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


 
                   SUBCOMMITTEE HEARING ON MAXIMIZING 
                   THE VALUE OF BROADBAND SERVICES TO 
                           RURAL COMMUNITIES 

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

             SUBCOMMITTEE ON URBAN & RURAL ENTREPRENEURSHIP
                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 9, 2007

                               __________

                          Serial Number 110-20

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

             SUBCOMMITTEE ON URBAN & 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

                                 ______


                                  (ii)

  





















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Shuler, Hon. Heath...............................................     1
Fortenberry, Hon. Jeff...........................................     2

                               WITNESSES


PANEL I
Adelstein, Hon. Jonathan, Commissioner, Federal Communications 
  Commission.....................................................     3

PANEL II
Stephens, Brandon, Balsam West FiberNET LLC......................    16
Shields, T. Russell, Ygomi LLC...................................    17
Kremer, Russ, National Farmers Union.............................    19
Christensen, Brent J., Christensen Communications Company........    21
Mefford, Brian, Connect Kentucky.................................    23
Deere, William R., United States Telecom Association.............    26

                                APPENDIX


Prepared Statements:
Shuler, Hon. Heath...............................................    37
Fortenberry, Hon. Jeff...........................................    38
Adelstein, Hon. Jonathan, Commissioner, Federal Communications 
  Commission.....................................................    40
Stephens, Brandon, Balsam West FiberNET LLC......................    47
Shields, T. Russell, Ygomi LLC...................................    76
Kremer, Russ, National Farmers Union.............................    80
Christensen, Brent J., Christensen Communications Company........    85
Mefford, Brian, Connect Kentucky.................................    91
Deere, William R., United States Telecom Association.............   104

                                 (iii)

  


                   SUBCOMMITTEE HEARING ON MAXIMIZING

                    THE VALUE OF BROADBAND SERVICES

                          TO RURAL COMMUNITIES

                              ----------                              


                         WEDNESDAY, MAY 9, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
             Subcommittee on Urban & Rural Entrepreneurship
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360 Rayburn House Office Building, Hon. Heath Shuler 
[Chairman of the subcommittee] presiding.
    Present: Representatives Shuler, Clarke, Fortenberry, 
Musgrave, and Davis.

                OPENING STATEMENT OF MR. SHULER

    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Heath Shuler [chairman 
of the subcommittee] presiding.
    Present: Representatives Shuler, Clarke, Fortenberry, 
Musgrave, and Davis.
    Also Present: Representative Fallin.
    ChairmanShuler. Good morning, everyone. I am pleased to 
call this hearing to order. This is the Subcommittee on Rural 
and Urban Entrepreneurship, the first hearing of the 110th 
Congress.
    I would like to welcome the Members of the Subcommittee, 
the distinguished witnesses, and our guests.
    Rural America is the home of many different kinds of small 
businesses. In Western North Carolina, there are thriving high-
tech businesses, small manufacturers, and family farms. What 
all these businesses have in common is the need to stay 
connected with their customers, their suppliers, and the 
information that they need to run their businesses.
    Today's hearing will focus on the challenges for providing 
reliable, affordable broadband access of the rural small 
businesses. Experience has shown that broadband can bring 
economic revitalization to small towns by creating clusters of 
small businesses. Broadband service can also help farmers and 
farm-related businesses control costs and optimize production. 
This technology can provide real-time access to whether 
reports, fertilization guidance, and livestock tracking.
    Farming communities must maximum the use of high-tech 
Internet access to ensure further development. I am concerned 
that many of our country's rural and agricultural-based 
communities are not yet fully realizing the potential of value 
of broadband services to their economies. As more of these 
communities gain high-speed access to the Internet, the next 
challenge is to help them use the access effectively to help 
create jobs and sustain growth.
    There are many debates going on right now about broadband 
policy. We must ensure that the needs of the rural, small 
businesses are taken into account whether local, state, or 
federal governments act to change the broadband marketplace.
    During this hearing, I hope that we will begin a dialogue 
that will help make this happen.
    I am very pleased that we have two expert panels here this 
morning and I look forward to hearing their testimony.
    I would like to recognize the Ranking Member, Mr. 
Fortenberry, for his opening statement.

              OPENING STATEMENT OF MR. FORTENBERRY

    Mr.Fortenberry. Thank you, Chairman Shuler, for your 
remarks and for scheduling this important hearing today and 
thank you all for, especially to our witnesses, for your 
willingness to appear before us today.
    This Subcommittee is the only Committee tasked with the 
exciting responsibility of encouraging entrepreneurship. 
Entrepreneurial small businesses are the creators of most new 
jobs in our country and many Americans are rethinking the old 
concept of work in favor of being their own boss and bringing 
new products, innovations, and services to the marketplace.
     This is also a very decided trend among younger people and 
I do believe that the work of this Subcommittee can help remove 
some of the barriers to creating a more entrepreneurial 
society.
    As you all are aware, we are here to discuss broadband 
Internet access and its importance to rural America. Broadband 
provides an important gateway to innovation and the tools for 
adapting to the ever-changing marketplace.
    A study last year by the Massachusetts Institute of 
Technology documented that communities which had broadband 
availability enjoyed more rapid growth in employment. Across 
rural America, businesses in health care, retail, and the 
agriculture sectors are realizing important innovation through 
the growth of advanced broadband services.
    America, however, has been slower than other nations to 
adopt this technology. Currently, 36 percent of households have 
broadband access, but the percentage of broadband usage is 
actually lower in rural parts of the country. According to a 
General Accountability Office report, the GAO report, the 
adoption rate of broadband services in rural areas is only 17 
percent, much lower than the national average.
    In my own State of Nebraska, we're fortunate that parts of 
all 93 counties have some form of broadband Internet access, 
however, nearly 400,000 Nebraskans live outside population 
centers making it more likely that they cannot access this 
vital service.
    In today's hearing, we will hear about the potential 
benefits of having more competitive services for broadband in 
rural America and review some of the barriers that stand in the 
way of such development. In addition, we will review state 
efforts to pave the way to an expansion of access and I'm 
particularly interested in how one state, Kentucky, has become 
a national leader on this issue. Their effort demonstrates that 
there is currently no strong definition of what is an unserved 
area and illustrates the importance of creating a methodology 
for defining what areas of the nation are unserved or under 
served.
    Improving the climate for entrepreneurs will depend, in 
part, on a more nuanced effort by interested federal agencies 
to answer these questions and find out what areas of the 
country need the most attention. Again, thank you, Mr. 
Chairman, for calling this important hearing and I look forward 
to the testimony.
    ChairmanShuler. I ask unanimous consent that the record be 
open for five days for Members to submit their statement.
    Hearing no objection, so ordered.
    Our first panel, this morning, I'd like to introduce, the 
Commissioner, Mr. Adelstein. He became the Federal 
Communications Commissioner on December 3, 2002 and was sworn 
in for a near five-year term on December 6, 2004. Before 
joining the FCC, Commissioner Adelstein served for 15 years as 
a staff member of the United States Senate. For the last seven 
years, he was a senior legislative aide for the United States 
Senate Majority Leader, Tom Daschle, where he advised Senator 
Daschle on communications, telecommunications, financial 
services, transportation, and other key issues. Commissioner 
Adelstein was born and raised in Rapid City, South Dakota and 
now lives in Washington, D.C.
    Mr. Commissioner, thank you for being here and we look 
forward to your testimony.

 STATEMENT OF THE HONORABLE JONATHAN ADELSTEIN, COMMISSIONER, 
               FEDERAL COMMUNICATIONS COMMISSION

    Mr.Adelstein. Thank you, Mr. Chairman, and Congressman 
Fortenberry, for inviting me to testify this morning. I'm 
especially honored to be here for your first hearing of the 
Subcommittee and I'm really pleased that the first subject that 
you're taking on is deploying affordable high-speed broadband 
everywhere in this country. I think we need to make broadband 
the dial tone of the 21st century.
    As you mentioned, I grew up in South Dakota and my family 
business out there was building roads and bridges that helped 
grow our state by connecting the physical connections between 
communities in the state, but broadband networks now are 
bringing people together in ways that my engineer grandfather 
never could have imagined. As a bridge builder though, I think 
he would have understood the importance of broadband for 
commerce.
    Broadband is especially critical to economic future of 
rural America where it can connect businesses to millions of 
new customers, facilitate telecommuting, and increased 
productivity, and I could go on and on and I do at length in my 
testimony. But what's really at the heart of it is that 
broadband can restore the sense of opportunity that first 
inspired Americans to settle the frontier and provide hope to 
our young people who want to stay in the communities where they 
grew up or return, as we discussed beforehand. They want to 
come back home. They need to know that there's going to be 
economic opportunities that await them without a kind of 
broadband network that would make it just that much harder for 
them to get back home and stay there.
    Especially in an age of global competitiveness which we'll 
hear about more from the panelists, no matter where people 
live, we've got to tap their full potential. There are good 
lessons to draw on. You'll hear many from the next panel, but 
I'm extremely concerned that as a nation, we're failing to keep 
pace with our chief global competitors. Citizens of other 
countries are getting a much better broadband deal. More 
megabits for less money. It's a productivity problem for 
economy and we've got to do better.
    Some argue that we've fallen in these international 
broadband rankings precisely because we are such a rural 
country. Well, if that's true, we should redouble our efforts 
and address that issue head on because we certainly want to 
maximize rural economic development and our overall economic 
growth. We need to prevent outsourcing of jobs overseas by 
promoting the insourcing of jobs by U.S. companies within our 
own borders.
    I'm concerned that the lack of a coherent broadband plan is 
one reason that we're falling behind. It's an urgent priority 
to create a comprehensive national broadband strategy that 
targets the needs of every part of this country, including 
rural America. It's got to incorporate benchmarks, deployment 
time tables, and measurable thresholds to gauge the progress 
that we're making.
    We need to set ambitious goals that aim at true high-speed 
broadband. One first important step is to update our current 
anemic definition of broadband that we have at the FCC of just 
200 kilobits in one direction, something that's more akin to 
the kind of speeds they're getting overseas that will really 
support video and data services.
    We should start by gathering more reliable, specific data 
than the FCC currently compiles so we can better ascertain 
problems and develop solutions. I think you're right, Connect 
Kentucky showed us a great model and there's no reason that we 
can't do it on a national level what Kentucky was able to do on 
a state level. We've got to increase incentives as well because 
the market will be the primary driver of companies that benefit 
from a stable, regulatory environment.
    We must also work to promote meaningful competition which 
is the most effective driver of innovation. It keeps prices 
low.
    Federal universal service continues to play a vital role in 
maintaining and improving these rural networks. As voice 
becomes just one broadband application along with video and 
voice and data, we need to ensure that universal service 
evolves to provide a ubiquitous advanced services, a priority 
the Congress made clear in the Communications Act that was 
updated in 1996. One major growth engine for broadband, 
particularly in rural areas is the potential of spectrum-based 
services, wireless services. We've got to get spectrum into the 
hands of operators ready to serve at the most local levels. 
Previous auctions, I pressed for the use of smaller license 
blocks. I want a balanced facilitating spectrum access for 
those providers who want to offer service to smaller areas, 
with giving those larger carriers strategic opportunities to 
expand their footprints as they need to.
    I think we really have an historic opportunity in this 
upcoming 700 megahertz auction. This is the television spectrum 
that we're going to re-auction coming up early next year or 
late this year. That could really facilitate an emergent third, 
broadband platform, a real national wireless broadband network. 
To make that happen, I think our auction rules should provide a 
diverse group of licenses, giving all bidders the chance to win 
licenses that best match their business plans.
    Unlicensed wireless is also part of the rural solution. 
Unlicensed spectrum is free and in most rural areas, it's 
lightly used. It can be accessed immediately using widely 
available technology. We're working to make more unlicensed 
spectrum available at higher power levels and we're evaluating 
unlicensed operations in unused TV spectrum bands, the so-
called white spaces.
    There's a lot more that Congress can do as well. Just a few 
ideas: providing adequate funding for and properly targeting 
rural utility service broadband loans and grants; providing tax 
incentives to companies that invest in broadband in under-
served areas; revising better depreciation rules for capital 
investments and targeted telecommunication services; investing 
in basic science and research and development for further 
innovation; and improving math and science education so human 
resources can continue to fuel technological growth.
    Just as roads and bridges paved the way for economic 
success of rural America in the last century, broadband 
networks will be a big part of maintaining and restoring the 
vitality of our rural communities in the future.
    Thank you for your leadership on rural broadband by holding 
your very first hearing on this subject and I appreciate the 
opportunity to testify and I'm happy to answer any questions 
you might have.
    [The prepared statement of Mr. Adelstein may be found in 
the Appendix on page 40.]

    ChairmanShuler. Thank you, Commissioner. You mentioned some 
incentives. One was tax incentives, others was depreciation 
schedule. How can some of the smaller businesses benefit from 
that with having both a public and private relationship of 
extending broadband services in rural areas?
    Mr.Adelstein. I think public/private partnerships work 
really well. We'll hear from Connect Kentucky and I believe 
that one thing the government can do to help out is if 
companies do really target these areas that are higher cost, 
it's obviously more expensive to provide broadband to rural 
areas, but the benefits to the economy are such that it 
justifies perhaps in having tax credits that can encourage the 
development of broadband where it might not otherwise be 
economically feasible.
    Similarly, in our U.S. grants and loans have been 
successful in the past, I'm not sure they've been as well 
targeted. The House Agriculture Committee held a hearing where 
we saw that some of the subsidies were going to the wrong 
places and weren't going enough to the right places. Their own 
IG found the same of targeting, but there's a place where 
public and private sectors can work together as well to try to 
give incentives so that the market works better. Where there's 
a failure of the market to operate on its own, use a market-
based mechanism like a tax credit or a low-cost loan, just to 
give a little edge that these providers need to make that 
investment in rural America. I think that will pay back in 
spades to the overall economy.
    ChairmanShuler. How do we help the small businesses? Once 
they have, there's broadband access to particular rural areas, 
how do we encourage from a community standpoint, how do we 
encourage a small business, what kind of learning curve, what 
type of progress should we be making to really encourage the 
small businesses, up-starting businesses to actually come back 
to the rural communities that had been going to the larger 
cities?
    Mr.Adelstein. You know, it's something that we haven't done 
a lot of work on in the FCC, frankly. We probably should be 
doing more thinking about that, but I keep referring to Connect 
Kentucky because we've been reading their testimony, thinking 
about what they did. What an outstanding job of educating small 
businesses and others about what is possible and the idea has 
been out there for a while about demand aggregation. You get 
these public/private partnerships that go out and educate small 
businesses. There's a lot of small businesses that don't know 
now how much they can benefit from this kind of activity.
    I think that Lee Terry talked about, Congressman Terry from 
Nebraska, talked about how one business went from three 
employees, it was a meat business, to 50 when they learned that 
they could sell their products over the Internet and they had a 
broadband connection to do it with. But they hadn't thought of 
that until somebody came to them and explained it. So these 
organizations, the local Chamber of Commerce, connecting with 
local government authorities and state government authorities, 
there's no reason the federal government can't help as well, 
really can make an effort to educate these businesses about the 
possibility, so that they can thrive in these smaller 
communities.
    There's all kinds of untapped potential and of course, the 
workers in rural America are second to none anywhere in the 
world and in this country. They're stable. They're reliable. 
Companies are finding that, but they can't use them if they 
don't have a broadband connection because a lot of the skills, 
call centers, or back office operations require broadband 
connection.
    So obviously, state economic development authorities can 
try to attract businesses to come out and locate there, but 
it's important for businesses that exist already to have them 
educated by these kind of public/private partnerships about how 
broadband can help their business and then going to the 
providers and saying look at all these small businesses that 
want broadband. You've got a customer base here. It's worth it 
for you to invest.
    ChairmanShuler. What one thing could we do as a Congress or 
two things could we do as a Congress to truly have a much 
bigger impact in the rural areas?
    Mr.Adelstein. I've talked about having a national broadband 
strategy that targets rural America and there's a lot you can 
do in Congress. We have a big role at the FCC. I talk about 
universal service. I talk about wireless. That's all been made 
possible by legislation that Congress has already put on the 
books, putting more wireless spectrum out there. Let's make 
sure we get it in the hands of small providers that will serve 
local levels.
    Universal service, let's make sure it evolves to cover 
broadband at the appropriate time. Those are in place, but 
Congress can help us with universal service by providing a 
stable contribution base. We need a broader base because right 
now it's pegged to a declining revenue base which is long 
distance revenues which, as we all know, are declining. And we 
need to have a broader base and Congress could help with that.
    Congress can also help, I think, by making sure that RUS is 
fully funded and that the program, as it's reauthorized in the 
Farm Bill, is properly targeted. I worked on that bill in the 
earlier Farm Bill when I worked for Senator Daschle who was the 
senior Member of the Ag. Committee and the Majority Leader at 
the time. We really thought we did a pretty good job. I mean we 
put it together and we said target under-served areas. Do 
grants to unserved areas. And I'm really saddened to learn that 
sometimes those priorities weren't fulfilled in the 
implementation of the program. So maybe Congress needs to go 
back. I thought we did a pretty good job writing it, but if you 
need to beat them on the head and say focus on real rural 
America, then you need to do so.
    There are so many other areas that you can do, I think R&D, 
the whole innovation agenda that Speaker Pelosi has put 
forward, contains a lot of ideas that have been around for a 
long time, and ones that she's starting to implement. The idea 
of math and science education is critical so we have the basics 
that people can become technologically proficient in. R&D, 
basic R&D funding. We've seen R&D funding has gone up, but it's 
been largely military or health-related and you don't see basic 
R&D for science. It's actually fallen behind. So we need to 
redouble our efforts on basic R&D funding.
    There's a lot that can be done. The tax credits I talked 
about, depreciation rules. Those are some of the areas that 
Congress can help us, but I think the FCC has a big role with 
what Congress has already given us, making sure that we do more 
to come up with this national broadband strategy, in 
conjunction with Congress so that we don't leave rural America 
behind.
    ChairmanShuler. The chair will now recognize Ranking Member 
Mr. Fortenberry.

    Mr.Fortenberry. Thank you, Mr. Chairman, and thank you, 
Chairman Adelstein, for coming today. We appreciate the 
opportunity to visit with you and appreciate your insights. I 
also happened to be on the Subcommittee, on the Ag. Committee, 
that oversees the Rural Utility Service and we had a very 
exciting and interesting hearing on this very topic several 
weeks ago.
    It's fairly clear that there are some, to put it mildly, 
dilemmas there. I appreciate the point you made about us not 
having a coherent broadband strategy nationally, the Rural 
Utility Service's attempt at providing a component of this 
brings some dilemmas into play as you mentioned. Are we 
unfairly subsidizing markets which already had or player 
competition into marks which have already had substantial 
private sector investment without governmental subsidy and 
prioritizing that over under served or nonexistent service in 
other rural communities.
    One of the key findings that came out of that was there is 
not a clear understanding, as I mentioned in my earlier 
testimony, who's under served, who is not served, and we at a 
federal level our first response is we need to find out that 
question. But as you mentioned in your testimony, the Kentucky 
model, might point to a different solution to that because it 
is a smaller scale implementation that apparently begins with 
some simple concepts in terms of just informing the 
marketplace, particularly small businesses about the potential 
opportunities they have in using broadband to expand their 
services, thereby creating a more natural momentum in the 
private sector.
    But nonetheless, I want you to comment on that. A lack of 
coherent or unpack your statement a little bit more, a lack of 
coherent broadband strategy or lack of coherent broadband plan 
would mapping the situation in the country be an aid in that 
regard or is the technology too variable, too fluid, and by the 
time we would get this done potentially at the federal level, 
having already shifted and changed. Would that be a problem or 
would that be a potential solution?
    Mr.Adelstein. I think mapping is an essential solution. I 
think that it's--we've got to do a far better job of broadband 
data gathering. The first step of any national broadband plan 
is to map out what we've got now so we know where the problems 
are and we can better develop solutions. GAO has been very 
critical of our efforts so far to assess broadband data. We 
need more granular data. We don't have data on the local level. 
We need a better definition of broadband. We're looking at 200 
kilobits in one direction. That might have been good back when 
we invented it in the '90s, but it's broadband any more because 
it doesn't carry critical services like video or telemedicine 
or on-line learning programs.
    What we're doing now are FCC data, looks at the zip codes. 
It says if you have one person in a zip code that has 
broadband, you've got broadband throughout the state, 
throughout that zip code. But that's just not the case. One 
legislative idea that's been floated I've heard, is to go to 
the nine-digit zip code, rather than the five-digit zip code 
and really getting a more localized sense of where there is and 
isn't broadband. We've got to have better data.
    We recently as a Commission all unanimously voted out an 
improvement. Commissioner Copps and I have been talking for 
years about how we get better data on availability, more 
localized data. We voted out an order asking questions about 
how we're going to improve our data collection by looking at 
more demographics of subscribers. Even if we need to do surveys 
to find out rich, poor, race, any other, male, female, we need 
to know more about the demographics, where they are, what 
they're doing with the service.
    I think this effort that we've launched on the FCC is 
overdue, but it certainly is welcome and I'm glad that we're 
doing that. It's going to take a while before that data comes 
in. And any guidance Congress can give us, for example, if they 
tell us to go out there and gather data on a nine-digit zip 
code and give us some funds to go out there and map that, I 
think it would be a good investment because in the end, that 
will be the first basis of the real national broadband 
strategy, where we go, how we deal with the problems in rural 
America.
    Mr.Fortenberry. Do you interface with the Rural Utility 
Service on that very question or are you in separate buildings 
and not in communication on the issue?
    Mr.Adelstein. We're pretty close. We talked about 
coordinating. We did some--I think we could do more. Again, 
nobody has got the data. They look at it when they get an 
application, they get a loan application or a grant application 
in and they look at the situation there, but we don't provide 
that much data because we don't have a lot on a local level. 
It's not like Kentucky.
    The example of Kentucky, our survey found that 96 percent 
of the people in Kentucky have broadband. They went and looked 
at the more granular level, it turned out it was only 74 
percent. So we were way off. The situation wasn't nearly as 
rosy as it appeared from our zip code data. So there's not a 
lot we can offer RUS in terms of how to target it. I wish we 
could, but they're it more on a case-by-case basis and I think 
as they look at the case, they get more granular data about 
that market than we could ever --
    Mr.Fortenberry. One of the findings was that the loan 
application itself was the determining factor as to whether or 
not the area had broadband. So I think that some maturity of 
our process by which we come to a better understanding of where 
services truly are needed in order to more precisely target our 
limited funds as a federal government is important and prudent. 
So I appreciate that offer that you just--I'll take it as an 
offer and we'll think through that.
    One other quick point, Mr. Chairman, Mr. Adelstein 
mentioned the--we're talking primarily about the impact on 
business opportunity in rural America, but the impact on the 
delivery of health care and education, that this new highway, 
digital highway can provide, is extraordinary and I think we've 
got again a magnificent opportunity here to continue to measure 
the impacts that this technology can have in rethinking the 
delivery, not only of business services, but all types of 
social services as well that are essential well being of our 
country.
    So I appreciate that observation. It's a very important 
one, as well. Undersecretary Dorr who is in charge of USDA's 
Rural Development pointed to this factor as being the most 
significant in marketplace change that we could impact on 
behalf of good rural development, advancing the access of 
broadband throughout the nation. So thank you for your input.
    ChairmanShuler. I'd like to commend the Ranking Member for 
his comments. With education and health care that is a vital 
part of what the access to broadband can help. In our District 
alone, we have 16 hospitals and now all of which are connecting 
to the major regional hospital in our area and it's an 
overwhelming amount of savings and costs that they can actually 
cut in the health care industry. It's going to be tremendous 
for just once again not having to duplicate services alone, to 
be able to access the information of the patients' medical 
records in order to better access the information more readily 
available through the use of the broadband technology. So I 
comment you for that.
    The chair now recognizes the gentlewoman from New York, Ms. 
Clarke.
    Ms.Clarke. Thank you very much, Chairman Shuler, for 
holding this very important hearing to explore how broadband 
services can revitalize rural economies. Some may be wondering 
why I'm here since my District is not a rural community. I'm 
from Brooklyn, New York. However, the Chairman's District and 
my District share one common factor, that is inadequate 
broadband service. I fear that my District with its dichotomy 
of socioeconomic diversity, which has an extremely affluent 
part of the District where broadband is really not a challenge, 
but then has a very under-served end of the District where the 
socioeconomics have not lent to real access to broadband for so 
many years won't survive this new information age if we do not 
make available high Internet access.
    There are countless stories from many people who live in 
low-income neighborhoods about how they do not have or are 
unable to receive access to high-speed broadband services. I 
personally would like to see more aggressive efforts to 
increase Internet access in disadvantaged communities.
    And so my question to you today, Mr. Adelstein, is although 
broadband has become increasingly available for people of 
modest incomes, it has not reached those living at the lower 
end of the income scale. According to the most recent report by 
the Pew Internet and American Life Project, only 21 percent of 
households with an income of $30,000 or less had a broadband 
connection at home in the Year 2006, while 68 percent of 
households that earn over $75,000 a year, had a home broadband 
connection.
    I would like to know have you done an assessment of what 
can be done to get more low-income households to obtain 
broadband connection?
    Mr.Adelstein. Well, the sad answer is we really haven't 
done as much work on this as we should. There's a real problem 
with pricing in some of these areas as well, even if people do 
have access, the prices haven't come down and we're talking 
about what's available overseas. I was talking to some of my 
French counterparts and throughout France for $40, you can get 
100 channels. You can get broadband up to 20 megabits and your 
phone service, for $40 a month. What's happening to our economy 
here, the money is being demanded, $40 just to get a broadband 
connection. That puts it out of reach of a lot of people, even 
if it is available to them and you end up with statistics like 
that which the Pew data shows.
    We need to do a better job, I think of promoting 
competition. It's a little easier, frankly, to get competition 
into a real dense area like that than it is to get it out in 
some of the rural areas and competition should be the driver of 
lower prices and better quality service, but when you see that 
they go around some of the low income areas and the deployment 
isn't nearly as good, it's a real problem.
    Another issue, of course, is lack of computers there. In 
some countries, they're actually giving computers out to their 
citizens, low-cost computers, and then allowing them to hook up 
that way which makes a lot of sense, because without a 
computer, you're left behind in this age. So there could be a 
digital divide not only in rural America, but between economic 
strata, which is another area I think we talked earlier with 
Ranking Member Fortenberry, about the importance of broadband 
data. That's an area that we should also get the cuts and 
figure out on demographics, high income, low income, where that 
penetration is taking place. I think it's especially important 
that we level that out because there's nothing ultimately that 
will level out our economic life than having access to 
technology. And if people are left behind on that, then they're 
going to continue to not be able to participate fully in our 
economic life as a country and our overall economic growth will 
suffer.
    Ms.Clarke. And so you believe that government has a role in 
basically promoting competition with regard to that? For 
instance, in New York City, while you may not have as many 
households that have computers in them, we have made sure that 
many of the public libraries and public facilities within the 
communities have that available. They just don't have access to 
broadband because as you said, the competition makes it cost 
prohibitive. Do you see a role that we can play in encouraging 
that competition and what do you think can be done in the short 
term to help these communities to really access the information 
highway?
    Mr.Adelstein. We have to do more about competition. That 
was the real focus of the Communications Act of 1996. It's 
critical because it's the essential input into the economy. I 
mean it's a time of great change, of course, in these services. 
You see new services emerging. People talk a lot about 
convergence and new players are coming in. The loss of 
competition after the creation of the Act, is being 
supplemented to some extent by other forms of competition, 
although the pace is unclear. You do have cable fighting it out 
with the telephone companies which is a battle between 
facilities based providers. It should be helping us, but you 
know, we're seeing consumers embracing these new technologies. 
I think the challenge is how to function in this new market.
    We need better data collection to start with, better 
analysis of the facts, and we need to promote healthy 
competition by leveling the playing field, but not blinding 
ourselves to where competition isn't sufficient to safeguard 
consumers.
    Ms.Clarke. Thank you very much, Mr. Chairman. I yield back.
    ChairmanShuler. The chair will not recognize the 
gentlewoman from Colorado, Ms. Musgrave.
    Ms.Musgrave. Thank you, Mr. Chairman, along with Ranking 
Member Fortenberry. I was on the Ag. Committee when we were 
talking about this issue and when the mapping issue came up I 
asked the question about mapping and I was told that it would 
immediately be obsolete and not have very much use at all. And 
quite frankly, I'm encouraged by your comments. We need better 
analysis. We didn't even talk about a nine-digit zip code in 
that hearing.
    But what about mapping? Could you elaborate on that and 
could you also address the issue of obsolescence that was 
raised in that hearing, please?
    Mr.Adelstein. Well, the marketplace is evolving rapidly, so 
obviously there's going to be changes, but right now we don't 
have a good picture at all. I mean to say you're trying to 
navigate a world with no map at all versus having an old map. 
I'd rather have an old map than no map. And that's kind of 
where we are now.
    I think that the situation isn't changing that fast. One of 
the concerns about providers is their proprietary data. They 
don't want that out there. There's been a lot of hesitation 
about it and I think you can hear from the Connect Kentucky 
folks, but I understand it took some cajoling to get providers 
to provide this data and it may require Congress also to 
provide us exemptions from the Freedom of Information Act so 
that their proprietary data can be protected and they feel 
comfortable giving it to us. Because ultimately, it's in 
everybody's interest that this map take place.
    I know that, for example, Verizon has talked about the 
importance of getting better data. I mean these companies are 
beginning to understand that they need to know where the gaps 
in the marketplace are as well and to know what's available and 
what's not and it would help RUS and it would also help the 
FCC. I mean I think all policy makers would benefit. And that's 
sort of the building block, the basic foundation of a broadband 
strategy is knowing where we have a problem and targeting 
solutions appropriately to them.
    Ms.Musgrave. How difficult was that cajoling and how much 
assurance do they need?
    Mr.Adelstein. The Connect Kentucky folks might know more 
about it than me. I certainly think that I've encountered a lot 
of resistance as I've talked to providers about whether they're 
willing to share more data with us and we've put out our 
broadband data notice asking companies for their input on what 
kind of data we should ask for. I've been very aggressive in 
saying we want all this kind of data, what do you think of 
that? We haven't put out the actual report yet, but we've asked 
them about what kind of report we should put together. And 
we'll see what kind of response they get. Hopefully, they're 
beginning to learn that we have a problem in this country and 
that we need that data in order to solve it.
    Ms.Musgrave. Do you think the Universal Service Fund is 
doing what it needs to do to get affordable broadband to rural 
America?
    Mr.Adelstein. It certainly is the basis, I think, of 
getting broadband out to rural America. Even though Universal 
Service doesn't directly support broadband, we have a no 
barriers policy that allows it to subsidize networks that can 
carry broadband traffic. So I think we wouldn't see the kind of 
broadband we are seeing in rural areas without Universal 
Service and going forward, we need to keep that on a solid 
basis if we're going to continue to have rural America 
connected.
    I think one basic element of a national broadband policy is 
a strong, stable Universal Service Fund that properly targets 
under served areas and ensures that high-cost areas have 
broadband every bit as available to them as other parts of the 
country.
    Ms.Musgrave. Well, this is very much on my mind. I just 
worked very hard on getting health care for Veterans in rural 
Colorado and when we met with communities that were very eager 
to have this very progressive communities, the issue that the 
VA brought up was broadband. And so that had to in place before 
we could get this satellite clinic in rural Colorado and again, 
Ranking Member Fortenberry has talked about education and 
health care. And I have communities in the rural part of my 
District that there's no way you're going to get a specialist 
out there. We have nurse anesthetists that have to fly to 
various hospitals in Kansas and Colorado, but for diagnosis and 
other things the telemedicine works wonderfully.
    It's what rural communities have to have for health care, 
for the education needs. We have many rural schools in my 
District and some of them have less than one hundred students K 
through 12. So they face challenges, but yet those students 
deserve a quality education and they utilize every means 
possible to make sure that they get it.
    Well thank you, for your testimony.
    Mr.Adelstein. I just might add that part of Universal 
Service of course, is the E-Rate which funds schools, libraries 
and health care, rural health care facilities for this. We 
recently, it will be of interest to a lot of you, that we 
recently came up with a rural health care program that is going 
to offer $60 million in test projects for rural health care and 
we're getting applications from a lot of your states asking how 
they can improve the delivery of rural health care through 
telemedicine. It's really an incredible lifesaving application.
    From my home State of South Dakota, they came in and hit me 
up on it and they were talking about how there was in Parkston, 
South Dakota, there was a woman who gave birth at 26 weeks. 
It's a very premature baby and it was in the middle of a 
blizzard. You don't have to worry about that, Congressman 
Shuler, as much as some of us do, Congressman Fortenberry and 
Musgrave. We've got to worry about those blizzards. They're 
trapped in that. They couldn't get out by helicopter. They 
couldn't get out by road. They were in this little clinic and 
there wasn't a doctor there that knew it, but they had a 
specialist at a Sioux Falls hospital that was in connection, 
because they had a broadband connection in Parkston and thank 
God they did, he was able to guide them to the ventilator and 
basically save this baby's life until it could be transferred 
to a bigger hospital.
    These kind of lifesaving applications are critical and I 
think that the FCC needs to continue to make efforts like this 
to test out how we can expand the rural health care program and 
that's an area that Congress could look at expanding as well.
    Ms.Musgrave. Thank you very much. And Mr. Chairman, I do 
have a written statement that I would like to submit for the 
record.
    ChairmanShuler. So ordered.
    Ms.Musgrave. Thank you.
    ChairmanShuler. The chair now recognizes the gentleman from 
Tennessee, Mr. Davis.
    Mr.Davis. No questions.
    ChairmanShuler. The chair will now recognize the 
gentlewoman from Oklahoma, Ms. Fallin.

    Ms.Fallin. Thank you, Mr. Chair. I don't know that I have a 
particular question, but as I was listening to the discussion 
on rural health care and education and telemedicine and we even 
use the Internet and broadband for weather delivery service in 
Oklahoma through a weathernet service that we have, but I had a 
question about the Universal Service fee and the money that the 
states have access to expand broadband. Can you explain how the 
fee is used and how the states can get quicker access to that?
    Mr.Adelstein. The money is collected through long-distance 
revenues which is sort of a declining base and we're trying to 
figure out ways of broadening the base. If Congress could help 
us broaden the base, that would be wonderful. In the meantime, 
we're trying to think within the context of the Act of how we 
can have a broader base in the declining base of numbers. So we 
take this big collection, it's a $6 billion program, including 
the E-Rate, and we--it's granted to companies that are called 
eligible telecommunications providers. They apply for this 
program and a state PUC in many cases will designate whether or 
not there can be an eligible carrier. And if the carrier is 
eligible, then we come up with a program to define how much 
they're paid for subscriber.
    One of the concerns recently has been that competitive 
providers are coming in and the money is kind of ballooning 
because a lot of them happen to be wireless companies and they 
come in and win these funds based on the amount that's being 
paid to the incumbent. In many cases, there's a totally 
different cost basis. The incumbent, it's a lot more expensive 
for the LEC to provide in its embedded costs than a new 
wireless company that comes in and provides services. We're now 
debating how do we equalize that? Do we give the same amount of 
support to a new company or do we do it on the basis of their 
actual costs rather than the cost of the incumbent?
    All of these funds can underwrite broadband networks. If 
you didn't have Universal Service, the high cost of serving 
these rural communities would basically have those systems 
deteriorating and they would be antiquated. They wouldn't be 
able to support broadband network. Right now, broadband itself 
isn't what we call a supported service which is a particular 
service that we pay for directly. But we have this policy that 
allows us to fund networks that can carry broadband and so the 
Universal Service has been one of the most critical elements 
allowing these rural local exchange carriers to upgrade their 
networks so that they can carry broadband traffic and we see 
that sometimes in some rural parts of the country because of 
Universal Service, they actually have excellent access to 
broadband that is even better in some more urban areas that 
don't have access to Universal Service. It's an interesting 
kind of a situation. So we've got to make sure that remains. 
Other areas of rural America are falling behind though. All the 
studies show that despite some of these really wonderful 
examples we see, there is still a real digital divide that is 
getting worse.
    And so if everybody is saying the problem with American 
broadband, the reason we're falling behind is because we're a 
rural country, we better make sure that we keep Universal 
Service in place and make sure that it continues to underwrite 
these broadband networks so that we can compete in 
international economy.
    Ms.Fallin. The reason I was asking that question, at 
different times, I've just heard some talk back in my State 
that sometimes we're slow to expend those funds. We need to be 
spending it but yet we hesitate and delay and I was just trying 
to figure out why we would even delay spending the money that's 
available to do that.
    Mr.Adelstein. There's sort of a dilemma for us on the 
federal level because a lot of states are really quick. They 
say well, it's federal money, it's easy, let's just take it. 
And they don't think a lot about how they award funds to 
eligible telecommunications carriers. And maybe your state, I'm 
not sure exactly Oklahoma PUC, whether they're--what they're 
doing. It may be out of prudence. Sometimes it's wise to be 
careful about how those funds are expended and we've tried to 
give states guidance on making sure they're very careful about 
how they award ETC grants so that they don't just do it willy-
nilly thinking it's federal money, let's just let it go, we 
have nothing to lose. But they really think about the impact 
also on the LEC and they think if it's in the public interest 
for these funds to flow and how companies are going to get ETC 
status are going to expand their networks.
    We get nervous if companies are just taking Universal 
Service and using it for service they're already providing and 
getting more for what they're already doing. We want to make 
sure that whatever Universal Service money they get is used to 
expand and make sure they truly cover everybody in the service 
area.
    Ms.Fallin. Thank you, Commissioner. Thank you, Mr. 
Chairman.
    ChairmanShuler. Does any other Member have any questions 
for the Commissioner?
    Commissioner, thank you so much for your testimony. An 
outstanding job. As we all know, and as we look around the 
Committee, we certainly know that the backbone behind our 
country is our small business, over 95 percent of our business 
are small businesses and the more access that we will have to 
broadband and any way that we can help and help guide the 
broadband system, we would certainly appreciate your help and 
your guidance and your direction as well.
    So thank you for your testimony.
    Mr.Adelstein. Thank you for your leadership, Mr. Chairman.
    ChairmanShuler. At this time, we'll have the second panel 
come forward, please.
    [Pause.]
    ChairmanShuler. I'd like to welcome the second panel. Thank 
you for your attendance today and your testimony.
    We'll go ahead and get started. I just want to remind the 
panel that I looked at some of your statements. We'll try to 
keep it to five minutes, best that we can. I know I'm a rookie 
at this chairmanship, but I will hold the gavel tight. So we'll 
try our best to stay within five minutes.
    The Ranking Member says that he gets hungry around 11:30, 
so we're going to try our best to get as much information as we 
can.
    Our first panelist, I would like to introduce Mr. Stephens, 
obviously from my District of Western North Carolina. Mr. 
Stephens serves as chairman of the board of directors of the 
Balsam West FiberNET based in Silver, North Carolina.
    For the past year, he has been a board member since the 
company has been founded in 2003. Mr. Stephens is also an 
enrolled member of the Eastern Band of Cherokee Indians. Mr. 
Stephens works for the Eastern Band of Cherokee Tribal 
Government as planner, economic and community development.
    Mr. Stephens, thank you so much for your attendance today. 
We look forward to your testimony.

 STATEMENT OF BRANDON STEPHENS, CHAIRMAN OF THE BOARD, BALSAM 
            WEST FIBERNET LLC, SYLVA, NORTH CAROLINA

    Mr.Stephens. Thank you, Mr. Shuler, and Chairman Shuler. 
Chairman Shuler and Congressman Fortenberry and Members of the 
Subcommittee, thank you for the opportunity to share the story 
of Balsam West FiberNET.
    I'm Brandon Stephens, Chairman of Balsam West FiberNET and 
an enrolled member of the Eastern Band of Cherokee Indians.
    I'm here to represent Balsam West FiberNET and partner 
members of the Eastern Band of Cherokee Indians of Cherokee, 
Drake Software of Franklin, and Community Alliance Partners 
Southwestern Community College, headquartered in Sylva. Our 
goal and mission is to build economic development and stability 
by offering affordable high-quality fiber optic infrastructure.
    Western North Carolina, Eastern Tennessee and North Georgia 
suffer from a lack of technology and infrastructure. Affording 
and obtaining access to quality and reliability in telecom have 
been great barriers to us. Decades ago, during our area's 
development, telecommunication carries built a network that 
satisfied demand for the day and not for the future.
    The result was a network that did not have redundancy or 
backup and was susceptible to outages and was of poor quality. 
Had other utilities used this same approach, power companies 
would have built power lines as we purchase electric 
appliances. Home-grown businesses like Drake Enterprises or 
Drake Software, co-founder and co-owner of Balsam West FiberNET 
rely on broadband connectivity. It transmits several billions 
of dollars in electronic funds transactions and data with the 
IRS and its clients.
    The tribe and local businesses in the region depend on 
visitors and their ability to access funds for commerce. These 
outages occurred and no business was conducted for the tribe 
unless it was in cash. For Drake, billions of dollars in 
transactions were potentially jeopardized.
    As a result, founding members of Balsam West FiberNET 
developed a 300-mile in-ground fiber optic network because 
wireless in our region is not viable. That's because of the 
terrain. We also had built this network to be at the highest 
standard, so we could offer services to the largest national 
carriers after developing this network to take care of our own 
concerns and secure business in our respective areas.
    The founding members of Balsam West FiberNET started 
focusing on the region. We're an open-access system, meaning we 
allow unrestricted access of services across our network.
    As you consider policy changes, I would urge you to know 
that right now the government is not promoting competition. 
Forbearance in copper retirement are the exact opposite.
    Open access to all platforms would promote innovation and 
competition. The policy of closed networks is leading us back 
to monopolies and furthermore, an open network is enabling us 
to provide our customers to purchase content from the provider 
of choice.
    Options create opportunity to lower prices and increase 
quality. The spirit of mountain people is to survive and 
overcome challenges. That spirit has brought us this unique 
collaboration between Drake software and the Eastern Band of 
Cherokee Indians. It is this same spirit that has always been 
required to overcome barriers that hamper development. 
BalsamWEST is working to develop regional clustering. A prime 
example of this is the model of Drake software.
    Drake is currently expanding into new communities, 
developing call centers connected in real time over fiber optic 
cable. We also recently helped the region's schools, creating a 
distributed learning network called WNC EdNet. This network 
connects all the schools together with virtually unlimited 
capacity on fiber. The schools own their own networks and their 
own private fiber optics.
    BalsamWEST and other local infrastructure owners work 
together to reduce this expense. We save the schools $60 
million and gave them the opportunity to choose their content 
provider.
     We also worked on behalf of the rural hospital systems 
lowering their costs 96 percent. We also decreased the 
transmission time of imaging from 30 minutes to 12 seconds. 
There are some barriers to our future development. We have 
found that federal financial resources are difficult to obtain. 
Policies in most programs do not lend eligibility to our 
communities as we fall through the cracks.
    Mr. Chairman, another barrier that we hope to overcome soon 
with your assistance is supporting connectivity outside of our 
existing network, first to neighboring counties, such as 
Haywood and Buncombe Counties in Western North Carolina, then 
to connect to resources in metropolitan areas in Tennessee, 
Georgia, and South Carolina.
    Thank you for the opportunity to share our story of success 
and challenges and we hope that we can depend on your support 
in the future of BalsamWEST Fibernet and our motto is ``access 
to advance.''
    [The prepared statement of Mr. Stephens may be found in the 
Appendix on page 47.]

    ChairmanShuler. Thank you, Mr. Stephens. The chair would 
now like to introduce Mr. Shields. Mr. Shields is the founder 
the board chair of Ygomi, LLC, and I hope that's pronounced 
correctly, which develops and operates technology-based 
companies. Mr. Shields has over 35 years of experience. Among 
the technologies his companies have helped to pioneer is 
technology that is the foundation for the fulfilling billions 
of on-line direction requests through such services as 
MapQuest, Yahoo Maps, and Google Maps.
    Thank you, Mr. Shields.

 STATEMENT OF T. RUSSELL SHIELDS, CHAIR, YGOMI LLC, OAK BROOK, 
                            ILLINOIS

    Mr.Shields. Thank you, Chairman Shuler, Ranking Member 
Fortenberry, and Members of the Subcommittee. My name is Russ 
Shields. I am chair of Ygomi LLC. It's certainly a privilege to 
be here today to speak to you.
    Ygomi is an Illinois-based company with a 37-year record of 
building companies that deliver innovative software and 
services to businesses. We're known for applying technology to 
improve people's lives. Our subsidiaries SEI, Verety, Connexis, 
and ArrayComm serve leading corporations.
    We have more than 1200 employees across the U.S., Europe, 
and Asia. We provide solutions in areas such as wireless 
digital signal processing software, vehicle telematics, and 
technical support for multi-location enterprises using 
distributed, U.S.-based call centers.
    Today's hearing is particularly relevant to the Ygomi 
Companies. Broadband technology touches them all. For instance, 
high speed Internet availability in rural areas has allowed us 
to create a new business solution for one of our customers. Our 
subsidiary, Verety, now takes drive-through orders remotely in 
North Dakota for a number of McDonald's restaurants, helping to 
improve speed of service, order accuracy, and customer 
satisfaction. Verety can deliver this high-quality service 
because broadband availability gives us access to people 
working from home. We have a workforce that includes farmers, 
stay-at-home mothers, retirees, people with disabilities, and 
people who care for elderly or disabled family members.
    Our employees like the no-commute savings, and the 
convenience of flexible work shifts. We expect the number of 
work-at-home employees to increase dramatically in the years to 
come. We provide each work-at-home employee with a computer, a 
DSL connection, paid training, and web and phone base support. 
Our employees and their families can use the computer and 
Internet connection for themselves when they're not working.
    Two-thirds of Verety's work-at-home employees did not have 
broadband for their families before they came to work for us.
    Thomas Friedman's book, The World is Flat, mentions our 
effort for McDonald's in North Dakota. I believe that 
Friedman's vision of an efficient, interconnecting flat world 
is becoming truer every day. Broadband services and voice-over 
IP gives smaller, more isolated communities access to the 
world. Companies in the Telework Coalition, like Verety, are 
helping to realize the benefits of broadband deployment in some 
rural areas. The same can be done in other areas of the U.S. if 
the proper incentives are provided. But it takes more than just 
broadband. It requires a new way of thinking about the 
workplace and innovation.
    We encourage the deployment of broadband in rural areas to 
ensure that the Internet is available to everyone, no matter 
where they live. We work with organizations like the 
Telecommunications Industry Association to promote access to 
affordable broadband, to minimize regulation, and to maximize 
the power of a competitive market. We believe in the value of 
broadband to improve government services, public safety, 
education and health care.
    Increased global competition requires a more flexible labor 
environment. As a privately-held company, Ygomi can take a 
long-term approach to profitability. It lets us think flexibly 
about technologies and applications that will be needed in the 
future. But we still face challenges. To succeed, we must be 
responsive to new and evolving employee needs and attitudes. 
Companies that work on emerging technologies can build 
businesses in rural areas need favorable environments and 
incentives. Policies should encourage investment in new and 
diverse communications technologies in rural areas.
    I comment you and your staff for holding this hearing and 
for your efforts to extend broadband in rural America. Thank 
you for the opportunity to testify today.
    [The prepared statement of Mr. Shields may be found in the 
Appendix on page 76.]

    ChairmanShuler. Thank you, Mr. Shields. The chair now 
recognizes Mr. Russ Kremer. Mr. Kremer is the president of the 
Missouri Farmers Union. He is a cooperative business developer 
who owns and manages a diverse five-family farm.Mr. Kremer is 
also the president of Missouri's Farmers Union Services, a 
partner of U.S.A. Broadband LLC, an organization with a mission 
to provide affordable broadband communication services to all 
rural residents of the United States.
    Mr. Kremer, thank you for your testimony.

 STATEMENT OF RUSS KREMER, PRESIDENT, NATIONAL FARMERS UNION, 
                    JEFFERSON CITY, MISSOURI

    Mr.Kremer. Thank you, Chairman Shuler, and Congressman 
Fortenberry, and Members of the Subcommittee. Thank you for 
this opportunity to testify today. My name is Russ Kremer and I 
am a family farmer and president of the Missouri Farmers Union.
    Today, I am here on behalf of the National Farmers Union, 
our nationwide organization, representing family farmers, 
ranchers, fishermen, and rural residents. I appreciate the 
opportunity to highlight the importance of accessible and 
reliable broadband service to the farmers and producers in 
communities in rural America.
    The future of rural America does depend on high-speed 
access to the Internet. In 2005, the National Agricultural 
Statistical Service conducted a study on farm computer usage 
and ownership. While the results showed that 51 percent of U.S. 
farms had Internet access, further investigation uncovered that 
dial-up was the most common method of accessing the Internet 
with 69 percent of U.S. farms. It is encouraging that more 
farmers and ranchers gained computer accessibility each year, 
either through ownership or leasing of computers or other 
community programs, however, it is alarming that the vast 
majority of them must do so at the slowest connection speed 
possible in accessing the most uncommon means of 
telecommunications.
    NFU supports efforts to provide competitively priced high-
speed broadband Internet access for rural America. We urge 
collaborative efforts and public/private initiatives that 
leverage Internet-based technologies and use the Internet to 
improve communications, reduce cost, increase access, and grow 
farm businesses for producers and their cooperatives.
    An example, NOW Wireless, the Missouri Farmers Union in 
response to the demand for affordable modern telecommunications 
access for farmers and rural residents living in remote areas, 
helped established USA Broadband. USAB has partnered with 
subscriber-based cooperatives and develops successful networks 
that are making this access possible.
    Today, USAB is a premiere provider of high-speed wireless 
broadband Internet, voice communication, and video services to 
rural communities. The community maintains its focus on 
providing a superior broadband product back with exceptional 
customer care. In fact, about a year ago USAB partnered with 
the Eastern Illinois Electric Co-op, a member-owned cooperative 
to develop a broadband Internet network that focuses on 
providing a wide range of Internet broadband services to rural 
residents within the cooperative's 10-county service area. This 
includes 6,000 square miles and 240,000 homes and businesses. 
We also plan to utilize our credit union that we have for rural 
residents and farmers to help finance the services and 
equipment, especially for our more disadvantaged residents.
    Internet is a necessary tool for farmers and ranchers who 
will be at an economic and competitive disadvantage if unable 
to use the same high-speed Internet connections that are 
available to other small businesses around the country and 
around the world, as far as that goes. USDA encourages farmers 
and ranchers to rely on the Internet to check weather, market, 
crop reports and file applications for federal programs. 
However, for many rural producers, the reliance on the Internet 
cannot be a reality.
    Given the current economic climate, it is imperative that 
producers devote as much time as possible to marketing their 
products, exploring new markets. The ability to conduct 
financial transactions on-line would save individual producers 
hours of administrative work and translate its tremendous 
financial incentives at the farm level.
    NFU has a program called e-cooperative.com. It is the 
world's first innovative portal to directly locate and buy 
quality food products plus other goods and services on-line 
from hundreds of U.S. agricultural producers and their co-ops 
in rural America. This basically has allowed us to build 
authentic relationships between farmers and consumers. In fact, 
I'm president of a co-operative that producers and processes 
natural pork and we market it throughout the country and the 
world, in fact. A lot of our pork goes into New York.
    And so as we go forth, this is basically the new 
renaissance in agriculture and it's so dependent upon modern 
telecommunications. By eliminating the digital divide and 
providing more rural areas with high-speed Internet access, we 
can help these producers and these new producers market and 
sell their quality products and educate consumers about the 
value of family farmers and ranchers.
    There's real challenges we heard a lot about, some of the 
challenges about the reluctance of these providers to come into 
more remote and under served areas. It's been a challenge to 
secure financing from providers because we're kind of--we're 
often are at an awkward size loan fund, too small or too large 
for some of them.
    We also have challenges that we're concerned with limited 
competition in the rural markets. Some of the solutions might 
include that we've heard before the possibilities of providing 
tax credits and other incentives to inventors that want to 
invest into the more remote areas, as well as the possibility 
of allowing a 10 percent match on the Rural Utilities Service 
Loan Program, rather than the 20 that's necessary. It's also 
possible and suggested that maybe the FCC has the ability to 
reallocate frequencies that will become available in 
television's transition to digital. We propose that successful 
applicants to the rural broadband initiative program would be 
granted the license frequency resulting in improved equity for 
rural broadband service providers.
    Better broadband means a better place to live in rural 
areas and we appreciate the interest and we really believe that 
rural broadband is the key to rural revitalization.
    Thank you very much.
    [The prepared statement of Mr. Kremer may be found in the 
Appendix on page 80.]

    ChairmanShuler. Thank you, Mr. Kremer, and congratulations 
to farmers to get them back into economic structure. They need 
all the help that we possibly can provide for them and I thank 
you for your hard work and dedication to them.
    At this time the chair will recognize Brent Christensen. 
Mr. Christensen is the vice president and general manager of 
Christensen Communications Company, an independent, local, 
exchange telecommunications carrier in Madelia, Minnesota. 
Founded in 1903, Christensen Communications Company provides 
local, long distance and cellular telephone services in 
addition to dial-up and high-speed Internet services. Mr. 
Christensen also serves as a chairman of the Legislative Policy 
Committee for the organization for promotion and the 
advancement of small telecommunications companies.
    Mr. Christensen, thank you for being here today and we look 
forward to hearing your testimony.

 STATEMENT OF BRENT J. CHRISTENSEN, VICE PRESIDENT AND GENERAL 
MANAGER, CHRISTENSEN COMMUNICATIONS COMPANY, MADELIA, MINNESOTA

    Mr.Christensen. As he said, my name is Brent Christensen. I 
work for a telecommunications company in Madelia, Minnesota, 
population of about 2300. It would be easier to tell you that 
we are a telephone company, but quite frankly that's no longer 
an accurate description.
    I also have the privilege of serving as the chairman of the 
Legislative Policy Committee for OPASTCO. We are very 
integrated in our community. We employ six people, not counting 
my parents and me, and all but one of our employees reside in 
the community. We encourage our staff to be active in the 
community. I currently serve on the Madelia Public School Board 
and am vice president of the Chamber of Commerce. I also 
previously served as the Mayor of Madelia, and president of the 
Madelia Development Corporation.
    I'm here today to talk about broadband's impact on rural 
communities and Madelia, in particular. We started providing 
broadband service in 2000. We didn't start by putting a 
business plan together and figuring out how much money we could 
make. We started offering DSL because it was important to the 
economic survival of our community. We entered into the DSL 
business because Marv Davis needed it. Marv and his son, Will, 
own Davis Sales and Service, a local Polaris dealer. We had 
been offering dial-up Internet service for a few years, as was 
the competitor. They told me that Polaris had changed the way 
that they sold their snow mobiles, watercraft and ATVs. 
Warranties were now issued over the Internet. When a customer 
came in to buy a snow mobile, the Davises would fill out the 
customer information on-line and print off a warranty 
application. Once the customer had signed the document, the 
Davises would scan the document and transmit it back to Polaris 
over the Internet. The problem was that dial-up was too slow 
for this process and their dial-up connection would frequently 
time out and they would have to start over. This was 
frustrating for the Davises and their customers. In the end, if 
we didn't solve the problem, the Davises would sell fewer 
Polarises and it would severely impact their business.
    I did some research on different solutions that would work 
with our network. We bought some equipment and we got DSL 
service to the Davises. The entire process took about 20 days. 
We didn't do a business case first. We didn't go through any 
corporate bureaucracy. We just got a new service to a customer 
that needed it.
    When I was in high school, I worked for the telephone 
company as summer help. My grandfather was president of the 
company at the time and I remember the two of us walking back 
to the office one day and him telling me how important the 
telephone company was to the community and how we had a 
responsibility to provide the best service possible. Back then 
it meant providing quality, reliable telephone service. Today, 
it means so much more. Today, we have to provide state-of-the-
art communications for the survival of our small town.
    Madelia is a lot like other towns our size and in many ways 
like the communications industry itself. We are in competition 
with other communities in our area. We are in competition for 
industry and people. As a community, we have to leverage our 
assets to develop our economy. Communications is one of those 
assets. Because of our communications infrastructure, we can 
market our town to telecommuters, small businesses, and others 
who do not depend on a specific location to conduct their 
business. A good example of this is the House of Print. They're 
a local printing company that was started in the 1960s by a 
company that owned two daily newspapers in towns 20 miles from 
Madelia to the north and south. Both papers needed to replace 
their printing facilities and instead of each buying new 
presses, they built a new printing operation in Madelia which 
is halfway between the two. Today, the House of Print prints 
for over a 100 daily and weekly newspapers. The House of Print 
was our third DSL customer. Our high-speed Internet allowed 
them to expand their customer base and increased their 
business. They have literally brought in millions of dollars of 
new business because of their high-speed Internet connection.
    The House of Print is no longer geographically limited. 
Today, they can bid on printing jobs on-line, allow the 
customer to upload data, proof the job and mail the finished 
product directly from their facility. The House of Print has 
expanded significantly as a direct result of the Internet, and 
they have added or upgraded their printing presses and expanded 
their building facilities.
    As a small rural company, we face many challenges providing 
state-of-the-art communications. We have to provide all of the 
same services as larger companies and this gives us a good 
understanding of our customers. An example of this is Farmers 
State Bank in Madelia. They are a locally-owned independent 
bank. They compete against the Madelia branch office of a much 
larger bank. Our high-speed Internet connection has allowed 
Farmers State Bank to offer a full line of Internet banking 
services. These services have kept Farmers State Bank 
competitive with other banks in our area.
    Companies like Christensen Communications look to Congress 
for leadership on issues and programs that give us the 
opportunity to thrive and in turn keep our customers and 
community thriving. We ask Congress to continue to support a 
strong and viable Universal Service Fund. The USF is the most 
important federal program for our continued success. Congress 
and the Federal Communications Commission needs to support the 
reform of the inter-carrier compensation regime by implementing 
the Missoula Plan which was developed by a broad cross-section 
of the telecommunications industry. And Congress needs to 
support programs like the Agriculture Department's Rural 
Utility Service and the Small Business Administration that 
helps small businesses like mine.
    I thank you for the opportunity to testify today and I 
would be happy to answer any questions you may have.
    [The prepared statement of Mr. Christensen may be found in 
the Appendix on page 85.]

    ChairmanShuler. Thank you, Mr. Christensen. The chair will 
now recognize Ranking Member, Mr. Fortenberry, for the 
introduction of our next two witnesses.
    Mr.Fortenberry. Thank you, Mr. Chairman. I'd like to 
introduce Mr. Brian Mefford, good morning. Brian Mefford serves 
as the president and CEO of Connect Kentucky, where he is 
responsible for leading the successful implementation of 
Kentucky's prescription for innovation, a comprehensive plan to 
accelerate technology availability, literacy, and use. During 
Mr. Mefford's tenure at Connect Kentucky, the organization has 
evolved from a research-focused business with a staff of five, 
to a technology-implementation business with 35 staff members 
working statewide. Prior to this role, Mr. Mefford served as 
Kentucky Chief of Staff to Kentucky Commerce Secretary, Jim 
Host.
    Welcome, Mr. Mefford, please give us your testimony.

    STATEMENT OF BRIAN MEFFORD, PRESIDENT AND CEO, CONNECT 
               KENTUCKY, BOWLING GREEN, KENTUCKY

    Mr.Mefford. Thank you, Ranking Member Fortenberry, Chairman 
Shuler, and Members of the Committee, thank you for the 
invitation to be here with you today. I appreciate it 
tremendously and I appreciate the opportunity to discuss this 
important issue.
    I am also the CEO of Connected Nation which functions as 
the parent company of Connect Kentucky which was, in essence, 
our demonstration project. It's the Kentucky story that I am 
here to discuss with you today.
    I first want to open by briefly talking about a handful of 
stories that illustrate the entrepreneurial environment that 
exists today in Kentucky. First, I'll mention Cameron Cohlsen, 
who like a lot of Kentucky natives, after graduating from 
college found opportunities to work outside of Kentucky, found 
himself in Boston working for a creative services firm. And one 
day he looked around and said you know, it's about time I move 
back to be with family in Kentucky. And he said there's no 
reason I can't do what I do here in Boston from home in 
Kentucky. And so he went back to his family farm. He grew up in 
a family of farmers and he went back and he looked at about a 
100-acre lot that had been--where his family had raised barley 
and tobacco for years. And he said I can envision my new 
creative services building right in the middle of this what was 
now a pasture. And so he built that company and indeed did 
everything that he was doing in Boston, has grown that company. 
Last year, won a competitive bid to produce all the creative 
paraphernalia and programs for the Academy Awards. And Cameron 
reported that having a broadband connection on that--on his 
family farm in the middle of Kentucky was just like being right 
down the hall from those folks in California as they were 
trading photographs and things to prepare for the Academy 
Awards.
    And there's Global Data Tech, a company saw an abandoned 
mine in an eastern Kentucky county, Appalachian Regional 
Commission, a distressed county, and saw an opportunity to 
create a business there doing underground, subterranean data 
recovery, disaster recovery, and data backup. And so that 
company is now working and creating jobs that are high paying, 
mostly above $60,000, $70,000 jobs in this county and helping 
that community to flourish.
    Then there's Jared Fugate, an individual who I received a 
call from a couple of years ago and he said you know, I'm 
having to move with my family out into a more rural part of my 
county, again in eastern Kentucky. He said I have a three-year-
old business. We do tech support and web development and he 
said there's not broadband service out where I'm going. I 
really need it or my business is going to fail. Long story 
short, after I talked to him more, I said tell me more about 
your business and how it started, those types of things. He 
said well, I'm 17 years old. And I've been building websites 
for the businesses in the community since I was 14 and it's 
evolved and it's a company that I plan to run through college 
and come back here and maintain after I graduate.
    Farmers were mentioned earlier. We have poultry farmers who 
are managing temperatures of poultry houses remotely from all 
places, parts of Kentucky. We have folks who are managing 
farms, not just in tracking soil quality and weather, not just 
in places across Kentucky, but now in places around the world 
where folks--farmers are able to invest in land and other 
places in the world, they're able to do that type of monitoring 
from their homes in Kentucky.
    I wish I could that environment, that type of environment 
has existed always in Kentucky, but it just hasn't. In fact, 
four years ago, Kentucky faced the same challenges that are all 
too common in rural parts of the country in rural communities 
everywhere. The Commonwealth was struggling to use technology-
centered solutions to address traditional challenges related to 
economic development, health care, education, and delivering 
government services. On the economic development front, jobs 
and manufacturing, farming, and mining were leaving at an 
alarming pace. The indicators of Kentucky's technology troubles 
were not hard to identify. Kentucky consistently ranked low, in 
fact, at the bottom of the barrel among states in terms of 
broadband availability, broadband usage, the number of high 
tech companies at work in the Commonwealth, and further, 
college graduates were leaving in droves, creating what we all 
know too well as the brain drain effect.
    So as we surveyed the landscape for answers, the reality of 
the situation was certainly troubling and we realize that the 
foundation of broadband infrastructure was not adequate for 
creating solutions that could address the challenges of a new 
day, not adequate to provide widespread access to telemedicine, 
distance learning, and e-government, and not adequate for 
growing and attracting entrepreneurs and industry, not adequate 
for providing more opportunities to our farm families and 
communities where our children were leaving the rural roots 
never to return.
    And so Connect Kentucky set out to identify the root cause 
that had resulted in the lackluster technology picture. And it 
was clear that the inadequacy of Kentucky's broadband 
infrastructure could be traced to much of the state's inability 
to compete in so many areas important to the knowledge-based 
economy. And so broadband infrastructure had been built into 
those more populous areas as several folks had mentioned 
before, but it was those rural areas, less metropolitan areas 
that were under served. And so the lack of service not only 
created the well termed digital divide for rural residents, but 
it also made it impossible to create state-wide policies and 
initiatives that can make the entire Commonwealth more 
competitive.
    Further, we discovered that broadband availability was only 
half of the challenge. It was broadband usage that represented 
the other part of this challenge that had to be overcome and we 
realized that any comprehensive strategy had to address both 
sides of that equation. So next we identified the barriers that 
were inhibiting broadband availability and use. In terms of 
availability, there were a series of issues that needed to be 
addressed. First, very little data existed to allow us to 
identify the true extent of the broadband gaps in Kentucky. 
Providers didn't know. Policy makers didn't know. And 
communities themselves didn't know.
    ChairmanShuler. We'll have you finish up more of your 
testimony during some of the questions, if that's okay.
    Mr.Mefford. Yes, sir. Would you like me to close?
    ChairmanShuler. Yes. That's a nice way of saying it.
    Mr.Mefford. Well, the results which I can address during 
questions have been that we developed maps, as was mentioned 
earlier, that identified the broadband gaps. We worked with 
providers to address market intelligence, to provide market 
intelligence that lowered the cost of entry into our rural 
markets, and we aggregated demand and helped create demand at 
the local level. And bottom line is we used a public/private 
partnership to lower those costs of entry to incent market 
effects, to make Kentucky a more attractive environment for 
broadband development and use.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Mefford may be found in the 
Appendix on page 91.]

    Mr.Fortenberry. Now I'd like to introduce Mr. William 
Deere. Mr. Deere serves as vice president of Government Affairs 
for U.S. Telecom, a trade association representing 1200 member 
companies offering a wide range of services including local 
exchange, long distance, wireless Internet and cable television 
services. Before joining U.S. Telecom, Mr. Deere served as 
Deputy Assistant Secretary in the Bureau of Legislative Affairs 
at the U.S. Department of State where he oversaw the 
Department's legislative initiatives. Mr. Deere also worked on 
Capitol Hill as a House Appropriations Committee Staff Member 
for Representative Jim Lightfoot.
    We welcome your testimony.

 STATEMENT OF WILLIAM R. DEERE, VICE PRESIDENT, UNITED STATES 
             TELECOM ASSOCIATION, WASHINGTON, D.C.

    Mr.Deere. Chairman Shuler, Ranking Member Fortenberry, 
Members of the Subcommittee, thank you for this invitation to 
be here today. U.S. Telecom is the nation's oldest and largest 
association representing rural telecom providers. The vast 
majority of our member companies are rural companies. They are 
small businesses serving small communities.
    We were pleased to see affordable broadband access for all 
Americans as a component of Speaker Pelosi's innovation agenda. 
In addition, the Senate Republican High-Tech Task Force is 
calling for policies that promote widespread broadband 
deployment and use of broadband technology. Broadband 
deployment and adoption should be nonpartisan objectives and we 
believe the Congress, the FCC, and the RUS have vital roles to 
play in advancing these goals for rural America.
    U.S. Telecom and our member companies are committed to 
furthering rural broadband deployment and believe the Congress 
can advance a number of initiatives that promote this goal. 
First, we must ensure a sustainable future for universal 
service. In the House, Representatives Boucher and Terry have 
recently reintroduced universal service reform legislation they 
first proposed last year. We appreciate the Congressmen's 
dedication to finding a sustainable long-term solution and we 
hope Members of this Committee will encourage consideration of 
such reform legislation this year.
    In addition, Congress can promote broadband deployment by, 
among other things, permanently extending the Internet Tax 
Moratorium. U.S. Telecom supports H.R. 743, bipartisan 
legislation to extend the Internet Tax Moratorium that was 
introduced by Representatives Eshoo and Goodlatte. I encourage 
all Members of the Committee to consider co-sponsoring this 
legislation. I know that Ms. Musgrave, and Mr. Fortenberry, you 
are already co-sponsors of this bill, and urge the House to 
take up this important legislation before the moratorium 
expires in November.
    Finally, in its relatively brief history, the RUS broadband 
loan program has achieved some successes. But we believe with 
modest changes largely based on the successful RUS telephony 
program, it could accomplish even more. We were honored to 
appear last week before your Subcommittee, Ms. Musgrave, of 
which Mr. Fortenberry is a Member, to offer some suggestions 
for the upcoming Farm Bill. We believe the primary weakness of 
the current program is that it does too little for areas with 
no access to broadband. And while the current practice of 
offering cost of money loans makes projects financially viable 
in some areas, other high-cost areas will require low-cost 
loans or a combination of loans and grants to make a costly 
infrastructure bill feasible.We also believe steps should be 
taken to expand the number of companies eligible for broadband 
loans and that steps be taken to improve processing of loan 
applications at USDA.
    Finally, we second Mr. Mefford's testimony. By the end of 
2007, Kentucky will go from having one of the lowest broadband 
subscription rates to having broadband available to 100 percent 
of its households. That's impressive progress. And we think 
Congress might look to Connect Kentucky as a model for what 
works.
    Modernization of the nation's communications infrastructure 
will seed economic growth and expand opportunities. Nowhere in 
the nation do these advances hold more potential than in rural 
America. We thank you for your invitation to appear today. U.S. 
Telecom and its member companies look forward to working with 
the Subcommittee and this Congress to achieve our shared 
objective of making broadband as ubiquitous today as 
electricity, water, and telephone service.
    [The prepared statement of Mr. Deere may be found in the 
Appendix on page 104.]

    ChairmanShuler. Thank you. I'd like to thank all of you for 
your testimony.
    Mr. Mefford, can you describe some of the types of public/
private partnerships that Connect Kentucky actually really 
benefited, I mean outside of the--and I want to commend the 17-
year-old young man for his outstanding work in 
entrepreneurship.
    Mr.Mefford. Yes, sir. Mr. Chairman. First, it had to do 
with the mapping initiative that we undertook. We realized that 
our folks in government needed batter data. Our policy makers 
needed better data. We realized that our providers were willing 
to some degree to provide, to give that data and they actually 
wanted more data about unserved areas. They wanted to cooperate 
with one another to figure out where there unserved areas 
where.
    And so we put together this initiative to map, to create 
this broadband inventory where every single provider in the 
state provided their data to us of where their served areas 
were. And so in your packets, I believe in front of you, 
perhaps, there are examples of our maps where you can see all 
across Kentucky, all the different types of service that's 
available.
    But more importantly, we can then invert that data, that 
map, and focus on those unserved areas and we can start 
drilling down into the data overlays that then help providers 
identify low-hanging fruit immediately, providing household 
density data, for example. And then we can overlay data 
household survey data where we ask households would you adopt, 
if broadband was available in your household? What price points 
are you comfortable with, that type of information. And so we 
can really provide through that public/private partnership 
market intelligence that allows providers to move more quickly 
into unserved areas. I'll mention on the demand side too, at 
the same time we're working with communities.
    We have 120 counties in Kentucky. We have created what we 
call E-community Leadership Teams in every county. Those are 
teams that represent a cross section of the community. We have 
farmers. We have local government officials. We have business 
and industry, educators, health care officials, on and on, who 
come to create a strategic plan for how to use technology as 
it's coming into the community, how to better use it and plan 
for. In effect, as Commissioner Adelstein said earlier, we're 
creating demand and aggregating demand at the same time. So the 
two processes work hand in hand and allow providers to see more 
opportunity and have a better business model for moving into 
these unserved areas.
    ChairmanShuler. Mr. Kremer, can you give some examples or 
some ways that our farmers can actually utilize the access to 
broadband to really strengthen their farming community? Some of 
the farmers in my area, they probably say they don't know how 
to turn a computer on. So how can we actually incentivize them 
to truly become more computer literate then and obviously 
extend it through, their business through the Internet?
    Mr.Kremer. I have some good examples. I'm also a former 
agricultural educator that started the Young Farmer Programs 
and it's interesting that during the early '80s when farmers 
were completing scared to death of computers, I actually took 
the computers, put them on the kitchen table and those dual 
floppy drive Apple computers and taught them to get over the 
fear and use those computers. I think we've got to do the same 
thing with broadband. And I truly believe that for small and 
moderate size farmers, this is probably the last hurrah that we 
have is to build those authentic relationships with consumers. 
And this is how they can do it.
    I mean even people like my colleagues in North Dakota, for 
instance, say that Missouri is more advanced because we have 
population centers. Well, the Internet, high-speed Internet 
makes the world smaller in building relationships. We have, for 
instance, in our organization, have developed artisan cheese 
plants, for instance, made from goats in Southern Missouri, 
Goats R Us, basically, and have taken this artisan cheese and 
basically made it very special and famous and have sold it 
throughout the country. Have done the same thing with exclusive 
type of heritage vegetables in Southeast Missouri. We've done 
the same thing with beef and pork and dairy products, and even 
wood products. It's basically being able to have access to that 
type of technology.
    And what this also does it brings in and encourages and 
retains our young people with the brilliant, vibrant minds and 
those people graduate from college and can come back to the 
very rural area and make that connection. And so it's extremely 
important.
    One last thing also and something I want to point out is 
that for instance, even our USDA and the Farm Service Agencies 
have been attempting to close some of the offices down which 
are very vital to our rural communities right now because of 
lack of computer access. Their point is that farmers should be 
more Internet savvy and access those programs on those farms 
via the Internet line. Well, we can kind of accommodate, but 
until we have more service in the rural areas we will continue 
to fight a lot of those closings, but this would help solve 
some of those problems and save the government and overall 
consumers some money.
    ChairmanShuler. Mr. Stephens, can you tell me about some of 
the barriers that you are facing in expanding the broadband in 
your area?
    Mr.Stephens. Some of the barriers that we are facing 
basically are, as I described, were somewhere terrain and 
others we need just the basic support of placing the 
infrastructure there. We do not exactly have all of the public 
private support that we need. Because if we had, we would have 
never formed Balsam West FiberNET to begin with. It would have 
been at the hands of the public or the private sectors.
    The public sectors with the local government: (1) Does not 
have the expertise nor do they have the funds, or do they have 
access to the funds to build the infrastructure. The low level 
population in the area, the scattered areas, the isolated 
areas; all of this came into be. As you all know of the 
mountains of western North Carolina and some north Georgia and 
eastern Tennessee, that's just to name a few things.
    Otherwise, we do have a few things leading into the area, 
what has been placed into some of our rural mountains areas, 
what the government has provided and has placed there has not 
be effective. And to those areas I think sometimes coming at 
some inappropriate oversight to those resources that have been 
promised have not lived up to the promises to the areas.
    Otherwise, some of the barriers, I think we were describing 
earlier from some of the other panelists, is that it is basic 
resources for technical assistance to training our residents on 
how to use technology. We have a great highway. We have great 
resources to put those people down that highway of information. 
But we need to have some skilled people to drive the Cadillacs 
down the highway, too.
    ChairmanShuler. Are you finding problems or issues actually 
connecting with some of the more of the Federal funded 
programs?
    Mr.Stephens. We are. We did have one resource that came to 
western North Carolina that was known as the ERC, the 
Educational Research Consortium that was set up in western 
North Carolina that based itself in Asheville. And the problem 
was to deliver high speed Internet, to deliver broadband data 
transport to the areas to connect up with our school systems, 
do these things. And we are not yet seeing that happen. That 
has not occurred. So those are the things that are happening.
    Otherwise, we are falling through the cracks of eligibility 
in other programs such as RUS. We have too much population. 
Again, as Commissioner Adelstein told you earlier, they look at 
a map and say you have DSL in this area when one person has 
that. We have broadband. And that is just not the case. I think 
those models of problems that you are seeing, that you are 
hearing from other panelists speaking or Commissioner Adelstein 
earlier, I think that mirrors what we have in western North 
Carolina.
    ChairmanShuler. The Chair will now recognize Ranking Member 
Mr. Fortenberry for his questions.
    Mr.Fortenberry. Well, thank you all again for appearing 
today, and I appreciate your insights for most of you, 
particularly your innovations in being entrepreneurs and the 
effective and aggressive utilization of broadband services in 
your particular communities. It is very impressive what you all 
have done.
    I noted that your comment, Mr. Shields, about the potential 
to enhance telecommuting, which is essential for the well-being 
of rural communities. We have talked about potential value for 
small business, the potential value for education and health 
care delivery. But the potential value of allowing a person to 
telecommute is very substantial as well, and it is an important 
point.
    Now you can go on line and put your order in for a 
McDonald's hamburger, is that what you meant in North Dakota?
    Mr.Shields. Yes, I was actually at a farm in North Dakota 
yesterday with one of our employees showing Toyota people how 
it worked. And McDonald's is working to change the taking of 
orders.
    When you go to a McDonald's drive-through, you drive up to 
a speaker post, you talk to somebody. And they want to move 
about 10,000 jobs out into the rural communities to be the ones 
who are on the other side of that speaker post instead of 
having somebody doing that in the restaurant. And we have been 
very pleased with the work and the quality. And it is one of 
many things that will be done over the next decade to move what 
were call center areas like in Lincoln, and I actually was a 
kid in Lincoln, where you have got a lot of the IT services; 
Lincoln, Omaha, Sioux City, Sioux Falls, Fargo, Grand Forks 
where we are going to now move out into these communities. 
Because we do not need the walls anymore. We do not need to 
have people sitting in a big building. We can have them work 
wherever they want.
    And this woman whose farm we were at was able to work for 
the first time in 20 years. When she got married and was out 
there in the farm, there was nothing she could do out there. 
The family was able to add a brand new add-on that she was 
proud to show us to her house because of the earnings that she 
was able to get from that job.
    Mr.Fortenberry. Well, it is an outstanding example that 
concretizes the reality of how this potential technology can 
achieve so much social good in addition to advancing the 
movement of products and services.
    Mr. Kremer, you very well point out how the small and mid-
size farmer is going to increasingly depend on this connection 
direct to the customer.
    One of the most successful farmers I have in my District 
was a struggling commodities farmer who changed his business 
model and relies heavily on the Internet sales of a specialized 
hay product now for pets. So it is a great point.
    Mr. Christensen, I particularly picked up on the fact of 
your leadership. All of this is important. Advancing the 
technology is important, but having leadership in localized 
community, I think you mentioned your--what did you call it, 
Mr. Mefford? Your e-leadership council?
    Mr.Mefford. E-community leadership.
    Mr.Fortenberry. Is a great point as well that I think we 
can all learn from.
    I would like to further unpack some of your efforts in 
Kentucky. I think one of the considerations that may come out 
of this hearing because we have discussed it, Mr. Deere, you 
have touched on it as well, is the need for a clearer 
understanding perhaps through mapping or some other mechanism, 
but I think mapping is the core issue here of where there is 
true broadband availability, where it is underserved, where it 
is lacking in service. Who is Connected Nation? Was this 
founded in Kentucky? Are you the primary principal? What is the 
main objective of it? And is using a smaller footprint such as 
a state to provide this mapping or to provide as an entity in a 
state to potential provide the capacity for a more aggressive 
mapping system could then be duplicated in 50 States, is that a 
better platform than perhaps we mandating it at the Federal 
level as a joint project, perhaps, of the FCC and the Rural 
Utility Service? I think that is one of the core points that 
both you gentlemen made as a key component to ensuring that 
limited funds are targeted precisely or the private market 
actually has better information to develop its services.
    So two points. Explain better your mission, how it was 
conceived, what your long term vision is? I am curious. 
Obviously, you are doing tremendous things. And then touch upon 
the mapping issue from a state perspective how that can 
potentially be used nationwide?
    Mr.Mefford. Yes, sir. I appreciate the question and the 
compliments as well.
    We envision that if we could demonstrate the success of 
this model as it was set up in Kentucky, we envision that it 
would be highly transferrable to other States. I believe it is 
Commission Adelstein that said in the past, and I say it often, 
there is not anything that is on the level of rocket science 
about what we have done. I mean, it is really a lot of 
entrepreneurial type ingenuity. And I think Commissioner 
Adelstein said Kentucky elbow grease is how it got done. But 
given that fact, it is highly transferrable. And so we had a 
lot of inbound calls from other states and established 
Connected Nation as the national nonprofit means by which we 
could transfer that model to other States, and also work in 
cases with the Federal Government as well.
    Mr.Fortenberry. And how are you funded? What are your 
funding sources? Is it a consortium of interested private 
sector parties? Do you receive grants from the State? Federal 
money as well?
    Mr.Mefford. Connected Nation is working with States. And so 
we primarily are receiving State funding as Connect Kentucky 
has. Connect Kentucky is both public/private. And so we have 
some contributions from participants from the private sector, 
but it has primarily been State monies.
    Public/private is ideal so that you do have that type of 
engagement from the private sector community as well as from 
State resources, State and Federal resources.
    Mr.Fortenberry. What I hear you saying about the mapping 
process is that it is half science, half art. You are somehow 
able to achieve proprietary data that, as Commissioner 
Adelstein was saying, is a problem on the Federal level. You 
have been able to do that, and I assume that is through 
relationships? Melding the art and science of getting this end 
task completed?
    Mr.Mefford. They are relations that, again, transfer to the 
national level as well. And so those relationships are in place 
now to be able to do similar things that we have done in 
Kentucky nationally.
    Providers are attracted to an independent third party as a 
place to aggregate this data. They want it protected, to a 
certain degree. And so we are able to sign nondisclosure 
agreements that protects the data down to a certain level of 
granularity.
    And so on our maps you can see where the service is and 
what is provided, but it does not detail who is providing that 
service, in most case. Or in all cases, rather.
    And so there is that desire from the provider community to 
have that independence, that independent third party.
    Now to your question of do we go at this State-by-State in 
terms of the mapping or do we do it at the Federal level? I do 
not think they are mutually exclusive. In fact, the model in 
Kentucky bears that out that both is likely a better answer. In 
other words, the Congress could empower the FCC and enable the 
FCC to begin such a program, hopefully in partnership with an 
independent entity where it is a data clearinghouse that is 
established as an independent entity. And so you have a federal 
effort. But then as we did in Kentucky as we moved community-
by-community, it is sort of a verification that takes place. 
And that is a bit of a slower process, but it is going into the 
States to take the data that has been aggregated federally and 
fact check and say is this right on a very granular community 
level.
    So I believe that it could be both, in answer to your 
question. That it could be a Federal effort and a State-by-
State effort. In fact, there is a Senate bill that has been 
filed, 11-90 by Senator Durbin that sets up a State-by-State 
approach. And, again, I do not think it is mutually exclusive 
to have a bill that establishes the Federal approach as well.
    Mr.Fortenberry. But again in terms of the fundamental 
platform by which your successful efforts have been achieved, 
it is that set of data? I have heard you say two things. That 
has been critical and, obviously, leadership and desire down to 
the smallest local entity has been critical. But I do not want 
to set up a framework here where there could be a competing 
framework by which we can leverage our resources to better 
provide broadband throughout the country. But it seems to me 
that a lot of this testimony is pointing to that pillar of just 
better understanding of market data that is out there that can 
be used to create momentum synergy, better synergy in the 
market as well as more targeting of our limited Federal funds. 
Is that a correct assumption?
    Mr.Mefford.That is right. Absolutely. I think it has to be 
the tip of the spear. We do not know where we are today. We 
just do not. And that map, that national map really has to be 
created.
    Mr.Fortenberry. And I appreciate your comments about a 
potential hybrid solution versus an either/or; Federal or more 
State-by-State projects. So thank you.
    Would you care to comment on that, sir?
    Mr.Deere. I would second Mr. Mefford's comments. And when 
we appeared before you last week to discuss to discuss the RUS 
program, there is not a single magic bullet that solves the 
problem. It is making sure the funds go to underserved areas. 
It makes the loans more creative to go into areas where there 
is a truly bad business case to be made for issuing the loan. 
And it is working through programs like Connect Kentucky to 
make sure that we know where we need to go.
    As you heard in the first panel from Commissioner 
Adelstein, there will be issues that have to be worked out at 
the Federal level when we start looking at a national mapping 
plan. In fact, I believe as early as next week the Telecom 
Subcommittee, Mr. Markey's Subcommittee, could be taking up the 
issue. But what we were trying to point out today and last week 
was we have a model that works. And this is a bipartisan 
issues. And this is a Congress that wants to get things done. 
And I think we should move out on something like Connect 
Kentucky.
    Mr.Fortenberry. Okay. Thank you.
    Thank you, Mr. Chair.
    ChairmanShuler. The Chair will now recognize the 
Gentlewoman from New York, Ms. Clarke.
    Ms.Clarke. Thank you very much, Mr. Chairman.
    And I have to tell you gentlemen, this has been very, very, 
very groundbreaking for me hearing and your testimonies just 
have been fascinating. What you have been able to do through 
ingenuity and really just out of necessity in utilizing the 
technologies that are available to us to really make our world 
a little bit smaller and make our communities much more 
connected is what is needed in the 21st Century. And there is 
no other way for us to go. And you are the trailblazers. And I 
have a feeling that we will be looking back at your gentlemen 
in generations to come as sort of like the Henry Fords of what 
has led our communities and in our nation into its strength and 
really coming into its own as a first world nation.
    Let me direct my questions Mr. Mefford. Because Connect 
Kentucky is truly fascinating. And, again, groundbreaking. And 
it has demonstrated a willingness to improve the quality of 
life for low income communities, spurring and cultivating local 
entrepreneurship. Connect Kentucky has made strides using 
technology to improve health care, education and community 
development.
    Can you just briefly tell me some more about your challenge 
as a CEO, challenges with regard to cost factors? And do you 
believe that you could replicate this model in urban 
environments that have a similar struggle?
    Mr.Mefford. Yes, ma'am. Thank you for the question.
    As I mentioned, the model is highly replicable, can be 
transferred to any State. And all States have these challenges, 
because all States have either urban gaps or rural gaps, the 
broadband digital divides. And so we have heard from nearly 
every State that wants to replicate all or part of what we are 
doing in Kentucky.
    The primary barrier, as you mentioned, is funding. And so 
that is why we started working here on the Hill to discuss the 
importance of creating some enabling legislation that allows 
States to develop programs that are empowered at the Federal 
level but are localized in their design. That is an important 
element of being able to transfer this across the country.
    And to your question of does it apply in urban areas. 
Absolutely. And so in each of our communities where we can 
identify an urban digital divide, we have been addressing those 
just as we do in the rural areas.
    We developed a program. In fact, their conventional wisdom 
had said in the past that folks did not adopt broadband because 
it was just too expensive. But we found that the primary reason 
that folks were not adopting broadband, particularly in our 
urban areas, was that they did not own a computer. They did not 
own a computer and it was too expensive or the second was the 
answer you said, it was understanding that it exists or knowing 
that it was available.
    And so we launched program and knowing that granular kind 
of data, that market intelligence, that we launched a program 
called No Child Left Offline. And so that uses State 
refurbished computers and adds Microsoft software and CA 
software, security software and puts those computers in the 
households of underprivileged children. And so it is through 
efforts like that where we can then start impacting the 
adopting of broadband.
    We have had 73 percent increase in households actually 
subscribing to broadband over the last two years
    Ms.Clarke. I would like to direct a question to Mr. 
Stephens. I recently read an article in the Asheville Citizen-
Times, which is published in our Chairman's wonderful State of 
North Carolina, and it is that your company has formed a 
partnership amongst rural school with Drake Enterprises and the 
Eastern Band of the Cherokees to bring high school Internet 
access to 45 rural schools. Many experts see high speed 
Internet access as one way to help reduce poverty and close the 
digital divide.
    With the improved access to high speed Internet 
capabilities children would enjoy enhanced educational 
opportunities and their parents could learn their skills 
necessary to thrive in an increasingly computer-based economy.
    How successful has this partnership been and do you have 
any plans to pilot this model in urban environments such as New 
York?
    Mr.Stephens. Well, Ms. Clarke, I believe that there is 
really no difference between a green covered mountainside and a 
skyscraper, really. It's just an obstacle in the way. And, of 
course, we in western North Carolina take great pride in those 
mountains that give us strength.
    But, yes, this model has been very successful because the 
high cost of services provided to our schools, provided to our 
businesses, to individual was outrageous. We were paying eight 
to ten, twelve times the rate that metro carrier rates would 
pay in other urban areas; Atlanta, Knoxville, Charlotte, those 
areas.
    One of the things that we had to do was to be able to bring 
that access to the schools. Furthermore, we had to give them 
the opportunity to choose their provider. To choose the content 
that suited their needs for their curricula, to suit their 
needs for their culture.
    The Eastern Band of Cherokee Indians is working to build an 
entire new school system, if you have seen any kind of 
congressional in the past couple of years. We have been working 
to build an entire new school system. The curricula there is 
going to be a little bit different.
    So for all types of different reasons, yes, this is a 
successful model. It is taking the access to the schools. They 
own the fiber optics. They own the content. Basically they are 
in charge of their own destinies. And right now the 
construction is beginning on those laterals and on those star 
networks for the school systems. Unfortunately, as some of the 
other panelists have pointed out, funding is a major issue 
here. In order to: (1) Complete all of the connections to all 
the schools. Because our dream here is to have ``No Child Left 
Behind,'' no school left behind to be able to inspire any kind 
of creativity for the entrepreneurship to breed home grown 
businesses, to be able to allow them to stay in the area. There 
has been a serious out migration of our best and brightest. I 
mean, it is great that they are able to get the education that 
they can, go to the University of North Carolina, go to Harvard 
or wherever they can go, but they seldom come back because the 
opportunities do not exist.
    So is it successful? Yes. Because we are putting that 
access there. They are control of that destiny. So for that. We 
are also cutting down the costs. It is a wonderful model. And, 
yes, we hope that it is something that can be replicated 
throughout the area.
    We are starting in our State. And we hope that this will 
embers the big brush fire that burns across the State.
    Ms.Clarke. Mr. Chairman, I just want to make a comment to 
Mr. Kremer, and maybe to all of you.
    One of the things that we are looking at in urban areas 
with respect to the Ag bill is the use of food stamps to be 
able to bring nutritional foods to communities that do not have 
access to them. You would be surprised at how many urban areas 
where green groceries are not readily available, where quality 
or now we are moving into organic kinds of foods that lead to 
proper nutrition of Americans are not available. And just in 
listening to what you have said, one of the things that has 
been a challenge is how do we get or create an avenue for those 
who are less able financially to shop in the markets but have 
to utilize Government subsidy of some sort. To work with the 
small farmer in terms of co-oping or things of that nature and 
being able to access those types of nutritional things.
    Have you had any conversations or have you had any thinking 
around that? Because I think that is one connection. You 
already talked about the pork. I am going to be looking for 
that. But, you know, other items that we can connect to other 
people in other parts of the country to really begin to address 
those issues in our communities?
    Mr.Kremer. Yes, I have thought about it and I share your 
same concerns, and it is something that is part of our vision 
and our mission. And that is to provide this type of wholesome 
food that has got this story behind it and authenticity and 
make it affordable and accessible to all people.
    And when you talk about, for instance, rural broadband and 
connecting these smaller entrepreneurs and what I would call 
collective entrepreneurs, you know we have these little co-ops, 
for instance, in remote southern Missouri that our prices are 
not the highest. They are kind of like in maybe in the upper 
one-third share of what conventional pricing would be. And so, 
but it has got greater value.
    For instance, you may think this is an oxymoron that we 
have a healthy hot dog. That has no additives, that is not 
filler, no chemicals and that school systems want this. And I 
do believe that it is in the public's interest to somehow 
subsidize school systems or whatever, and the food stamp 
program as well, to allow disadvantaged people to access this 
as well. And I think it could be a very affordable program that 
is in the best public's interest.
    ChairmanShuler. Mr. Christensen, you had spoken earlier 
about ways you have been able to maintain businesses at home 
instead of having to go out of your District or maybe into more 
urban areas. Now what are some of the ways you are highlighting 
in your community, ways to actually say here is how broadband 
has worked, here is how it has worked for us, here is how it 
can work for you?
    Mr.Christensen. Well one of the ways is coming out here and 
talking about it. A lot of it we are doing through the Chamber 
of Commerce. We are doing through our community education 
program.
    Some of the other people talking earlier talked about 
getting people trained on using the Internet. We are a highly 
agriculture community. So our community ed program puts on 
classes on Microsoft Excel and Outlook and things like that for 
senior citizens or people who do not have a lot of experience 
with it.
    A good example of one of these programs is as a result of 
one of our community ed programs a guy that retired from the 
local hardware store started an eBay business. And he sells 
tractor manuals online on eBay and works out of his home four 
miles from town, and has been able to stay on his farm.
    So that kind of word spreads around. And he has now come 
back and he teaches class to his peers. And that is really what 
we are doing.
    ChairmanShuler. Well, I would like to thank everyone for 
their testimony today. And just extend a special thank you for 
what you are doing with our rural America and in the urban 
areas to really expand our businesses, small businesses in 
particular, and what you have been able to accomplish. Continue 
your hard work, your dedication. And I will look forward to 
working with my colleagues on the issues that have been raised 
today for us to create the proper legislation that will 
actually work for the small business in America.
    At this time the hearing is adjourned.
    [Whereupon, the Subcommittee was adjourned at 12:01 p.m.]

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