domestically skilled workers, and so, while domestic sourcing 
is set to take off, we have to have the human capital there to 
take it.
    Those are the six that I wanted to mention to you this 
morning, and I look forward to any questions. Again, thank you 
for your emphasis on this important subject.
    Chairwoman Velazquez. Thank you, Mr. Bond, for your 
presentation.
    [The prepared statement of Mr. Bond may be found in the 
Appendix on page 46.]
    Chairwoman Velazquez. Our next witness is Mr. Grant 
Seiffert. He is the president of the Telecommunications 
Industry Association, TIA, 600 members who manufacture and 
supply information and communications technology equipment.
    Welcome, sir.

  STATEMENT OF GRANT SEIFFERT, PRESIDENT, TELECOMMUNICATIONS 
                      INDUSTRY ASSOCIATION

    Mr. Seiffert. Thank you very much, and I am pleased to be 
here, Chairwoman Velazquez, Ranking Member Chabot and other 
members of the committee.
    As you mentioned, I am happy to be here to share many 
thoughts, some thoughts regarding the issues that our 600 
member companies are facing who manufacture/supply the 
information communications and technology equipment. It is 
important to note, as others have said, that 80 percent of our 
membership base is of small- and medium-sized companies.
    To give some context to where I am speaking from, we are 
the companies who sell directly to consumers, whether a 
handset, a television or your laptop. We also sell our products 
and our infrastructure to cable operators, to telcos, to 
wireless providers, to satellite companies, and the list goes 
on.
    So what does this mean? It means we are the closest to the 
public interest along with my other colleagues here on the 
panel. We simply want to sell our products to consumers, and 
they simply want to buy them. We walk hand in hand with 
consumers because we need to know what they want so that we can 
sell technology products to them and give them the 
functionality they desire. The more you, Congress, can do to 
get those products and services in the hands of consumers, the 
better we will all be.
    When sales are up, prices go down. When more products are 
sold, more jobs are created. When a new product does well, we 
innovate back into that product to make a better piece of 
technology for consumers to use. Our products and services are 
in classrooms, used for public safety, transportation, and 
provide countless of other societal benefits.
    In TIA's 2007 annual market review, which covers the health 
of the industry, the U.S. market grew 9.3 percent this past 
year, 2006, which brings us up to $923 billion in U.S. 
revenues. The worldwide market grew 11.2 percent to total $3 
trillion. The demand for broadband/high-speed service is 
fueling this growth. People and businesses are thirsty for 
broadband, and this is TIA's number one priority, broadband 
deployment. Our companies either manufacture the next-
generation fat pipes that we know as the Internet or the 
products and services that ride over it.
    Now, the question remains how can we work together to 
better facilitate this continued growth in the broadband space? 
Consumers' demand for voice over IP and video are not going to 
do the job alone. Your committee can help. Your committee can 
act now to advance this innovation in this area.
    There are two things that TIA is asking you to do to help 
us be more competitive. First, achieve a national market-driven 
framework that fosters the diffusion of innovative 
communications technologies into all markets, support policies 
and encourage investment in next-generation network facilities, 
promote competition in the provision of multimedia applications 
and services. It spurs the proliferation of end users' devices. 
The bottom line, remove regulatory barriers to the deployment 
of new technologies.
    Second, give relief to small- and medium-sized companies on 
Section 404 of the Sarbanes-Oxley Act, which places 
extraordinary and unnecessary costs and burdens on these 
companies. You have heard this before. Section 404 threatens 
the long-term success of companies in the U.S. in their capital 
markets. TIA and our members companies offer our help, support 
and time to help work on these important goals. Our Nation's 
small businesses will only benefit from increased broadband 
deployment.
    In closing, I want to thank you for your leadership on 
these important issues. We enjoyed working with you last year 
and appreciate your continued support of small businesses and 
the relief of the Sarbanes-Oxley Act. So thank you very much.
    Chairwoman Velazquez. Thank you.
    [The prepared statement of Mr. Seiffert may be found in the 
Appendix on page 53.]
    Chairwoman Velazquez. Now, our last witness on this panel 
is Mr. David Zesiger. He is the senior vice president, 
regulatory policy and external affairs, for Embarq, a 
telecommunications company based in Kansas. Mr. Zesiger is 
testifying on behalf of the Independent Telephone and 
Telecommunications Alliance.
    Welcome, sir.

 STATEMENT OF DAVID ZESIGER, SENIOR VICE PRESIDENT, REGULATORY 
     POLICY AND EXTERNAL AFFAIRS, EMBARQ, ON BEHALF OF THE 
     INDEPENDENT TELEPHONE AND TELECOMMUNICATIONS ALLIANCE

    Mr. Zesiger. Thank you, and good morning, Chairwoman 
Velazquez, Ranking Member Chabot and members of the committee.
    I am David Zesiger, senior vice president of regulatory 
policy for Embarq, and today, I am testifying on behalf of the 
ITTA, the Independent Telephone and Telecommunications 
Alliance, which represents mid-sized telecommunications 
carriers here in Washington. Thank you again for the 
opportunity to share our perspective on how telecommunications 
can advance the innovation agenda for the Nation's small 
businesses.
    Embarq is the Nation's fourth largest wireline 
telecommunications provider, serving approximately 7 million 
lines in 18 States. We serve well over 400,000 small and 
medium-sized businesses in our service territories, including 
nearly 300,000 of which are the smallest of businesses with one 
through four employees. We commend you for holding this hearing 
today to examine the role that telecommunications can play in 
driving business innovation in our economy.
    Small businesses are the bedrock of our Nation's economy, 
and our Nation's telecommunications infrastructure plays an 
increasingly important role in empowering small businesses to 
do what they do best in our economy. Small businesses are 
increasingly reliant on broadband data networks to run their 
businesses, and they are demanding increasing bandwidth.
    Expanding the availability of broadband to businesses and 
to consumers is a top priority for telecommunications providers 
like Embarq. As of the end of 2006, Embarq had deployed 
broadband to over 80 percent of all of our business and 
residential lines, and it turned up our one millionth customer.
    In the same time frame, going forward in 12 months, we plan 
to provide access to 10-megabit service to approximately 50 
percent of our DSL-capable lines and the vast majority of our 
small businesses, but businesses of all sizes are demanding 
even faster service than traditional broadband, so-called 
Ethernet services. These services begin at 10 megabits per 
second and range as high as a gigabit per second. Both upstream 
and downstream, they are symmetrical in nature. In 2006, Embarq 
and other carriers saw an explosion of demand for Ethernet 
services, from small and large businesses alike, and we have 
invested significant capital in upgrading our network to meet 
this demand.
    Embarq also is a leading innovator in bringing benefits of 
convergence between wireline and wireless technologies to its 
customers. Last year we led the Nation and the industry in 
launching a dual-mode, cellular/WiFi phone that allows for 
seamless operation between the two platforms. We have now made 
this service available in 10 of our top markets, which 
collectively contain 70 percent of all of our lines.
    This kind of innovation is expensive. It takes enormous up-
front investment to upgrade our networks to offer the advanced 
services our customers demand, literally tens of billions of 
dollars a year. Embarq alone invests approximately $1 billion a 
year in upgrading its network.
    There are several important things that Congress and you 
all can do and should do to ensure that telecom providers like 
Embarq in rural and urban markets alike can continue to empower 
their business customers with the best that telecommunications 
has to offer.
    First, ensure a sustainable future for the Universal 
Service Fund. The fund made universal voice service possible in 
the 20th century. Congress needs to stabilize the fund today 
and expand and increase it to make broadband service available 
to all Americans.
    Second, reform the Rural Utility Service Broadband program. 
Congress should reevaluate the goals of the RUS program and 
ensure that the RUS loan programs are used to increase 
broadband deployment to the unserved areas of this Nation. This 
year's reauthorization of the farm bill provides you with an 
important opportunity to do that.
    Finally, avoid imposing unnecessary and harmful regulation 
on broadband networks that would limit network providers' 
abilities to invest in new and innovative services.
    The debate over Internet regulation or Net neutrality is 
likely to continue for some time, but all parties should be 
able to agree on the importance of accelerating deployment of 
greater bandwidth to all users. Avoiding unnecessary regulation 
that discourages investment in networks will help business 
users, equipment manufacturers, network providers, software 
providers, and even edge providers who ultimately rely on the 
network to reach their customers. By taking these three steps, 
Congress can ensure that providers like Embarq will continue to 
have the right incentives to innovate and to invest in their 
networks and open a world of opportunity for small businesses 
and all Americans.
    Thank you again.
    [The prepared statement of Mr. Zesiger may be found in the 
Appendix on page 57.]
    Chairwoman Velazquez. Thank you very, very much, and this 
has been an incredible panel. I am very grateful for your 
participation this morning.
    Mr. Archey, I would like to address my first question to 
you. Your organization has released data demonstrating the 
benefits that small firms receive from the R&D tax credit.
    Given their significant contribution to innovation, what 
improvements can be made to allow additional small companies to 
access the credit? Can we simplify the process, and can we 
provide more technical assistance? Please tell me how can we 
improve, or how do you think we should proceed here.
    Mr. Archey. Well, I think, on the R&D tax credit, one of 
the continual issues has to do with the fundamental formula 
that is used in terms of the base years that you can use. There 
were some changes in the recent extension in the R&D tax credit 
which, I think, are going to, in fact, help smaller companies, 
because what it is going to do is it is going to open up the 
R&D tax credit to a larger universe than the previous formula 
allowed for. I think that has got to continue to happen.
    The problem, of course, we have is that the R&D tax credit 
was only extended for 1 year, and we would like to see it 
permanent. We realize there are issues there on the budget. 
There are also other issues on it, but I think that making it 
permanent, which gives it much greater predictability for the 
companies to use, and particularly the small companies who are 
not as, if you will, sophisticated about the R&D tax credit as 
the larger companies with large tax organizations within those 
companies can do. So basically, it is the formula, and it is to 
essentially make it permanent that, in turn, gives it that 
predictability.
    Chairwoman Velazquez. Thank you, sir.
    I would like for each of the witnesses to comment on my 
next question. There are many different ideas about what 
Congress could do to promote the deployment of broadband 
throughout the country and to encourage the consumer in the 
adoption of broadband in areas where it is currently available. 
I would like each of you to identify the two steps that 
Congress could take or refrain from taking that will contribute 
the most to the FCC's stated goal of affordable access to 
broadband for all Americans.
    Mr. Seiffert. Sure. Thank you very much.
    As you all know, broadband technology is the foundation of 
our 21st century economy, and most recently the FCC just 
released rules on reforming video franchise competition. What 
that means is allowing the telecom companies to get into the 
video business. You certainly could support that. Last year 
there was legislation up here on the Hill to reform that. Now 
it has been taken up with the FCC, and they have implemented 
rules which we support. Legislatively here with Congress, there 
have been proposals in the past to support broadband tax 
credits. Certainly my colleague here to my left has talked 
about reforming the U.S. RUS and the Universal Service Fund to 
allow broadband providers to be a part of that. Those are some 
steps.
    Then I would just put a caution of any regulation on this 
amazing new economy in the Internet space to refrain from 
regulating. That is one thing Congress should do.
    Mr. Bond. I would very quickly add a couple, one that I 
mentioned in my testimony, of course, which is this is not the 
time, given our international standing, for any discriminatory 
taxes against the Internet when we are trying to roll out 
greater bandwidth.
    The second that I would mention that I think Congress has 
an opportunity to incentivize in many ways is the uptake of 
digital health records and e-health. That touches every 
American's life, every family. To the extent that we can 
provide more of those services through the broadband 
connections which allow you to see not only records, but to see 
X-rays and scans and so forth that takes a lot of bandwidth, 
that would really promote the broadband take-up.
    Thank you.
    Mr. Zesiger. Just to reiterate the three points, Madam 
Chairwoman, that I made earlier in my introductory testimony, I 
will focus on one in particular, which really was the focus of 
a hearing last week on the Senate side in the Senate Commerce 
Committee. There is one program that will move the needle in 
broadband deployment, and that is the Universal Service Fund. 
It has got its problems. There has been a lot of debate. There 
was legislation that was considered last year in the last 
Congress. All of that was very constructive; none of it passed. 
There has to be forward movement on this issue if you really 
want to change our status from number 17 in the world to 
something greater.
    Mr. Archey. One other point I would just add is that one of 
the things that we have got to look at when it comes to the 
whole issue of broadband deployment and the infrastructure 
itself is there are an awful lot of barriers at the State 
level, and AeA happens to have the largest State public policy 
program in the country--we are in 15 different States--and what 
we have found is that certain things like right-of-ways, things 
like that, are really problems for enhancing or increasing 
broadband deployment. And it is not a very sexy issue, but it 
is an awfully important one.
    Chairwoman Velazquez. Thank you.
    Now I will recognize Mr. Chabot.
    Mr. Chabot. Thank you very much, Madam Chair.
    Mr. Archey, if I could start with you, you mentioned the 
research and development tax credit, the importance of that and 
the importance of making some of these tax cuts permanent so 
that businesses can rely upon them and be able to plan into the 
future. Could you expound upon that just a little bit of why 
that is important?
    Mr. Archey. Well, one of the problems with the R&D tax 
credit which we certainly saw in the past year is whether it is 
going to exist, and that is a real problem in terms of 
companies like some predictability, and we ended up virtually a 
year after it expired making it retroactive and then extending 
it for a year. There has got to be a better way to do it, and 
if it is not going to be permanent, then how about 2 or 3 years 
at least of an R&D tax credit with a specific formula that 
people know, can understand and can execute on?
    I just think one of the problems that we discovered when we 
were doing some analysis of this is that the number of 
companies who could not use the previously expired R&D tax 
credit because of the underlying formula. They just could not 
use it very well, if at all. So I think that is where we are 
now, and I think that Congress, by the way, on this extension 
did make some changes in the underlying formula which were very 
helpful. That has got to continue.
    Mr. Chabot. Okay. Thank you.
    Mr. Bond, let me turn to you next if I could. You mentioned 
taxes as well in yours and specifically relative to the 
Internet, and many of us would like to keep the Internet as 
tax-free as possible.
    Would you comment on that? And also if you wanted to follow 
up on the question I asked Mr. Archey about taxes and the 
impact and the importance of making the tax cuts that have been 
passed permanent.
    Mr. Bond. Sure. I would be happy to, Mr. Chabot. Thank you.
    I think that the Internet tax is important for so many 
reasons. It is important because it is a global medium whereby 
the small can be big, a very small company, and north of 
Cincinnati could be marketing to the entire world, and I am 
sure there are some that are, and so any additional weight or 
burden on that medium at this time is going to hurt those 
innovative companies. It is going to hurt the medium at a time 
when we really want all of society on a high bandwidth 
connection so that more services and innovation can come out of 
that.
    So I think the permanence is important. It is important for 
a lot of reasons, not the least of which kind of relates back 
to the Sarbanes-Oxley comment that has been made by a number of 
folks. You cannot tell your auditor, "Well, do not worry. 
Congress is going to pass that again. They always do extend it. 
They did not get to it, but do not worry. It will happen." that 
is obviously not going to make it in terms of your report and 
your auditing, talking to Wall Street and shareholders. So they 
need to be able to count on it for both Internet tax and R&D.
    Thank you.
    Mr. Chabot. Thank you.
    I have got some questions for the other two witnesses, but 
would either of you agree with the other gentleman relative to 
the importance of the tax cuts and making them permanent?
    Mr. Seiffert. Absolutely.
    Mr. Zesiger. Yes, we would agree with that.
    With regard to the Internet tax moratorium, there has been 
a recent trend among State and local localities to begin to tax 
broadband services and facilities. That tax moratorium needs to 
be expressly expanded to those kinds of services so that we do 
not burden the kind of deployment that you all want to see in 
your districts.
    Mr. Chabot. Okay. Thank you.
    Mr. Seiffert, you had mentioned Sarbanes-Oxley as a 
deterrent to small business growth. What specific ideas would 
you suggest for us to ease the impact yet maintain the spirit 
of the law?
    Mr. Seiffert. Sure.
    I think that everyone supports the spirit of the law and 
understands that there are reasons to have those controls. 
Really, the bottom line is that you are reallocating resources, 
dollars--real dollars--from hiring engineers or salespeople 
rather than putting the money into accountants, and so I think 
the issue is a dollar expanse, and if we can take away some of 
the duplication in the accounting space, that would certainly 
help. We have many companies that would rather see engineers on 
their payroll rather than an accounting firm.
    Mr. Chabot. Okay. Thank you.
    Mr. Zesiger, I will conclude with you. You had talked about 
the concern that you have with increased regulation by the 
government at various levels.
    What in particular are you concerned about that might be 
out there that you think we should avoid to make business more 
challenging than it already is?
    Mr. Zesiger. Again, I mentioned in my opening testimony the 
threat of regulation that really does not have a problem that 
causes it. "net neutrality regulation" is what it is called. It 
is Internet regulation by any other means or name. That is 
going to be a debate that you will hear more of from the next 
panel, and you have heard, I am sure, already at this point in 
time that it is a very serious threat to our ability to 
continue to invest. If you take away incentives through 
regulation that really has no predicate for it, and there is no 
problem it is solving--if you take away the incentives we have 
to employ, we simply will fall further behind in our 
competitive status.
    Mr. Chabot. Thank you very much.
    I yield back, Madam Chair.
    Chairwoman Velazquez. Now I recognize Mr. Johnson, and I 
will ask the members to please observe the 5-minute rule since 
we have a very important panel, second panel.
    Thank you.
    Mr. Johnson. Thank you, Madam Chair.
    Members of the panel, I appreciate your appearing here 
today to share the concerns about your industry, and I am a 
first-year Congressman, previously elected to the county 
commission, DeKalb County, so I have got local government 
experience. And local government, DeKalb County specifically, 
funds its county operations based on, in large measure, sales 
tax revenues, and even our EMS service for ambulance is 
partially offset by monies that we collect on landlines, a fee 
that the service providers pay to local governments. And so, of 
course, local government provides things like police and fire, 
roads and drainage, sanitation, those kinds of basic services 
that make life better for people. And the people can go to the 
mall and go shopping at the mall and purchase goods, pay the 
sales tax; money comes back to the county; the county provides 
the services to the people, but with the growth of Internet 
shopping, it has definitely shown up in the bottom line of 
retail throughout America, and eventually, I think, Internet 
shopping will become so pervasive that it will definitely start 
shrinking the number of retail outlets that people actually 
shop at, and that will decrease the amount of revenues that 
county governments or city governments take in, and State 
governments as well, to render basic services to people.
    Now, you, Mr. Bond, have talked about the discriminatory 
Internet taxes, and there are a whole range of taxes, and I do 
not want us to kind of paint all taxes with the same broad 
stroke. What are you talking about when you talk about 
discriminatory Internet taxes, and does that include things 
like taxing the sale of products on the Internet?
    Mr. Bond. Thank you for the question, because I know it 
represents the source of funding for so many government 
services, the sales tax in particular.
    The emphasis on the moratorium has been on 
nondiscrimination against that medium, not that transactions 
and business that may take place over the Internet and sales 
that may take place over the Internet could not have taxation 
affixed to them, but that it not be discriminatory, that it not 
be more to say that because you do not have a store in the 
mall, you should pay more in taxes or whatever. And I would 
just say, too, that this goes to a fundamental question for 
local governments everywhere, which is to also make sure that 
you have a growing economy. I think this medium is critically 
important to our growing and competing internationally.
    Mr. Johnson. Certainly, and we have just got to make sure 
that we have a balance, that we are able to fund basic 
operations, governmental operations, that help people live 
safely and comfortably on a day-to-day basis. We have got to be 
able to fund that, and we need to be able to recognize the fact 
that State and local governments rely on sales tax revenues to 
fund their operations.
    So, from what I hear you say, Mr. Bond, you would not be 
opposed to a treatment of Internet sales, if you will, in the 
same way that sales to a traditional retail--or through a 
traditional retail outlet would be handled; in other words, 
say, a 6 percent tax on the sale of goods at a store in a 
particular jurisdiction. Should that jurisdiction be able to 
levy that same sales tax on a good that was purchased over the 
Internet from that jurisdiction?
    Mr. Bond. The controlling principle for the industry, and I 
think I probably speak for everyone up here, is 
nondiscrimination against the medium. However, the depth and 
profundity of your question is because what is presence and 
what is nondiscrimination gets very, very difficult--
    Mr. Johnson. Those things can be worked out.
    Mr. Bond. --but the controlling principle is do not 
discriminate against the medium.
    Mr. Johnson. Right. Right. On either side, do not put 
Internet sales in a priority posture at the expense of regular 
retail.
    Do any of the other panel members have anything they would 
like to add if I still have time?
    Chairwoman Velazquez. Quick. Just 1 second.
    Mr. Johnson. All right. Well, I will yield back my 1 
second, Madam Chairwoman.
    Chairwoman Velazquez. Thank you.
    Mr. Davis will be recognized for 5 minutes. Thank you.
    Mr. Davis. Thank you. I just have a very quick question.
    When I was back in my district a couple weeks ago, I had 
some small business owners come visit me about net neutrality, 
and they are concerned that if they are put on a slow Internet 
system, and bigger companies are put on a faster Internet 
system, it is going to put them out of business.
    Can you just talk about that and see if you think that is 
reality, and if not, help me understand it so I can explain it 
to my constituents?
    Mr. Zesiger. Effectively, as we go towards increasing the 
bandwidths, the bandwidth that we provide our customers, there 
is a natural evolution towards a proliferation of products that 
we can sell as a business to them. Some of those products are a 
higher bandwidth and products that customers and businesses 
desire. If you want to download a movie, and you have a basic 
1.5 meg service, how long is that going to take you? Are you 
willing to wait for that? It is faster to go out to your local 
video rental store, in fact. So will customers be interested in 
purchasing, basically, almost a turbocharging-, supercharging-
like approach where, for a short period of time, they can 
increase their bandwidth, pay for that service and reap the 
benefits of it at home? That is one example of the kinds of 
services that we would like to provide, but if regulations are 
put on our backs, we will not be able to.
    Right now the question really is: Is the Internet still 
free? Can users access the Internet in any way, form or fashion 
that they choose? The answer to that question is absolutely 
yes. There is nothing like a blocking of traffic or a 
discriminatory practice at this point in time. Frankly, the FCC 
currently has the jurisdiction necessary to oversee that 
process. Those folks probably did not mention that to you in 
your meeting back home, but if you contact the Chairman of the 
FCC or their staff, they will clarify that fact for you.
    Mr. Davis. As I move through and think about this 
situation, not all small businesses, or not even all large 
businesses, can afford to advertise on Super Bowl Sunday, but 
they can choose to do that if they want to do that, and if they 
want to stay competitive, then they decide to make that 
decision for their business. Is that pretty much the way you 
see this? If you want to stay competitive in a global 
marketplace, you have to step up to the plate and move to the 
next level of technology?
    Mr. Zesiger. Yes. We want to keep these as marketplace 
decisions, driven by marketplace realities. If you intervene 
with regulation, you are going to distort the marketplace and 
really discourage investment.
    Mr. Davis. Thank you.
    Mr. Archey. I would like to offer a contrary point of view 
on this.
    The board of directors of AeA about 4 months ago took a 
position favoring pure Net neutrality to, in fact, deal with 
the issue. We think that if you go to different levels on the 
Internet in terms of access, you are going to have a 
discriminatory Internet, and we believe very strongly that a 
pure Net neutrality issue that favors, to some degree, the 
Internet service providers is the way we ought to go and not 
allow the carriers to, in fact, provide extra services where 
there is going to be a certain, if you will, class of users who 
have a higher status than others.
    I would also note to you that this is the one issue where 
this panel is clearly not going to be in agreement.
    Mr. Davis. Any other thoughts from the other panelists?
    Mr. Seiffert. Sure.
    I would associate--TIA would associate itself with Mr. 
Zesiger, and you are right. You are going to have a debate as 
we address these other issues. We do not believe there is 
antidiscriminatory behavior going on, and I would just caution 
that any regulation you place on these telecommunications 
networks will disincent the incentive to invest and upgrade the 
networks to be competitive in this global market and bring us 
from the 17th spot up to number 1.
    Mr. Bond. I think my association is a little bit more like 
Congress. We have folks on both sides.
    Chairwoman Velazquez. Okay. Thank you.
    We will recognize Mr. Gonzalez for 5 minutes.
    Mr. Gonzalez. Thank you very much, Madam Chair.
    Mr. Davis, we need to have a really good discussion. I 
think if we had a real education about this Net neutrality--
unfortunately, it is such a wonderful term that it is such a 
misnomer, but I will tell you now it is not about small 
business interests. It is not about the bloggers or the 
individual users of the Internet. It is about Google and AOL 
and EBay. Believe me, when we get educated on this issue, 
sooner rather than later, we will understand that the market 
really should drive these practices to build out the proper 
measure of what do the networks deserve in the way of their 
investment and such. But that is for another day, which I would 
say that the testimony you all gave here today--and I 
understand the difficulty. When you provide this type of 
testimony, you probably have to take it over to Financial 
Services. You could take it to Ways and Means. You could take 
it to Energy and Commerce.
    The challenge that we face here on this committee is really 
trying to identify those aspects of an issue that relate 
specifically to the needs or to the challenges of small 
business, and so that is how I am going to try--and I only have 
5 minutes and have used up about a minute on this Net 
neutrality, but I am going to pose just three questions, and 
then each member of the panel--and you are only going to have 
about 20 seconds to address this thing.
    There are three aspects of what I see here when it comes to 
information technology. Small business, first of all, is a 
consumer, and that is the purchase and utilization of 
information technology; secondly, as a provider, and that is 
providing the product and the service of information technology 
because obviously they are out there; and lastly, the most 
difficult are the challenges facing small businesses, which is 
the evolving Internet business model.
    I think it is probably going for the best at this point 
because we are getting away from--that you have to advertise or 
promote or market your product now in the traditional medium 
such as radio, television, the Yellow Pages, and newspapers. We 
have expanded it, and we are finding niche markets as long as 
those--that control the manner in which small businesses are 
able to access the Internet, and I am talking about 
rankings.You know, any time that you have a search, how 
discriminatory can that be? Those are the challenges. So let us 
start off again.
    As a consumer of IT, as a provider of IT and, lastly, small 
businesses in the Internet marketplace and its evolution, and 
we can start with Mr. Archey.
    Mr. Archey. In 20 seconds, right? Okay.
    Small business is a purchaser. One of the great things 
about the IT industry and the IT evolution is it is one of the 
very few industries in which products and services that are 
purchased are cheaper now than they were 5 years ago and 
dramatically cheaper than they were 10 years ago, et cetera, et 
cetera.
    Some wag made the comment that if the auto industry had 
followed the IT industry, a new car would be about $4.75. So I 
think that--as a purchaser, I think it is fine. As a provider, 
one of the things that we noted--and it is part of the reason 
that I responded to Mr. Davis as I did in terms of the Internet 
and about the whole issue of Net neutrality is that the 
Internet is an extraordinarily democratic infrastructure, and 
it is one that enables companies to get into business, 
precisely because the Internet exists as both a provider, a 
service provider, a product provider or what have you, and I 
think things are going to be very, very positive in the future 
precisely because of, if you will, the democracy of the 
Internet.
    Then, lastly, it is basically the same answer, which is on 
the Internet business model, more and more small companies are 
leveraging the use of the Internet than are some of the larger 
ones, and there are a lot of new companies that are coming into 
existence precisely because of their ability to use the 
Internet in very, very creative ways, and that is a trend that 
is not going to stop.
    Mr. Bond. Thank you for three profound questions.
    Small business as a consumer, I would go back to Internet 
tax. I think it is critically important that we not burden them 
in that regard.
    As a provider, I think it boils down to the R&D discussion 
that has been mentioned and the Federal Government's role there 
and people, our own domestic skill sets and production. And I 
would just very quickly say in that regard there is a lot of 
talk about STEM, and I think it is really STEM Plus. In today's 
environment, we need to look at what are the 21st century 
skills. Is our education and secondary education system mapped 
well to those skills?
    Third, on the Internet business model, to my mind this 
links really to some of the comments about global sourcing, not 
only having access to the best and brightest via the Internet 
model, but also bringing the best and the brightest here to 
start their companies here as we have a rich history of. It is 
something that we should pursue as a country.
    Mr. Seiffert. Again, thank you for the question.
    I would just say, as a purchaser, there is much more 
opportunity for choice as a small business because of the 
Internet and the access to the different opportunities out 
there to create efficiencies to sell their products.
    Certainly as a provider, again, there is more range of 
reach to the rest of the world because of this technology that 
these small businesses are established on, and I would just 
comment about the challenges with the Internet model. I think 
entrepreneurs who are out there figuring out and carving a new 
way of doing business, you know, against the traditional models 
that we know and what you have talked about, advertising and 
marketing their products.
    Chairwoman Velazquez. I am sorry. Time is up. Thank you.
    Now we go to Mr. Fortenberry.
    Mr. Fortenberry. Thank you, Madam Chairwoman.
    Good morning, gentlemen. I do not have the benefit of your 
earlier testimony, so I apologize if this is a little 
redundant.
    Can any of you define the size of the problem in terms of a 
lack of broadband access in rural communities? That is a hard 
question because there is a lot of overlap in some areas that 
are proximate to urban communities that are in pretty good 
shape, and other areas that are very remote are not, but it is 
hard to quantify. If any of you can give a reasonable opinion 
on that.
    Secondly, there is a Federal program, the Rural Utility 
Service Program. I am also on the Ag Committee. That could be 
an important part of the discussion of the next farm bill, 
which is likely to happen this year. There are some potential 
opportunities there and some potential dilemmas in terms of, in 
effect, government subsidies to companies that would provide 
better access in rural communities, but that also may end up 
competing in urban communities with those companies who have 
invested in infrastructure and purely through the private 
sector.
    Whoever would like to--
    Mr. Zesiger. As a telecom provider, Embarq addresses these 
issues, and we addressed them this morning in our testimony, so 
I would recommend that to you. I will not recap all of that, 
but simply say it is a very, very expensive proposition. We are 
investing aggressively. Tens of billions of dollars a year go 
into this industry to expand broadband speeds and access and 
availability. It is going to cost billions more--it is a big 
country--and we referenced in our testimony this morning the 
fact that we have covered over 80 percent of all of our lines, 
and that last 20 percent is the most expensive part. And we 
keep chipping away at it year by year, but programs like 
Universal Service is really the only program, and programs like 
that, at the State and Federal levels, that will move the 
needle on broadband deployment. So that is the first takeaway.
    With regard to deployment, the RUS Broadband Loan Program 
is also helpful. It is the second point we made in our 
testimony. It is important that those funds are directed to 
areas that are unserved today instead of areas that already 
have broadband service and, therefore, only support redundant 
networks. And so a change in the parameters and the goals of 
the RUS Broadband Loan Program are an important part of the 
kind of conversation you will have in the ag bill this year.
    Mr. Fortenberry. Any other comments?
    Mr. Bond. I would only observe for the record that, of 
course, there are some other technologies coming along that 
will have great impact on rural America. Broadband over power 
lines many Members, I think, are familiar with and have read 
about, but also the now emerging WiMAX technology, which has 
been called "WiFi on steroids," but has much greater reach in a 
wireless capability to maybe solve some of those expensive last 
mile issues.
    Mr. Seiffert. I would just add, Congressman, that we have 
not quantified it, but I think the realities of rural America 
are that, without broadband access, you do not have access to 
telemedicine technologies; I mean, you know, the basic issues 
that we mentioned earlier about education and access to the 
rest of the world. You have brain drain for some of these rural 
communities going to larger cities, and so that should be an 
issue we look into.
    Chairwoman Velazquez. Ms. Clarke.
    Ms. Clarke. Thank you very much, Madam Chair.
    Gentlemen, this has been a very impressive and important 
conversation we are having here this morning. My question is 
directed to Mr. Seiffert, but if any of you have any thoughts 
on it, if you could answer, it would be great.
    I am looking at your whole--addressing the issue of 
broadband deployment, and you talk about a strategy. Have you 
given any thought to that and what we should do in the Congress 
working with the administration to really spur that?
    I am one who looks at deadlines very seriously, and we are 
already in the first quarter of the year 2007. What suggestions 
or recommendations do you have.
    Mr. Seiffert. Sure. For many years, we have been focused on 
this issue, and we have addressed it from the standpoint of how 
do we incent our customers to invest in these risky 
investments. They take on deploying these new technologies. I 
think, from a Federal standpoint, you need a national policy, 
as I mentioned earlier in my testimony, a national framework to 
incent investment, and that can be through removing barriers to 
deploy and to new market spaces.
    The FCC has been quite critical in the recent growth that 
we have seen in our industry. Again, from 2006, we reported 
that the industry grew 9.23 percent; and, you know, that was 
because the competition that was created by the telcos and the 
cable industry and the wireless and satellite industry was 
coming together in new spaces.
    We have also supported up here on Capitol Hill tax 
incentives, broadband tax incentives. I mean, from a world 
perspective, these are risky investments and there has got to 
be some kind of guaranteed return in these investments.
    The wireless space, which Mr. Bond just mentioned, is 
critical. I think the Congress and the administration has been 
successful in bringing more spectrum to the marketplace through 
the Commercial Spectrum Enhancement Act addressing 3G wireless 
auctions, allowing more people to buy wireless services and 
also, with the DTV transition, there is more spectrum coming to 
the marketplace. That will serve not just rural but urban 
communities through WiFi or WayMAX.
    So there are a few issues that we can continue to address 
at the FCC and here in Congress through tax incentives and 
allowing more services to come to competition.
    Mr. Bond. I would mention one other thing. There still is a 
lot of public housing being built without pipes in the public 
housing. Most of that is going to be flipped to a commercial 
sale at some point in time, so the investment would certainly 
come back to the builders. A number of States have moved down 
this path in terms of requiring it. I think it is a discussion 
for Congress to have with HUD about how to adjust the scoring 
on that.
    Ms. Clarke. Thank you. I yield back.
    Chairman Velazquez. Mr. Shuler.
    Mr. Shuler. Thank you, Madam Chair.
    Mr. Archey, I want to thank you and all of the panel for 
just your wealth of knowledge and your participation in the 
panel. It has been very informative.
    Mr. Archey, you mentioned the need for expanding the HB-1 
visa opportunities in a technology work place. Why don't you 
believe that the American technology needs can be met by 
American workers?
    Mr. Archey. Because they can't. Right now, there is an 
enormous shortage. You take a look at, for example, Microsoft's 
Web site. There are several thousand job openings that have 
been on that Web site for a year, 2 years, sometimes longer.
    The fact is that we are not producing our students, our 
kids, with a background in math and science in the colleges 
partly because, I think, of the inadequacy of the instruction 
when they are in high school. Because there is also a view--I 
mean, I get this question all the time, why don't more of our 
kids take math and science? And my pat response is, because it 
is hard.
    One of the things is that, you know, people get into--it 
gets in the way of the fact that it is more of a grind, if you 
will, in those areas, but there is also this issue--the 
Department of Education noted last year that a maximum of 41 
percent of high school students in the United States take a 
course in math and science that is taught by a teacher who 
actually majored in the subject. And Congressman Miller made 
the comment at a hearing that I was a witness in a few weeks 
ago where the answer is not to let us make our history teachers 
into physics teachers. We have got to start this whole ball 
game over and put an enormous emphasis on it.
    Lastly, the point I would make is that, given this 
inadequacy you have, to then look at what is going on in the 
graduate schools. Almost 55 percent of all--56 percent of all 
Ph.Ds and engineers are going to foreign nationals. About 50 
percent of all Ph.Ds in physics are going to foreign nationals. 
The average is about 50, 51 percent in the science, technology, 
engineering, and math areas. Math is very high.
    But the point about that also is that is another 
complication. We then say to these students that were just 
educated in American universities, goodbye. We don't want you 
to stay. That is absurd.
    And the other thing is partly because in the Congress and 
in other institutions there is a view that if you let foreign 
nationals in it is a zero-sum game against American workers. 
Think of the history of the last 40 years. It will prove that 
is not the case. The number of coups that have been started by 
foreign nationals and the jobs that were created is 
extraordinary.
    But so one of the things that--my last point of this is 
this not the first time we have had to deal with this issue. We 
had to deal with this issue as soon as Sputnik went up in 1957. 
And, in 1958, the Congress passed the National Defense 
Education Act. It was about a $1.3 billion appropriation, which 
in today's money is about $7 billion. That appropriation led to 
thousands of our young kids getting interested in math and 
science and taking not only in undergraduate but in graduate 
degrees, and it is not a coincidence for the next 50 years the 
United States dominated the world both economically and 
technologically. That was a very important intervening 
variable.
    Then, lastly, I would just note that, in terms of should we 
do it again, the difference today versus 1957, 1958, we were 
very afraid; and public policy always gets pushed when we are 
afraid. We are not so afraid now. We are used to being number 
one. We think that it is almost a God-given right that we are 
going to be number one; and the fact of the matter is, we have 
slipped. We are still number one, but that lead is not what it 
used to be.
    Mr. Bond. We do have shortages that everybody is seeing. 
Our domestic companies can't find the folks. Even though we 
have global companies coming to the U.S. saying they can't find 
the folks in the market, we are not drawing the kids in, as 
Bill has mentioned, to take those kinds of degrees.
    The good news somewhat there is that market, if you look at 
it for the kids, seems to be pretty elastic, that if they get 
positive signals, as they got during the dot com boom, that is 
the place they go, they major in those things. But since that 
point in time it has been nothing but negative messages. We 
have higher IT employment today than we have had in the last 14 
years. So it is really coming back.
    I guess I would make this analogy, if you would allow me, 
given your background, to not go after the best and brightest 
would kind of like be telling the University of Tennessee you 
have to recruit only in State.
    Mr. Shuler. We do like the State of Florida when it comes 
to the recruiting.
    Madam Chair, just--sorry that my time is up, but I just 
wanted to thank all of you for coming again. It is very 
informative, and we certainly have some work to do in education 
workforce. Hopefully, at a later date, with more time, that you 
can certainly educate the other Committee of how we can 
continue to get our bright students into the workplace and we 
can recruit them here. I think that would be, obviously, even 
in my district, a very rural district, that we could continue 
to send our brightest students in mathematics. It is something 
that we have been talking throughout our community about, to 
continue to send our bright students to make sure they are in 
math and engineering.
    I thank you for your testimony.
    Chairwoman Velazquez. Mr. Braley.
    Mr. Braley. Mr. Archey, where do you live?
    Mr. Archey. Alexandria, Virginia.
    Mr. Braley. Mr. Bond, where do you live?
    Mr. Bond. Fairfax Station.
    Mr. Braley. Mr. Zesiger?
    Mr. Zesiger. Leewood, Kansas.
    I want to follow up on my neighbor, Mr. Fortenberry's, 
question, because I grew up in rural America. I represent a 
good section of rural America, and rural America is in trouble. 
Every small business owner I know in rural America is dependent 
upon technology to survive. Every economic development director 
I talked to in rural America talks about expanded access to 
broadband as a fundamental opportunity for success and survival 
in rural America.
    This is a critical issue. The State of Iowa has been 
exporting educators, technicians, scientists as part of this 
brain drain that Mr. Seiffert talked about for over a decade. 
And yet, at the same time, we are starting to attract small 
businesses from the coast, people who are looking for a 
different lifestyle and who depend upon technology to compete 
in a global marketplace and are doing it successfully.
    As someone who depended heavily on technology in my small 
business to expand the market that I worked in, I would like to 
follow up on your comment, Mr. Zesiger, and ask you, when you 
talk about this goal of increasing broadband deployment in 
underserved areas and coming from Kansas, what real-world 
examples can you share with us to help us learn how we can make 
this a higher priority in the Small Business Committee?
    Mr. Zesiger. Excellent question. The needs are real; and 
telecommunications and high technology, primarily 
telecommunications, is really the leading high-tech investor in 
rural America. The next panel will address this. There will be 
at least two representatives of that panel that can address 
these issues from a smaller provider's perspective.
    But we provide service to literally hundreds of rural 
committees across the country. And the answer is it just takes 
money. It is very capital intensive to buy Mr. Seiffert's 
products. His members' products are not cheap.
    To provide those products in rural markets, which are 
uneconomic to serve, there are not enough customers. There are 
not enough large businesses that you might find in the urban 
areas. It is a true challenge. It has always been a challenge. 
And it is the Universal Service Fund that really resolved that 
challenge as effectively as any nation in the world has ever 
done.
    We ought to be proud of as much as we do today. We need to 
do more. To make that fund more sustainable in the long term, 
to reform it and going forward so that it supports broadband is 
the primary goal here today.
    Mr. Braley. I want to follow up with you, Mr. Archey, on 
your recommendation that the SBIR program should be expanded 
and improved. That is one of the programs that is under the 
jurisdiction of my Subcommittee; and, given your expertise in 
technology and innovation issues, I wanted to give you an 
opportunity to expand on that recommendation. Because this 
Committee and Subcommittee are likely to examine that program 
very closely, and I believe a number of the members of this 
Committee are interested to know how you believe the SBIR 
program could be improved.
    Mr. Archey. One of the points, Mr. Braley, is we are 
finding--I have gotten in the last month a number of queries 
and call complaints from some small companies. Companies that 
are partially controlled by a venture capital company are not 
eligible for SBIR, and that is the rule that was put into place 
about a year ago, year and a half ago. I think that ought to be 
revisited, because I think what is happening is that some 
innovations are, in fact, not being discovered precisely 
because these folks can't get into the program.
    The second thing that I have been hearing from the 
companies, because I haven't had a lot of in-depth looks at 
SBIR but I have to basically reflect what my companies are 
saying, is that there is still a fair amount of bureaucracy 
involved with applying and with getting into the program. The 
word I hear all over our small business people is 
simplification, and I think that would go a long way to 
increasing participation and increasing the consequences of the 
results of the program.
    Beyond that, I would be guessing. But those two points come 
directly from our member companies.
    Mr. Braley. Would you be willing to discuss that further 
with your members and be a resource as we look at that program 
further and the concerns?
    Mr. Archey. I would be happy to. In fact, we have 17 local 
councils consisting of full-time staff and high-tech 
executives, many of whom are small. This week, I will go back 
out to them and point-blank ask them, if you were changing the 
SBIR program, how would you do it? And I will get it back to 
you within a week, week and a half.
    Mr. Bond. Our venture capital capabilities are a huge 
advantage for us globally. Many countries come here expressly 
to mimic that. So knocking out a VC back company for SBIR has 
taken our advantage off the table.
    The other thing I would mention is, to protect the program, 
you also want to police the program. So there have been 
occasional complaints about SBIR mills making the same 
application to multiple agencies and getting funded multiple 
times; and so, obviously, good policing protects the political 
support.
    Chairwoman Velazquez.  Let me just mention for the record, 
Mr. Archey, you write in your comments regarding inequities of 
venture capital and the SBIR. We will be addressing those 
issues right before this summer, this Committee.
    Mr. Chabot?
    Okay, so let me thank all of the witnesses. This has been 
quite an extraordinary discussion, one that will remain open, 
and we will continue to talk to you, reach out to you to see 
what the next step that should be taken coming out of this 
Committee. Thank you very much.
    We will move to the second panel.
    Good morning to all of you. Thank you for coming and 
participating in this second panel.

STATEMENT OF WALTER B. McCORMICK, JR., PRESIDENT AND CEO, U.S. 
                TELECOM ASSOCIATION (USTELECOM)

    Chairwoman Velazquez. Our first witness is Mr. Walter 
McCormick, Jr. Mr. McCormick is President and CEO of the United 
States Telecommunication Association. USTelecom represents 
service providers and suppliers in the new telecommunications 
marketplace.
    Mr. McCormick. Madam Chairwoman, thank you for having me 
today. I appreciate the opportunity to appear before the 
Committee to discuss our Association and our industry's 
perspective for advancing the innovation agenda.
    Our Association represents innovative companies ranging 
from the smallest rural telecoms in the Nation to some of the 
largest corporations in the United States economy. Our 
companies offer a wide range of services across the 
communications landscape, including voice, video, and data over 
local exchange, long distance, Internet and cable networks.
    Most of our world providers are small businesses 
themselves; and many of them have been at the forefront of 
providing their customers with the triple play of voice, video, 
and data. These innovative communication services provided by 
our members play a vital role in the success of many small 
businesses.
    Our members also provide small businesses with personalized 
solutions to meet their individual needs. For example, our 
members offer small businesses a range of Internet services 
including state-of-the-art security protection, 24/7 live 
technical support, Web site hosting and business e-mail 
accounts. Differentiation of products and services is important 
to small businesses as differentiation provides options and 
flexibility for entrepreneurs to choose the best service with 
which to meet their needs.
    Madam Chairwoman, the ways in which businesses conduct 
commerce and communicate with each other and their customers 
has changed fundamentally. Today, you can make a phone call 
using a wireline phone or a wireless phone, a cable phone or an 
Internet phone. Technology has made it possible for cable 
operators, who historically offered only video, to offer voice 
and Internet services. Especially relevant for this hearing, a 
number of cable companies are now moving to compete in the 
business market.
    Similarly, Internet access is available through wireline 
or--wireline, DSL or cable modem, through wireless or 
satellite, and increasingly over municipal WiFi systems and 
broadband, over power lines. In fact, today there are more than 
1,200 broadband service providers in the United States, and 
broadband is exploding. The FCC says that during the first half 
of 2006 more than 6.7 million wireless high-speed Internet 
lines were added by businesses, for an increase of over 200 
percent.
    Madam Chairwoman, our industry, our member companies of the 
United States Telecom Association, are committed to furthering 
broadband deployment; and we believe the Congress can do three 
things to advance broadband deployment in this country. First, 
Congress should ensure a sustainable future for universal 
service; second, an important part of the equation for 
broadband deployment lies in ensuring continued funding for the 
Rural Utilities Service broadband program; and, finally, 
Congress can promote broadband deployment by permanently 
expanding the tax moratorium, by allowing for faster 
depreciation of broadband equipment and fiber, and by 
establishing a tax credit for the deployment of broadband 
equipment and fiber.
    By continuing to advance policies that promote competition 
and ensure investment, Congress has the opportunity to 
encourage broadband deployment and to create a new wave of 
small business entrepreneurs across the width and breadth of 
this country.
    Again, thank you very much for the opportunity to testify 
before you today.
    [The prepared statement of Mr. McCormick may be found in 
the Appendix on page 60.]
    Chairwoman Velazquez. Our next witness is Shirley 
Bloomfield. Mrs. Bloomfield is Vice President, Government 
Affairs and Association Services for the National 
Telecommunications Cooperative Association. NTCA represents 
over 570 rural community based communications providers 
throughout the United States.
    Welcome.

  STATEMENT OF SHIRLEY BLOOMFIELD, VICE PRESIDENT, GOVERNMENT 
 AFFAIRS AND ASSOCIATION SERVICES, NATIONAL TELECOMMUNICATIONS 
                 COOPERATIVE ASSOCIATION (NTCA)

    Ms. Bloomfield. Thank you very much.
    I know that you are pressed for time, so I will try to keep 
this to the points that I think are the most relevant.
    NTCA members really are small businesses. They serve 
between 50 to 100,000 access lines in communities across this 
country. So they are the small of the small.
    I will also tell you broadband has really come up as a big 
topic today. Ninety percent of member companies serve over 90 
percent of their service territories, and I admire the 
commitment this Committee has in figuring out how do you get to 
that last 10 percent. I really look forward to working with all 
of you on that.
    I am just going to focus on a few things that we think are 
very key to ensure that all Americans, regardless of where they 
live, will have access to new technologies and advanced 
services.
    You have heard this before, but modernizing and sustaining 
the Universal Service Fund is critically important.
    Access to video content. We have talked today about what 
are the take rates out in rural America. Why can't you get 
people to take a higher level of broadband services? I think 
access to video and video competition is going to be very key 
to that portion.
    Spectrum policy, network regulation and the Regulatory Flex 
Act I think are all going to be key.
    Restructuring the Universal Service Program properly is 
critical to determining whether all Americans will have access 
to all of the advanced services we are talking about here in 
the 21st century. Even though all Americans rely increasingly 
on sophisticated services, bandwidth for economic health care 
and certainly educational opportunities, there are a lot of 
folks that are looking to actually limit the Universal Service 
Program.
    While other countries are making an effort at this point in 
time to ensure ubiquitous broadband coverage for their 
citizens, the United States remains a step behind in making a 
genuine commitment to broadband deployment. It is NTCA's 
position that, rather than contemplating ways to cap or 
otherwise limit this program, policymakers should be looking 
for ways to enhance it and to accelerate the deployment.
    NTCA has a policy course that we have been looking at that 
has been very forward looking in terms of the advancement of 
this. It covers things such as expanding universal service base 
contributors so that all contribute so we can continue that 
build-out, strengthen the public interest in the ETCs and 
eliminate the identical support rule.
    A second priority for us is access to video content. Small 
video programmers in small areas are having a difficult time 
obtaining video programming from the content providers who 
actually own the content.
    There are two critical issues that I just would like to 
take a second to highlight. The first is shared head ends. What 
we find in a lot of our folks right now, we have folks in the 
State of Tennessee, for example, is they come together because 
the economies of scale for these small telephone companies is 
very limited and to buy a head end to receive your telephone 
content is very expensive to do. So a lot of these folks across 
the country have gone together to either lease a head end or 
purchase a head end jointly.
    But what has happened is a lot of the video content 
providers have prohibited that type of arrangement, and what 
that is doing is that is cutting off those rural subscribers 
for having access to those programs. It is making it very 
expensive to provide service when it is a stand-alone service 
because nobody else in those service territories are offering 
those services or to provide a competitive service.
    The other point that I would raise that I think we are 
going to hear a lot of this year is the need for retransmission 
consent reform. The broadcast stations are electing 
retransmission consent, and they are increasing the price that 
the video carriers are having to pay to provide their services 
to their customers. What this is doing is this is increasing 
the cost to the customers, and it is also requiring some of the 
small carriers to have to choose or box some of the different 
channels that they are carrying at this point in time. And they 
want to be responsive to their customer base.
    Regarding spectrum policy, you have heard a little about 
that today. NTCA has done some very comprehensive surveys with 
our members who do provide wireless service. We found that, in 
2006, 30 percent were able to obtain spectrum but close to 50 
percent still cited that it is very, very difficult to do and a 
lot of them use unlicensed spectrum in part because it is 
actually easier to get, although it is very difficult to make a 
long-term business commitment. The spectrum is important in the 
broadband department because wireless broadband is going to be 
the next effort out there, and 700 megahertz is going to be key 
to rolling out this technology.
    I think this Committee could play a role in terms of 
ensuring that the FCC continues to look at small license areas, 
continues to encourage the FCC to license off the spectrum in 
the small markets where those carriers who are local will make 
sure that they provide those services to their customer base.
    In terms of network regulation, I only want to point out 
one nondiscriminatory fact about the whole discussion that has 
come up about Internet neutrality. That is that one thing that 
does get lost a little bit in the discussion is that NTCA are 
small carriers, and we need to ensure that small companies are 
not discriminated against in our access to the Internet 
backbone. We don't own that Internet backbone, and we need to 
have that same access to those services so our customers can 
get the broadband deployment services without discriminatory 
pricing on our carriers that will increase the cost for the 
rural consumers.
    Just with regard to the Reg Flex Act, NTCA encourages this 
Committee to ensure that Federal agencies are doing their due 
diligence to make certain that small businesses aren't 
economically disadvantaged by new regulations. This is 
particularly important in the communications industry because 
so many small independent providers do not have the resources 
to fully comply with all of the regulations.
    I think small communication carriers have a lot going for 
them. They are innovative, they are community focused, they are 
diverse in their services, they are agile enough to move 
quickly, and their service ensures economic development in the 
rural communities they serve.
    Thank you very much.
    Chairwoman Velazquez.  Thank you. Right on time.
    [The prepared statement of Ms. Bloomfield may be found in 
the Appendix on page 64.]
    Chairwoman Velazquez. Our next witness is Mr. Richard 
Cimerman. He is the Vice President of State Telecommunications 
Policy for the National Cable & Telecommunications Association. 
NTCA members include cable operators serving more than 90 
percent of the Nation's cable telecommunications subscribers.

    STATEMENT OF RICHARD CIMERMAN, VICE PRESIDENT OF STATE 
   GOVERNMENT AFFAIRS, NATIONAL CABLE AND TELECOMMUNICATIONS 
                       ASSOCIATION (NCTA)

    Mr. Cimerman. Chairwoman Velazquez, Ranking Member, members 
of the Committee, the cable industry is the Nation's largest 
broadband provider of high-speed Internet access after 
investing more than $110 billion over 10 years to build out a 
two-way interactive network with fiberoptic technology. We also 
provide state-of-the-art digital telephone service to millions 
of American consumers. Thank you for the opportunity to appear 
before you today to discuss the cable industry's priorities for 
the 110th Congress.
    I am proud to report that our small and mid-sized operators 
have invested billions of dollars of private risk capital in 
small towns and rural communities all across this country in 
order to provide a full array of advanced broadband services 
equal to what our larger operators offer, including services 
such as residential and commercial high-speed Internet access, 
high definition, digital and on-demand video services and 
digital telephone service. Some of the smallest towns in the 
United States have access to some of the most advanced digital 
services in the world because of the commitment and investments 
made by our smaller and mid-sized operators.
    To take just one example, Midcontinent Communications is 
offering households and businesses in Buxton, North Dakota, 
with a population of 350, state-of-the-art high-speed Internet 
service, digital cable and high definition programming and 
digital telephone. These investments have created new jobs for 
American workers and new business opportunities for small 
entrepreneurs in rural America.
    I want to briefly touch on four topics that are explained 
in more detail in my written testimony. They are that 
competition in the communications marketplace is working, 
Congress's decision to leave the Internet unregulated is an 
unquestioned success, broadband deployment initiatives should 
be focused on unserved areas, and new government fees should 
not be imposed on broadband service.
    The cable industry fully embraces and thrives today in a 
robust, competitive marketplace in all of its businesses. The 
cable industry has never asked Congress for a handout, and we 
are not looking for regulatory advantages over our competitors. 
We don't oppose efforts designed to lighten regulatory burdens 
on our competitors in order to foster fair competition on a 
level playing field.
    Fifteen years ago we commanded 95 percent of the multi-
channel television market, but today, because of fierce 
competition from DBS satellite television providers and other 
broadband providers, our market share has fallen to less than 
68 percent. And now the Regional Bell Operating Companies have 
entered the fray, and they are not your typical underfunded, 
undercapitalized, newly entered market. Rather, they bring with 
them annual revenues of $219 billion, more than three times 
those of the entire cable operator industry. As a result of 
this competition, over 31 million consumers, almost one of 
every three video subscribers, now obtain multi-channel video 
programming from someone other than a local cable operator.
    As stated by the FCC last year, competition in the delivery 
of video programming has provided consumers with increased 
choice, better picture quality and greater technological 
innovation.
    Our entry into the telephony market is also great news for 
consumers across America. Today, nearly 10 million households 
have chosen cable phone service, with more than half of those 
added within the last 10 years. According to a recent J.D. 
Power report, cable phone customers are saving over $10 a month 
on their phone bills, and recent projections show that total 
anticipated consumer benefit for phone competition over the 
next 5 years will total more than $100 billion. Small cable 
operators are increasingly bringing the benefits of these 
competitive telephone services to rural areas as well.
    It is still the case, however, that phone companies serve 
the vast majority of Americans. It is also true that 
competitive voice services cannot survive without physical 
interconnection to the phone company controlled public switched 
telephone network at a fair and reasonable rate.
    We hope that Congress will continue to support competition 
of the voice market by working to ensure that the 
interconnection rights Congress established in 1996 apply to 
all providers in a fair and reasonable manner and on a 
technology neutral basis, including requirements that rural 
telephone companies interconnect with competitors.
    With our triple play of phone, data, and video, consumers 
are enjoying tremendous cost savings and enhanced value as 
cable operators and our broadband competitors offer bundled 
packages of these services. Competition in the communications 
marketplace is working.
    Now the deployment of high-speed Internet access in the 
United States has been an amazing success story. I know there 
were questions earlier about quantifying the extent to which 
broadband is available. Cable broadband service is available to 
more than 94 percent of all U.S. homes. That is cable alone. 
DSL and other services don't overlap completely. So there is 
something more than 94 percent available today. So when we look 
at the unserved areas, that portion is something less than 
probably 5 percent; and our view is that is the area where 
government policy needs to focus in terms of deployment.
    Both Mr. Fortenberry and Mr. Zesiger mentioned the RUS 
program, which we believe is badly flawed as it has been 
administered. RUS funds have gone to areas with multiple 
providers, rather than to unserved areas. We think that is 
something Congress should address.
    Finally, let me just say that Congress's decision to leave 
the Internet unregulated is an unquestioned success. With usage 
growing at a rapid pace, continued investment will be needed to 
keep these services robust and give consumers the level of 
services and innovative new products and features they desire. 
So-called net neutrality proposals, however, seek to cement in 
stone today which business models are permissible and which 
ones are not. They would impose by government fiat outcomes 
that are better left to the marketplace.
    We believe Congress's hands-off policy has worked and 
should remain.
    Thank you, And I look forward to any questions.
    Chairwoman Velazquez. Thank you.
    [The prepared statement of Mr. Cimerman may be found in the 
Appendix on page 71.]
    Chairwoman Velazquez. Now our next witness is Mr. Earl 
Comstock. He is the President and CEO of COMPTEL. COMPTEL 
represents more than 180 competitive communication service 
providers.
    Welcome, sir.

     STATEMENT OF EARL COMSTOCK, PRESIDENT AND CEO, COMPTEL

    Mr. Comstock. Thank you, Madam Chairwoman and members of 
the Committee. It is a pleasure to be here on behalf of 
COMPTEL. We represent the competitive communications providers, 
over 185 member companies, carrier companies as well as 
associated suppliers serving primarily small business.
    The COMPTEL members would like to be serving a greater 
portion of the country. I am sad to report today that under the 
current FCC and FCC policies competition is diminishing in this 
country, as opposed to increasing.
    What was fascinating about the presentations by the 
previous users is every single one of them requested government 
intervention. Yet, at the same time, all of them that represent 
the large incumbents, and I am talking about incumbent telcos 
and the incumbent cable providers, also suggested that you 
should deregulate them with respect to removing competition.
    The reality is the Internet was created by regulation, not 
the other way around. What was unregulated on the Internet was 
the content and services you could provide. But the fact of the 
Internet, which is a communications network, it is nothing more 
than the next generation of public-switch telephone network, 
was created by the fact that government rules allowed 
innovators and small businesses access to that network at 
reasonable prices and on reasonable terms and conditions. This 
is the key to competition, this is the key to solving broadband 
in rural America, and this is the key to making small 
businesses competitive.
    The issue you hear about, net neutrality, is an issue over 
gatekeepers, an issue over will the two transmission facility 
owners in the country, the incumbent cable companies--
notwithstanding Rick's claim about private risk capital, which, 
by the way, it was absolutely true. There was private risk 
capital. But with the government guaranteed monopoly when they 
started, they got to build their infrastructure while protected 
from competition, protected, I might say, from the telcos.
    Likewise, the telcos got to build their networks while 
protected from competition. That is why their network reaches a 
hundred percent of the country, and the cable industry reaches 
roughly 94 percent of the country, because they got to build in 
a protected environment. None of the companies I represent got 
that same privilege. We all have to build our networks in a 
competitive environment in the face of entrenched incumbents.
    So the bottom line is, I am here just like everybody else 
saying, yes, government does need to set some rules if you want 
this to happen.
    Now, if you look at your innovation agenda and the concerns 
that have been expressed here, the key factor is America, to 
remain competitive in the 21st century, must have access to 
faster speeds at lower prices.
    As Rick accurately portrayed, broadband deployment is not 
your problem. Broadband penetration is. Broadband penetration 
is the rate at which people buy the service, and that is a 
function of price, and only competition is going to bring that 
price down.
    It was government regulation that created the competition 
and video that, as Rick pointed out, cost them some market 
share. We created the program access rules that Shirley said 
they need access to in order to provide video in the small 
areas. We support USF, which is another government program, but 
only as--I think we would agree with the cable industry--there 
needs to be some changes to it to ensure it remains 
competitive.
    But all of us are talking about a common infrastructure; 
and if you have any doubt about the fact that the Internet and 
the public switch network are the same thing, try knocking down 
the telephone pole in front of your house and see what happens 
to your Internet service. And that is true whether you have got 
cable modem or Internet DSL.
    Fiber is not coming to rural areas any time real soon 
except in the areas, I would say, perhaps by the smaller 
telephone companies. Not the big companies. But the big 
companies are not rolling fiber.
    You have heard about Verizon's deployment plan. It covers 
40 percent of their customers. But, at the same time, they are 
coming in saying, give me regulatory relief. You know what 
their priority agenda is? Let us not have net neutrality 
because we don't want people to have reasonable access to this 
network. We want to lock it up and control which content and 
services you get. They want the cable model. The cable network 
is a broadband network, yet you can't buy broadband, the entire 
broadband capacity of that cable network, because the cable 
company gets to tell you this is the package of services you 
get.
    So, you know, you have all got my prepared testimony. It 
goes into things.
    We are concerned about the fact that, right now, absent 
intervention by Congress, the FCC is rapidly removing the rules 
that give companies access on reasonable terms and conditions 
to that infrastructure that was built in a monopoly 
environment.
    Without that access, it is very difficult for us to provide 
service. Without that access, we can't continue to serve the 
small business customers we serve today. And we are the ones 
providing that service. Don't forget, we wouldn't be in 
business if we didn't provide lower prices, better service, 
greater innovation. All of the major leaps in technology that 
went on, whether you are talking about the Internet, the fax 
machine, even different phones, came about because government 
rules gave us access to that network.
    So what I am here to say is this Committee can play a role 
in advocating to the FCC that you maintain reasonable rules to 
ensure access to infrastructure because we are not building 
three, four, five or six or seven new infrastructures across 
this entire country.
    Thanks very much.
    Chairwoman Velazquez. Thank you.
    [The prepared statement of Mr. Comstock may be found in the 
Appendix on page 88.]
    Chairwoman Velazquez. This has been quite an exciting and 
challenging discussion, and I will go to Mr. Chabot.
    Mr. Chabot. Thank you very much.
    Mr. McCormick, I will start with you. I think you stated 
earlier in your testimony that you believe Congress should 
extend the Internet tax moratorium; is that correct?
    Mr. McCormick. Yes.
    Mr. Chabot. Could you state briefly why you believe that, 
and if the other members could just indicate if they agree that 
we ought to extend the moratorium.
    Mr. McCormick. Yes. If a principal goal of Congress is to 
speed broadband deployment, to increase broadband take rates, 
then you don't want to disincent the taking of broadband by 
taxing the taking of broadband. So we think that the Internet 
tax moratorium makes a lot of sense. You impose taxes on things 
like alcohol and cigarettes to discourage consumption. Don't 
impose taxes on Internet access. We don't want to discourage 
consumption
    Mr. Chabot. Do all the other members agree?
    Mr. Cimerman. We agree.
    I also stated in my testimony that we don't believe that 
broadband should be assessed for universal service, which in 
effect is exactly the same thing, imposing a tax on a service 
that we are trying to get more people to buy. So neither 
Internet taxes or universal service fees ought to be imposed on 
broadband service.
    Mr. Comstock. Again, I think the devil is in the details, 
and we would agree with the concept of not taxing Internet 
access unfairly. I think the concern is much of the debate 
around Internet tax is also bundled up with the idea that you 
are not going to regulate the networks that are used; and if 
Internet tax moratorium extensions results in loss of access to 
those networks, I think that is a huge problem.
    Ms. Bloomfield. Universal service is not a tax. It is an 
intercarrier support mechanism. So I would like to separate out 
those two notions between each other.
    Mr. Chabot. Okay. Mr. McCormick, what do you see as the 
next important demand from consumers for telecommunications 
services? In other words, what is the next big thing after cell 
phones, the Internet, et cetera?
    Mr. McCormick. Congressman, I think it is making life 
simple. It is having technology conform to the way in which you 
live your life, rather than you having to conform your life to 
the state of the art of technology.
    Where we are headed with our investments is to provide 
consumers and small business with communications their way, to 
be able to have seamless mobility, to be able to move between 
wireless and wireline environments seamlessly, to be able to 
access the Internet or to be able to access a host of new video 
entertainment and social services seamlessly. Health care 
providers over advanced networks. Home security services 
provided. So we see we are really at the threshold of the 
information economy, and technology is going to make life 
simple and more efficient for all.
    Mr. Chabot. Thank you.
    As a follow-up, just as one human being, a thing that would 
make it simpler. I know we have cable at home. I have basic up 
here, but the cable at home where my family is, but trying to 
figure out what is on in an hour from now when there is 150 
channels is just--I haven't grasped the concept of figuring 
that out. So I do what most guys do, is whatever my wife picks 
is what we will watch.
    Chairwoman Velazquez.  Wise choice.
    Mr. Chabot. Ms. Bloomfield, would you point out some of the 
benefits that urban residents receive from the Universal 
Service Fund?
    Ms. Bloomfield. I think when you look at the value of the 
network, the network is only as valuable as the number of 
entities of business people that you connect to it. So it is 
truly one of those things like--the analogy being the highway 
system. The fact that you can cross seamlessly. We have stories 
of ranchers in South Dakota who sell their wares to markets in 
Chicago. Universal Service, by building out the network in 
these markets, allows that interconnectivity that increases the 
value for all Americans. You can't separate that out.
    I will also note that Universal Service is not only a high-
cost fund. There is also a non-rural fund that goes to the 
larger companies to build out in their markets as well as the 
fact that there is a lifeline and link-up which provides access 
to those lower-income consumers to allow them to have access to 
the network as well.
    Mr. Chabot. Is concentration in the video programming 
market reducing cable companies' ability to invest and improve 
broadband access?
    Mr. Cimerman. I don't think so. I mean, I think that, first 
of all, in terms of broadband per se, we are at 94 percent 
plus. We are not looking for additional government funding to 
push that out further.
    I would say, in response to some of the statements that 
were made before about our standing in the world as 17th, that 
there is a little bit of a misunderstanding about that because 
it is--our deployment is not 17th. It is penetration that is 
17th. And there is a lot of different reasons why people choose 
not to take service in the U.S. Twenty-One percent take dial-up 
today. Twenty-six percent have no computers at home. We do lead 
the world in the number of actual Internet users that are out 
there. We are a much more geographically vast and less dense 
country than some of the other countries that are often touted 
as having these tremendous penetration rates, and very often 
people who have broadband at work just don't see the need for 
purchasing broadband at home.
    So we think that some of the--it has been a little bit 
overstated as to where we stand or what the problems are in 
terms of broadband in the U.S.
    Mr. Chabot. With respect to broadband speeds, how much of 
the increased capacity comes from government investment versus 
private sector investment, if you know, or if you could venture 
an opinion.
    Mr. Comstock. The question of capacity--what increases the 
speed typically is greater innovation, and that comes from the 
freedom to attach devices, I mean, when the Internet came 
about, because people could attach newer electronics to the 
existing telephone infrastructure without having to get AT&T's 
permission to do so as long as it was certified by FCC as not 
harming the network. I think that is the key.
    I agree with you about the 150 channels, having to wait and 
scroll through. But that is what happens when you leave this to 
the private sector. The cable industry was not required to 
allow other people to attach devices to their network. So you 
can't get some innovator that comes along and says I don't want 
to watch 150 channels, scroll through one by one. I want to 
type something in and have it pop up. You can't get that 
because they control which devices get access to their network. 
And, in fact, there has been a 10-year fight since the '96 Act 
over the ability to use non-cable company controlled devices on 
the cable network.
    Mr. Chabot. Thank you very much.
    Chairwoman Velazquez.  Ms. Bean.
    Ms. Bean. Thank you, Madam Chair; and I would like to thank 
you and our ranking member for hosting an important forum here 
today. Your testimony has been helpful, as well as the first 
panel. Unfortunately, I missed little bits of it, and I 
apologize. You know how things work here on the Hill. But it 
has been helpful. I know all of us will be looking at the 
further testimony as well that you provided on the net 
neutrality debate between the carriers and the content and 
balancing access that is affordable to the Internet with the 
necessary infrastructure development that needs to continue. I 
have found that helpful.
    But I would like to change subjects briefly and ask from an 
industry perspective about another issue. With the converging 
technologies, there is a lot more access, whether it is data or 
voice or music or entertainment; and these technologies are 
converging into the homes, in many cases, and parents have a 
lot of concerns about Internet safety. Given that there is 
going to be more availability in the homes and more access for 
children and the increasing concerns about child predators, 
what is the industry doing, from your perspective, and what do 
you think could be done further on industry's part so the 
government doesn't have to get overly involved in the interest 
of protecting children from predators?
    Mr. McCormick. It is a very significant issue, and much of 
that has to be addressed through sophisticated network 
management. It is the type of things like--it is an extension 
of extending parental control, spam control, firewalls. It is 
the kind of challenge that does require us to be able to engage 
in pro-consumer-oriented network management, and it is one of 
the reasons we are fearful of net regulation or net neutrality 
regulation. Because you are--in effect, as you begin to move 
into this area and give consumers greater control over what 
comes into their house, you are engineering the network in ways 
that will allow the consumer to choose to block certain 
functionality.
    It is something that we see as not only a very important 
social objective, but we also believe it is a very important 
market objective, because we know how consumers desire to have 
these kinds of safeguards.
    Ms. Bean. I will add a little later to this, as you go 
further on this, is we have done a number of forums on this in 
our district. Part of the challenges as parents, as you can 
imagine, are busy working, running their businesses, trying to 
provide their kids with technology that helps them in school, 
that is often used for other purposes as well. And as quickly 
as those protections become available that they do--that they 
thought they bought when they brought the equipment home or 
they added some additional software, those who seek to 
undermine those provide products to allow people to get around 
them. So how do parents, in the interest of protecting their 
children--should it all be on the consumers to provide that 
protection from the leapfrogging that goes on?
    Mr. Comstock. If I could offer something on that. I think 
you are highlighting the difficulty and the distinction that 
has always been there between the regulation and the 
transmission networks and the regulation of the content. 
Regulating the content, Congress has tried numerous times 
through various laws, and it is exceedingly difficult to do, 
and it often gets struck down in court.
    I think the concern that we would express on the opposite 
side, while we agree it is a huge problem and a great concern, 
is you are picking a path, if you go down the path that Mr. 
McCormick is suggesting, of saying let the network operator do 
it exclusively. Then you are counting on one or two companies 
to really solve this problem. If you go down the other path of 
saying, no, we are going to keep the network open and let all 
innovators attack this problem, you have got thousands of minds 
looking at this issue. You have got lots of innovation, and it 
is going to be a cat-and-mouse game.
    It is always going to be a case of you design a safeguard, 
somebody designs a way around it. That is the nature of the 
beast with software development. And I think that speaks for 
all kinds of things. But that is why we would say keep the 
network open and accessible and don't turn it over exclusively 
to a couple of network operators.
    Mr. Cimerman. I wanted to mention that there was recently a 
new initiative that was formed in conjunction with the Internet 
Caucus, the Congressional Internet Caucus; and it includes, I 
believe, company members of all of ours--and I am sorry that 
the name escapes me, but it is something like the Child Online 
Safety Alliance that is designed to offer tools and programs to 
parents and educate them about what they can do. I will get the 
name and Web site for you, but it is a major initiative that 
was announced several weeks ago by all of our companies.
    Ms. Bean. Thank you.
    Chairwoman Velazquez.  Thank you.
    I would like to ask you the same question I asked the first 
panel. And that is for each one of you to identify two steps 
that Congress can take or refrain from taking so that it will 
contribute the most to the FCC stated goal of providing 
affordable access, broadband access to all Americans.
    Mr. McCormick. First, do no harm. Broadband investment is 
occurring. It is occurring at record rates. We heard Mr. 
Seiffert talk this morning about the extent to which his 
industry is seeing the broadband investment. The FCC notes the 
broadband investment. On the wireless side, it increased by 
over 58 percent, according to FCC statistics over the first 6 
months of 2006. But, first, do no harm through net regulation.
    Secondly, there are good, strong programs like Universal 
Service and the Rural Utilities Loan Program; and those 
programs should be stabilized and focused and directed to 
making sure the broadband is deployed to those areas that are 
unserved.
    We now have 96 percent of the United States served by at 
least two broadband providers, but there are areas of the 
United States that remain unserved, and we have an obligation 
to extend broadband to all Americans, and those are two good 
programs to help with that.
    Ms. Bloomfield. I would say number one is look for 
incentives to create the build-out. As I mentioned, our members 
have broadband to 90 percent of their service territories. That 
last 10 percent is very, very difficult and very expensive. 
Universal Service, the RUS broadband program, what incentives 
some of the larger companies may need, all of those are going 
to be important. And keep the technology neutral. What we find 
is our folks are reaching those markets by DSL, by their cable 
networks, by wireless services, by satellite services. So keep 
in mind that it may be different technologies for different 
parts of the country.
    And the second thing I would say is the take rates. Again, 
going to risks points, penetration is a huge problem. Is it 
cost? Is it availability? Is it a killer application? So as you 
go through policy, keep in mind what role will wireless policy 
or might video policy play in terms of creating some of those 
applications out there that will actually incite the American 
public to purchase the service.
    Mr. Cimerman. I would agree that the focus, as mentioned 
before, should be on unserved areas. We support the Universal 
Service Program.
    I know that Mr. Chabot had asked a question about the 
benefits for urban residents. We support the program, but that 
doesn't mean that the program doesn't need to be reformed. 
Simply dumping more money into the program as it exists today 
when there is wide-spread agreement that some reform is 
necessary, simply dumping money into the program to fund 
broadband would not be the way to go. We should specifically 
have a carve-out, a separate--if we are going to try to 
subsidize in some way some unserved areas--a separate program 
rather than the Universal Service Program as it exists.
    In terms of--I don't want to get into a debate of whether 
it is a tax or not, but I would suggest that if you ask any of 
your constituents what that 10 percent tax is on the bill that 
they pay every month, you would be hard pressed to find any of 
them that wouldn't say it is not a tax of some sort. So focus 
on unserved areas. Pass the Internet Freedom Act and no new 
universal freedom fees on broadband.
    Mr. Comstock. I think the key thing that you can do is 
continue to focus on necessary regulations, and those range 
from ensuring that innovators have access to the network.
    Right now, as I mentioned, there are a lot of things 
happening down at the FCC where they are recreating the 
monopoly that existed before. The old AT&T is restructuring 
itself and they are doing it by removing rules that Congress 
adopted in the 1996 Act to promote competition. Without that 
competition, you are not going to get innovation, you are not 
going to get new products, and you are going to get the United 
States falling further behind. We need rules to maintain that 
access so we can't have these forbearance petitions.
    So I would say that is the most important thing. This 
Congress needs to send a message that we want access. And you 
keep hearing that broadband deployment is a risky investment. 
If it is so risky, then fine, use the marketplace. By keeping 
it open to other people to get access on reasonable terms and 
conditions, you spread that risk. Allow other people to come 
out and officer service.
    Let me give you one example. Cavalier Telephone today in 
Richmond, Virginia, is offering service using Verizon loops, a 
triple play service. They are attaching newer electronics. What 
is Verizon's response? It is not to get out there and offer 
that same service. It is to seek relief from rules that give 
Cavalier access.
    If you are worried about regulations somehow making 
investment not possible, take a look at what is going on in 
Europe. They do have a reasonable regulatory oversight that 
provides this kind of access, and they are not seeing any 
diminishment in investment. In fact, they are seeing lower 
prices, faster speeds and greater service offerings than we see 
in the United States today.
    Thank you.
    Chairwoman Velazquez. Mr. Chabot, do you have any other 
questions?
    Well, let me say, this has been an incredible discussion. 
We look forward to continue working with you, and I want to 
thank all of you for your participation.
    Thank you. The Committee is now adjourned.
    [Whereupon, at 11:00 a.m., the Committee was adjourned.]

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