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


 
                                ------                                
                   THE DIGITAL FUTURE OF THE UNITED STATES 

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

                                HEARINGS

                               BEFORE THE

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                       MARCH 1, 7, APRIL 19, 24,
                         MAY 10, OCTOBER 2, 2007

                               ----------                              

                           Serial No. 110-10


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov
                               ---------
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                              WASHINGTON: 2007

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                    COMMITTEE ON ENERGY AND COMMERCE

                      JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California              JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts             Ranking Member
RICK BOUCHER, Virginia                   RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York                 J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey           FRED UPTON, Michigan
BART GORDON, Tennessee                   CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois                  NATHAN DEAL, Georgia
ANNA G. ESHOO, California                ED WHITFIELD, Kentucky
BART STUPAK, Michigan                    BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York                 JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland                 HEATHER WILSON, New Mexico
GENE GREEN, Texas                        JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado                  CHARLES W. ``CHIP'' PICKERING, 
   Vice Chairman                           Mississippi
LOIS CAPPS, California                   VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania                 STEVE BUYER, Indiana
JANE HARMAN, California                  GEORGE RADANOVICH, California
TOM ALLEN, Maine                         JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois                 MARY BONO, California
HILDA L. SOLIS, California               GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas               LEE TERRY, Nebraska
JAY INSLEE, Washington                   MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin                 MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                      SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon                   JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York              TIM MURPHY, Pennsylvania
JIM MATHESON, Utah                       MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina         MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana 
JOHN BARROW, Georgia 
BARON P. HILL, Indiana               

                                 _______

                           Professional Staff

                 Dennis B. Fitzgibbons, Chief of Staff
                 Gregg A. Rothschild, Chief Counsel
                 Sharon E. Davis, Chief Clerk
                 Bud Albright, Minority Staff Director

                                  (ii)

          Subcommittee on Telecommunications and the Internet

               EDWARD J. MARKEY, Massachusetts, Chairman
MIKE DOYLE, Pennsylvania             FRED UPTON, Michigan
JANE HARMAN, California                 Ranking Minority Member
CHARLES A. GONZALEZ, Texas           J. DENNIS HASTERT, Illinois
JAY INSLEE, Washington               CLIFF STEARNS, Florida
BARON P. HILL, Indiana               NATHAN DEAL, Georgia
RICK BOUCHER, Virginia               BARBARA CUBIN, Wyoming
EDOLPHUS TOWNS, New York             JOHN SHIMKUS, Illinois
FRANK PALLONE, Jr., New Jersey       HEATHER WILSON, New Mexico
BART GORDON, Tennessee               CHARLES W. ``CHIP'' PICKERING, 
BOBBY L. RUSH, Illinois                Mississippi
ANNA G. ESHOO, California            VITO FOSELLA, New York
BART STUPAK, Michigan                GEORGE RADANOVICH, California
ELIOT L. ENGEL, New York             MARY BONO, California
GENE GREEN, Texas                    GREG WALDEN, Oregon
LOIS CAPPS, California               LEE TERRY, Nebraska
HILDA L. SOLIS, California           MIKE FERGUSON, New Jersey
JOHN D. DINGELL, Michigan (ex        JOE BARTON, Texas (ex officio)
    officio)
  





























































                             C O N T E N T S

                              ----------                              

            MARCH 1, 2007--THE FUTURE OF THE WORLD WIDE WEB

                                                                   Page
Barton, Hon. Joe, a Representative in Congress from the State of 
  Texas, opening statement.......................................     4
     Prepared statement..........................................     4
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................     5
Doyle, Hon. Mike, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     6
Eshoo, Hon. Anna G., a Representative in Congress from the State 
  of California, opening statement...............................     3
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................     8
Harman, Hon. Jane, a Representative in Congress from the State of 
  California, opening statement..................................     7
Hill, Hon. Baron P., a Representative in Congress from the State 
  of Indiana, opening statement..................................     9
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, opening statement..................................     7
Towns, Hon. Edolphus, a Representative in Congress from the State 
  of New York, prepared statement................................     9
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................     2

                                Witness

Berners-Lee, Timothy, Massachusetts Institute of Technology, 
  Cambridge, MA..................................................    10
    Prepared statement...........................................    33

                   MARCH 7, 2007--THE FUTURE OF RADIO

Barton, Hon. Joe, a Representative in Congress from the State of 
  Texas, opening statement.......................................    48
Boucher, Hon. Rick, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................    59
Deal, Hon. Nathan, a Representative in Congress from the State of 
  Georgia, opening statement.....................................    58
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................    46
Doyle, Hon. Mike, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................    49
Engel, Hon. Eliot L., a Representative in Congress from the State 
  of New York, opening statement.................................    60
Eshoo, Hon. Anna G., a Representative in Congress from the State 
  of California, opening statement...............................    52
Ferguson, Hon. Mike, a Representative in Congress from the State 
  of New Jersey, opening statement...............................    57
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................    53
Harman, Hon. Jane, a Representative in Congress from the State of 
  California, opening statement..................................    50
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............    43
Shimkus, Hon. John, a Representative in Congress from the State 
  of Illinois, opening statement.................................    50
Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, opening statement..................................    55
Stupak, Hon. Bart, a Representative in Congress from the State of 
  Michigan, opening statement....................................    55
Terry, Hon. Lee, a Representative in Congress from the State of 
  Nebraska, opening statement....................................    53
Towns, Hon. Edolphus, a Representative in Congress from the State 
  of New York, opening statement.................................    58
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................    44
Walden, Hon. Greg, a Representative in Congress from the State of 
  Oregon, opening statement......................................    51

                               Witnesses

Blackwell, Geoffrey C., director, Strategic Relations and 
  Minority Business Development, Chickasaw Nation Industries, 
  Inc., on behalf of Native Public Media and the National 
  Federation of Community Broadcasters...........................    61
    Prepared statement...........................................    93
Karmazin, Mel, chief executive officer, Sirius Satellite Radio 
  Incorporated, New York, NY.....................................    66
    Prepared statement...........................................   127
Kimball, Robert, senior vice president, Legal and Business 
  Affairs, RealNetworks, Inc. Seattle, WA........................    65
    Prepared statement...........................................   137
Kimmelman, Gene, vice president, Federal and International 
  Affairs, Consumers Union, Washington, DC.......................    68
    Prepared statement...........................................   153
Smyth, Peter H., president and chief executive officer, Greater 
  Media, Inc., Braintree, MA.....................................    63
    Prepared statement...........................................   102

                           Submitted Material

Taylor, Loris Ann, executive director, Native Public Media, 
  letter of March 30, 2007 to Mr. Markey.........................   173

   APRIL 19, 2007--SPECTRUM OPPORTUNITIES AND THE FUTURE OF WIRELESS

Capps, Hon. Lois Capps, a Representative in Congress from the 
  State of California, prepared statement........................   211
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................   207
Eshoo, Hon. Anna G., a Representative in Congress from the State 
  of California, opening statement...............................   204
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................   209
Harman, Hon. Jane, a Representative in Congress from the State of 
  California, opening statement..................................   202
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............   199
Pickering, Hon. Charles W. ``Chip'', a Representative in Congress 
  from the State of Mississippi, opening statement...............   203
Solis, Hon. Hilda L., a Representative in Congress from the State 
  of California, opening statement...............................   208
Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, opening statement..................................   206
Stupak, Hon. Bart, a Representative in Congress from the State of 
  Michigan, opening statement....................................   205
Towns, Hon. Edolphus, a Representative in Congress from the State 
  of New York, opening statement.................................   211
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................   201

                               Witnesses

Gallagher, Michael, partner, Perkins Coie, LLP, Washington, DC...   221
    Prepared statement...........................................   321
Meena, Victor H., president, CellularSouth, Incorporated, 
  Jackson, MS....................................................   216
    Prepared statement...........................................   331
Muleta, John, chief executive officer, M2Z Networks, Arlington, 
  VA.............................................................   212
    Prepared statement...........................................   290
Obuchowski, Janice, chairman, Frontline Wireless, LLC, 
  Washington, DC.................................................   219
    Prepared statement...........................................   245
Spencer, Shelley, president, Wirefree Partners, LLC, 
  Laytonsville, MD...............................................   214
    Prepared statement...........................................   264
West, Barry, chief technology officer, Sprint Nextel Corporation, 
  Herndon, VA....................................................   218
    Prepared statement...........................................   275

             APRIL 24, 2007--BROADBAND LESSONS FROM ABROAD

Barton, Hon. Joe, a Representative in Congress from the State of 
  Texas, opening statement.......................................   348
Capps, Hon. Lois, a Representative in Congress from the State of 
  California, prepared statement.................................   355
Doyle, Hon. Mike, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................   351
Engel, Hon. Eliot L., a Representative in Congress from the State 
  of New York, opening statement.................................   356
Eshoo, Hon. Anna G., a Representative in Congress from the State 
  of California, opening statement...............................   347
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................   354
Harman, Hon. Jane, a Representative in Congress from the State of 
  California, opening statement..................................   346
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............   343
Shimkus, Hon. John, a Representative in Congress from the State 
  of Illinois, opening statement.................................   352
Solis, Hon. Hilda, a Representative in Congress from the State of 
  California, opening statement..................................   349
Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, opening statement..................................   353
Terry, Hon. Lee, a Representative in Congress from the State of 
  Nebraska, opening statement....................................   350
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................   345

                               Witnesses

Ford, George, chief economist, Phoenix Center for Advanced Legal 
  and Economic Public Policy Studies, Washington, DC.............   364
    Prepared statement...........................................   387
Hashimoto, Shin, executive vice president, Nippon Telegraph and 
  Telephone Corporation, Tokyo, Japan............................   361
    Prepared statement...........................................   442
Richards, Ed, chief executive officer, OFCOM, London, United 
  Kingdom........................................................   358
    Prepared statement...........................................   424
Swain, Hon. Paul, MP, Parliament of New Zealand, Wellington, New 
  Zealand........................................................   357
    Prepared statement...........................................   434
Wyler, Gregory, director, Rwandatel, S.A., Manchester, MA........   362
    Prepared statement...........................................   418

                           Submitted Material

McSlarrow, Kyle, National Cable & Telecommunications Association, 
  letter of April 23, 2007.......................................   449
``U.S. Falling Behind in Broadband Penetration'' by Chloe 
  Albanesious, PC Magazine, submitted by Ms. Eshoo...............   453

                   MAY 10, 2007--THE FUTURE OF VIDEO

Barton, Hon. Joe, a Representative in Congress from the State of 
  Texas, prepared statement......................................   462
Blackburn, Hon. Marsha, a Representative in Congress from the 
  State of Tennessee, prepared statement.........................   465
Bono, Hon. Mary, a Representative in Congress from the State of 
  California, prepared statement.................................   464
Capps, Hon. Lois Capps, a Representative in Congress from the 
  State of California, prepared statement........................   461
Cubin, Hon. Barbara, a Representative in Congress from the State 
  of Wyoming, prepared statement.................................   463
Deal, Hon. Nathan, a Representative in Congress from the State of 
  Georgia, prepared statement....................................   463
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, opening statement...........................   459
Eshoo, Hon. Anna G., a Representative in Congress from the State 
  of California, opening statement...............................   457
Ferguson, Hon. Mike, a Representative in Congress from the State 
  of New Jersey, opening statement...............................   459
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................   460
Hastert, Hon. J. Dennis, a Representative in Congress from the 
  State of Illinois, prepared statement..........................   462
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............   455
Shimkus, Hon. John, a Representative in Congress from the State 
  of Illinois, opening statement.................................   456

                               Witnesses

Cuban, Mark, chairman and president, HDNET, Dallas, TX...........   466
    Prepared statement...........................................   519
Hurley, Chad, chief executive officer, YouTube, San Bruno, CA....   479
    Prepared statement...........................................   507
    Answers to submitted questions...............................   568
Krikorian, Blake, chairman and chief executive officer, Sling 
  Media Incorporated, Foster City, CA............................   469
    Prepared statement...........................................   560
Lombardi, Gina, president, MediaFLO USA, Incorporated, San Diego, 
  CA.............................................................   473
    Prepared statement...........................................   531
    Answers to submitted questions...............................   593
Pyne, Benjamin, president, Disney and ESPN Networks, affiliate 
  sales and marketing, New York, NY..............................   474
    Prepared statement...........................................   523
Rogers, Thomas S., president and chief executive officer, TiVO, 
  Incorporated, Alviso, CA.......................................   476
    Prepared statement...........................................   542
Rosenthal, Philip, Writers Guild of America West and the Screen 
  Actors Guild, Los Angeles, Ca..................................   471
    Prepared statement...........................................   551
    Answers to submitted questions...............................   589

                           Submitted Material

National Association of Broadcasters, statement..................   600

     OCTOBER 2, 2007--THE FUTURE OF TELECOMMUNICATIONS COMPETITION

Blackburn, Hon. Marsha, a Representative in Congress from the 
  State of Tennessee, opening statement..........................   613
Boucher, Hon. Rick, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................   608
Capps, Hon. Lois, a Representative in Congress from the State of 
  California, prepared statement.................................   615
Deal, Hon. Nathan, a Representative in Congress from the State of 
  Georgia, opening statement.....................................   607
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan, prepared statement..........................   633
Doyle, Hon. Mike, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................   606
Eshoo, Hon. Anna G., a Representative in Congress from the State 
  of California, opening statement...............................   610
Green, Hon. Gene, a Representative in Congress from the State of 
  Texas, opening statement.......................................   612
Markey, Hon. Edward J., a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............   603
Pallone, Hon. Frank Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................   609
Stearns, Hon. Cliff, a Representative in Congress from the State 
  of Florida, opening statement..................................   611
Stupak, Hon. Bart, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   614
Towns, Hon. Edolphus, a Representative in Congress from the State 
  of New York, opening statement.................................   613
Upton, Hon. Fred, a Representative in Congress from the State of 
  Michigan, opening statement....................................   605

                               Witnesses

Casto, Parley, assistant vice president, AT&T Business Marketing, 
  AT&T Operations, Hoffman Estates, IL...........................   615
    Prepared statement...........................................   659
Cheek, William E., president, Wholesale Markets, Embarq, Overland 
  Park, KS.......................................................   623
    Prepared statement...........................................   710
Evans, Brad, chairman, Cavalier Telephone, Richmond, VA..........   625
    Prepared statement...........................................   719
Forsee, Gary D., chairman, chief executive officer, and 
  president, Sprint Nextel Corporation, Reston, VA...............   621
    Prepared statement...........................................   694
Herda, Larissa, president and chief executive officer, Time 
  Warner Telecom.................................................   617
    Prepared statement...........................................   672
Rosenbalm, Wes, president and chief executive officer, Bristol 
  Virginia Utilities, Bristol, VA................................   627
    Prepared statement...........................................   734
Tauke, Hon. Tom, executive vice president, Verizon, Washington, 
  DC.............................................................   619
    Prepared statement...........................................   681

                           Submitted Material

Cohen, Larry, president, Communications Workers of America, 
  letter of September 26, 2007 to Kevin Martin...................   744
Murray, Chris, senior counsel, Consumers Union, letter of October 
  1, 2007 to Chairman Dingell....................................   746

 
                THE DIGITAL FUTURE OF THE UNITED STATES

                    THE FUTURE OF THE WORLD WIDE WEB

                              ----------                              


                        THURSDAY, MARCH 1, 2007

                House of Representatives,  
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to other business, at 10:41 
a.m., in room 2123 of the Rayburn House Office Building, Hon. 
Edward J. Markey (chairman) presiding.
    Members present: Representatives Doyle, Harman, Hill, 
Eshoo, Green, Capps, Dingell, Upton, Hastert, Stearns, 
Pickering, Fossella, Bono, Walden, and Barton.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF MASSACUSETTS

    Mr. Markey. The subcommittee will come to order. I will 
give everybody a couple of seconds here to get settled in.
    Twelve years ago when my chairmanship of this subcommittee 
was rudely interrupted, I think it is important for us to look 
at the digital future of the United States. And this series of 
oversight hearings focuses on the different segments of the 
telecommunications marketplace and public policy. As we 
proceed, we will have hearings on voice, video, data markets, 
competition, innovation, localism, diversity, and universal 
service.
    My goal is that this series of educational hearings brings 
to the subcommittee the information and insight we will need to 
make sound policy judgments in the months ahead. This morning's 
hearing focuses upon the future of the World Wide Web. The 
World Wide Web has become indispensable to companies large and 
small, and regardless of whether their commercial aspirations 
are locally oriented or are of global proportions, it has 
become a resource that the Government depends upon and that 
nurtures communities, both real and virtual, around the planet.
    The Web has grown into a communications medium unto itself 
where citizens can communicate and entrepreneurs can innovate. 
The Web is evolving from its initial publishing model existence 
into a more interactive, sophisticated medium, and observers 
have begun to talk about Web 2.0 and Web 3.0 applications and 
services. The Web is a precious commodity, and today we have a 
chance not only to better understand its current nature but to 
glimpse into its future. Because of its importance to our 
national economic security, to global communications, free 
speech, and to myriad applications addressing health care, 
educational and cultural and civic themes, I believe it is 
vital for us to understand what we can do as policymakers to 
safeguard the Web's special role and to foster its further 
growth and innovation.
    In 1999, Time magazine published a list of the 100 greatest 
people of the 20th century. In the category of most influential 
scientists and thinkers the list included Einstein, the Wright 
brothers, Dr. Jonas Salk, Sigmund Freud, Rachel Carson, Enrico 
Fermi, Alexander Fleming, but it included in that rarified list 
our guest witness this morning, Sir Timothy Berners-Lee. After 
all, who better to inform us about how we should approach the 
task of understanding the World Wide Web and its future than 
its inventor.
    We are delighted that he has agreed to be with us this 
morning, and I think that it is a good way of kicking off this 
next 2 years of the Telecommunications and Internet 
Subcommittee. I would like to now turn to recognize the ranking 
member of the subcommittee, a man with whom I have worked for 
years in partnership in a bipartisan fashion seeking to frame 
these issues in a way that reflects the essential non-partisan 
way in which technology issues should be viewed, my good 
friend, the gentleman from Michigan, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman. It is a pleasure 
to be here. I appreciate you convening today's hearing. We have 
had a unique and wonderful opportunity to have an in-depth, 
philosophical discussion on the future of the World Wide Web, 
and I would just note as you lament your 12 years in minority, 
but in Never Never Land perhaps, it has been a pretty 
productive 12 years in terms of advancement in the technology 
field, probably not 12 years that we have seen ever in the 
history of mankind so we look forward to that continuing and 
certainly seriously our very good relationship on a whole host 
of issues.
    There is no question that the Web with great thanks to Mr. 
Berners-Lee has indeed transformed our daily lives. 
Technologies that were not even dreamed of several years ago 
are now standard, and who knows what the future will hold. And 
I look forward to that perspective as we listen to your 
testimony and engage in questions. I also look forward to 
having a candid discussion on how we can better protect our 
citizens, what steps can policymakers and industry folks take 
to further protect our identities, what can be done to stifle 
the explosion of child Internet sex predators. While the Web 
had revolutionized the everyday world it has also opened up a 
new world of criminals abound. From petty thieves to 
pedophiles, a broad range of criminals now have the ability to 
prowl the Internet in a virtual cloak of anonymity.
    And with a continuing abundance of cyber criminals, we must 
ensure that the World Wide Web continues to stand for exactly 
that, not the wild, wild west. We also must ensure that as we 
continue to foster an environment of economic growth and 
technological advancement, we need to ask the question who 
knows what tomorrow's Web will bring, but I am hopeful that 
this morning's discussion might be able to shed a little light 
on what the future might hold. I appreciate you coming all this 
way to share your thoughts and experiences, and I yield back my 
time.
    Mr. Markey. Thank the gentleman. The gentlelady from 
Silicon Valley, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, and it is wonderful to 
see you in the chairman's seat. And welcome, Sir Berners-Lee. 
It is really a pleasure and an honor to have you here at our 
committee today. The World Wide Web, which you brought to us in 
1989, is now such a ubiquitous part of our lives that I think 
we take it for granted. Its role in virtually all aspects of 
our economy, our politics, our entertainment is 
incontrovertible and it continues to grow. One of the obvious 
influences the Web has had is in the political spectrum, and it 
has had a tremendous impact on the American political system.
    During the last presidential election political parties, 
candidates, and independent groups utilized the Internet to 
organize and to raise money in new and innovative ways, and 
these activities were only accelerated in the campaign last 
year and it is undeniable that a video posted on YouTube is 
responsible for the democratic majority in the United States 
Senate, so it has had a huge impact. The Internet has also 
completely changed the manner in which political campaigns and 
politics in general are covered in the mainstream media. The 
impact of blogs and independent Web sites on traditional news 
organizations is perhaps the most important phenomenon of the 
21st century culture so far.
    This nearly limitless diversity of content and views is a 
revolutionary change in public discourse. It really is the 
voices of many speaking to many. It is impossible to 
overestimate the powerful dynamic that technology and the 
Internet will have in promoting democracy in our own society 
and our institutions and ultimately the world. No longer will 
an individual be limited by geography, wealth or disability to 
have access to this global repository of literature, science, 
information, and entertainment. I am concerned that the 
diversity of voices on the Internet is under threat and that 
the power to control access to information and content is 
becoming increasingly concentrated in a handful of large media 
and telecommunications companies.
    It is this issue that development of gatekeepers to content 
and information on the Internet that really is at the heart of 
an issue that has been intensely debated in this subcommittee 
and the last Congress called net neutrality. I think the future 
of the World Wide Web is in large part dependent on how we 
resolve this issue, and I think it is incumbent on Congress to 
ensure that the voices of the many can continue to speak to the 
many whether or not they have permission from Verizon or AT&T. 
So I along with all the members of this important subcommittee 
look forward to your testimony and salute you for what you have 
accomplished and what you have given to the world. It is 
nothing short of remarkable. Thank you, Mr. Chairman.
    Mr. Markey. I thank the gentlelady. The gentleman from 
Texas, Mr. Barton.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman. I am one of those ones 
that was pleased that your chairmanship was rudely interrupted 
12 years ago, but we are always in a personal way glad to see 
people get ahead in the world and certainly glad to see you 
back in the chair that you think you should be in all the time. 
We are looking forward to that. I am going to put my statement 
in the record. Let me simply say this. Since we have a friend 
from over the ocean our great Nation, the United States, was 
founded on the principle and the Declaration of Independence 
that all men are created equal and that they are endowed with 
their creator with certain inalienable rights, and among these 
are life, liberty, and the pursuit of happiness, and from that 
we believe that every person makes a difference.
    It is very rare that we see one of those people before us 
that has made such a difference as you have, sir. Truly, the 
world is a different and better place, much better place, 
because of your--the story says your noodling when you were at 
CERN. My stepchildren, my children, and even my grandchildren 
now are old enough to use the Internet and do things and go 
places and get information that I could have only imagined when 
I was growing up. You are going to get to see one of these odd 
things called a congressional subcommittee hearing, and maybe 
you can think about that and noodle a little bit and tell us 
how to improve this very archaic, imprecise, inefficient 
mechanism of democracy.
    But we do salute you. You truly have made a difference. It 
is an honor to be in the same room with you, and I look forward 
to hearing your thoughts about the issue before us today. And 
with that, I yield back.
    [The prepared statement of Mr. Barton follows:]

  Prepared Statement of Hon. Joe Barton, a Representative in Congress 
                        from the State of Texas

     We have a tremendous opportunity today. With the World 
Wide Web, Tim Berners-Lee created perhaps one of the most 
useful and accessible applications on the Internet. The 
platform he designed has already enabled many other pioneers to 
create countless other innovations. I am excited to discuss 
with him what he believes is on the horizon. My hope is that we 
use our time wisely. Let us take advantage of this chance to 
hear what specific insights Mr. Berners-Lee has on how the Web 
can address specific needs and problems in our society.
     In particular, I'd like to hear Mr. Berners-Lee's thoughts 
on how the Web can help address some of the issues we confront 
in this Committee. For example, how can it help reduce health 
care costs? How can it help public safety officials communicate 
with us and each other in times of disaster? As an engineer by 
training, I'm also interested in how the Web can be used to 
improve scientific research.
     Lastly, I'd like to hear how he would tackle some of the 
problems that are popping up on the Web. How can we better 
protect our privacy on-line? How can we better protect our kids 
from content, and people, we don't think they should be exposed 
to?
     We have come to hear Mr. Berners-Lee's insights, so I will 
end my statement there. I yield back my time.
                              ----------                              

    Mr. Markey. I thank the gentleman. The gentleman from 
Pennsylvania, the vice chairman of the Telecommunications 
Subcommittee.
    Mr. Dingell.  Mr. Chairman.
    Mr. Markey. I didn't see you. I am sorry, Mr. Dingell.
    Mr. Dingell. Don't be troubled. I just snuck in.
    Mr. Markey. Let me recognize the gentleman, the chairman of 
the full committee, the gentleman from Michigan, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell.  Mr. Chairman, first of all, thank you for 
holding this hearing. I commend you. This is an important 
matter. And I want to thank the members of the committee for 
their interest in this matter. I thank you for bringing before 
us Sir Timothy Berners-Lee, who is the man who invented the 
World Wide Web, and who has made what most people call the 
Internet not only pervasive but also as important as it is 
today. I have seen my share of disruptive technologies over the 
years. Indeed, I am someone who vividly recalls the days when 
you could deliver a message with the digits of your hand. 
Nowadays our thumbs have to type the tiniest keys on the 
BlackBerry or some similar device.
    Of these disruptive technologies the power of the World 
Wide Web to revolutionize our society is like no other. America 
is the birthplace of the Internet, and there is serious concern 
that our ranking in the global information economy is less than 
it should be. Consumers in other countries enjoy broadband 
connections that are faster, cheaper, and offered by more 
providers. Our committee intends to do its part in a national 
broadband strategy deserving of this great Nation. And again I 
want to commend you for your leadership in this matter, and I 
want you to know that your labors on this matter and this 
subcommittee will be very, very important indeed.
    We will begin by hearing Sir Berners-Lee's evaluation of 
where the Web stands today and where it will be headed in the 
future. I am particularly interested in the answers to these 
questions. First, what are the key lessons to be learned from 
the popularity and growth of the World Wide Web? What 
principles can be gleaned from your experience? Second, how do 
you see the Web of the future evolving? What steps must be 
taken to ensure that the Web continues to meet the desires and 
needs of future generations? I understand that the World Wide 
Web Consortium is developing what is called the Semantic Web or 
the next generation of data integration on the Web. And you 
have mobile Web initiative to make access for mobile devices as 
simple, easy, and convenient as it is from desktop computers 
around the world that we are now compelled to stir up, I think, 
unfortunately for hours on end.
    Third, we addressed the question of how we ensure that the 
digital future of the Internet is a robust one enjoyed by all 
people. I support the consortium schools, the true World Wide 
Web whose benefits are available to all people regardless of 
language, culture, location, network infrastructure, physical 
or mental ability. Providing all Americans access to the best 
telecommunications network and services has been a driving 
principle of the telecommunications policy since enactment of 
the Telecommunications Act in 1934. It will remain so, and I 
know that you, Mr. Chairman, this committee and this 
subcommittee, will be working very hard on that matter to see 
to it that those thoughts are realized.
    Once again, I thank you, Mr. Chairman, for having this 
hearing. We are honored to have this distinguished witness 
before us today, and I look forward to his testimony. And I 
thank you again.
    Mr. Markey. I thank the gentleman. The gentleman from 
Oregon, Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman. I am going to waive an 
opening statement and just extend greetings to our witness and 
look forward to questions.
    Mr. Markey. The gentleman from Pennsylvania, Mr. Doyle.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman. I also am pleased to 
have Sir Berners-Lee here today. The Internet and the Web in 
particular is the pet cause or scapegoat of practically 
everyone who comes before our subcommittee these days. I think 
it is a great idea to have our committee go to the father of 
the Web and hear what he has to say before we get too much 
deeper into these issues. I believe that the Internet has the 
potential to give everyone an equal platform to report about 
and opine on the goings on around them. An open and free 
Internet could be considered the first truly accessible tool to 
make the spirit of the first amendment come alive for everyone 
in the country, but without an Internet available to all that 
guarantees fast speeds to anyone's content that potential is 
just a promise.
    The reality of the Internet today for most Americans is not 
really comparable to its potential. The reality that the FCC 
considers 200 kilobits as broadband, a speed so inadequate that 
even video optimized for slower connections like that provided 
by YouTube requires 500 kilobits, 150 percent faster than 200 
kilobits to run in real time. The reality is that broadband 
isn't available even at those low speeds to tens of millions of 
Americans. The Web is a valuable, perhaps essential tool, for 
expanding and enriching public debate in our country. It has 
already greatly enhanced the Nation's discourse on public 
affairs. But until it is as pervasive as broadcast media and 
newspapers, and until new Web sites truly compete with those 
traditional media outlets and the Web sites they control the 
Web's existence should not be used to justify media 
consolidation, nor should it be held up as the gold standard of 
openness by the same people who want to restrict information 
and act as gatekeepers.
    I am interested in what Sir Berners-Lee has to say about 
these issues, but I would also appreciate hearing the view on 
the Internet and Web policy matters from 30,000 feet up, a 
broader view of what we might otherwise drill down to in the 
subcommittee. Mr. Chairman, I thank you for holding this 
hearing today, and I yield back the balance of my time.
    Mr. Markey. I thank the gentleman. The gentleman from 
Florida, Mr. Stearns.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Mr. Chairman, thank you very much. I am 
delighted to be here. When you read the Time magazine article 
about him and you realize not only was he a great discoverer of 
this new technology but he was almost altruistic in his desire 
because he wasn't a person that ran out and tried to make a lot 
of money, and he worked for a not-for-profit organization and 
was behind the scenes, and in many ways represents this 
philanthropic way that he wanted to help the world, and he did 
so indeed.
    According to a December 2006 survey by the Pew Internet in 
American Life Project, my colleagues, 70 percent of American 
adults use the Internet. That currently represents just under 
150 million people. Of those, 91 percent send or read e-mail, 
80 percent look for health or medical information, 71 percent 
use the Internet to buy a product, 67 percent went online to 
get news, and now almost 45 percent use it for online banking. 
When you look at the statistics back from the March, 2000 from 
the same organization, you see how far we have come.
    And I guess the question all of us want to ask him, what 
does he see for the future? What does he see for the future in 
health care? How could the Internet help us there? Education, 
scientific research, public safety, protection of children, 
there is probably a host of new areas that he could provide for 
us. Like in my State there is online health records. Take the 
Mayo Clinic in Jacksonville, Florida. Thanks to online health 
records my constituents in Florida can see any of the 310 
physicians and benefit from a Mayo wide electronic record. All 
providers all have access to the same comprehensive and current 
medical history, lab results, pharmacy records and radiology 
images.
    Errors and wasteful duplication are avoided and quality 
obviously is enhanced. Now this is just one example of how the 
future of the Internet will improve our lives, and so it is 
clear today that this individual can give us remarkable insight 
from his perspective for what we can do for health care, 
education, as I mentioned, and others. I want to thank you, Mr. 
Chairman, for holding this hearing. I think it is a delight for 
all of us to see this individual because we have heard so much 
about him, so I compliment you for bringing him to start this 
session in the 110th Congress, and welcome to our witness.
    Mr. Markey. I thank the gentleman very much. The gentlelady 
from California, Ms. Harman.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman. Congratulations on 
resuming the chairmanship. I am delighted to be a member of 
this subcommittee. Fifty years ago a computer filled an entire 
room, and processors performed at less than 1/1000ths of the 
speed they do today. Our witness, with a twinkle in his 
mother's eye or a very little boy, and the information 
technology society of the 21st century was not even the subject 
of scientists' wildest speculations. We have come an amazingly 
long way. But the information technology revolution is not 
over. Fifty years from now our world and our society will 
likely look radically different.
    We have been bad predictors of technological change. In 
1899, Charles Doole, the Commissioner of the U.S. Patent 
Office, reportedly said everything that can be invented has 
been invented. How wrong he was, and I have no doubt that today 
in a classroom somewhere in America a young, female IT genius 
is discovering the secrets of the computer that will lead to 
inconceivable inventions. Our challenge as policymakers is to 
try to assure that the innovation that now defines the American 
economy is available to as many people as possible world wide, 
something that many of the speakers earlier this morning have 
addressed, but also that it improves lives and helps us solve 
the world's most intractable problems.
    One big problem yet to be solved is the need for public 
safety and intelligence agencies to benefit from the 
information technology advances we enjoy as private citizens. 
The 9/11 Commission reported that before the World Trade Center 
and Pentagon attacks, the FBI's outdated and outmoded computer 
system prevented agents from finding and communicating 
information about the hijackers. Today, first responders do not 
have voice and data communication systems to coordinate 
emergency responses. These are grave technological liabilities 
unfitting of our information culture and something that this 
subcommittee must help resolve.
    But there is also a flip side to this. Not only do we need 
to get information to those who would keep us safe, but we also 
need to think about how to prevent information from getting to 
people who are radicalized by it and who learn to make bombs 
and become terrorists from surfing the Web. So it is a very, 
very tough problem, one this committee will have to think about 
and no witness so far as I know is more imaginative and more 
qualified to give us a basis for proceeding than the witness 
before us today. So I look forward to the testimony. And, 
again, Mr. Chairman, I am very proud to serve under your 
leadership. I yield back.
    Mr. Markey. I thank the gentlelady very much. It was 20 
years ago this month that I became chairman of the subcommittee 
for the first time so it is ancient history. The gentlelady 
from California, Mrs. Bono.
    Mrs. Bono. Thank you, Mr. Chairman. I'm happy to be here 
also. I will waive on my opening statement and just welcome our 
panelist. Thank you.
    Mr. Markey. The gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I would ask that my 
full statement be placed in the record.
    Mr. Markey. Without objection. The gentleman from Texas.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. I would like to welcome Sir Berners-Lee because 
of the success--I come from an area in Houston, and it is an 
underserved area and so my interest has always been more 
expansion of the World Wide Web including the eRate program and 
limiting the risk of problems on the Internet like spam, 
identity theft and fraud. But I have to admit most of my 
staffers in my office cannot imagine 10 or 15 years ago doing 
what we do today without the Internet and the research 
capabilities that we have, congressional research service that 
instead of going to the library and pick up a book now it is 
all right at the desk, and it is amazing.
    Like my colleague from California, I know somebody much 
younger than you and I are probably developing something, and 
we will be surprised 10, 15, or 20 years from now. So welcome, 
and I am glad you are here.
    Mr. Markey. The gentleman from Indiana, Mr. Hill.

 OPENING STATEMENT OF HON. BARON P. HILL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF INDIANA

    Mr. Hill. Thank you, Mr. Chairman. I feel like I am back in 
high school again in my German class for the first day. I am a 
new member of the committee and anxious to learn all the 
intricacies of telecommunications, in particular the World Wide 
Web. And, Mr. Chairman, I would echo all the remarks that have 
already been afforded to you. It is a privilege and a pleasure 
for me to be on this committee and you, as the subcommittee 
chairman. Mr. Chairman, I appreciate you scheduling this 
hearing. And, Sir Berners-Lee, I appreciate you taking the time 
to appear before us today.
    Technology has changed all of our lives. In some ways it 
has made it easier to stay in touch through cell phones, 
wireless calendars and e-mail. In other ways, technology has 
made life more difficult through cell phones, wireless 
calendars, and e-mail. And, Sir Berners-Lee, you are to blame 
for all of it. Conducting research, being able to test drive 
music, and most importantly stay in touch with loved ones are 
all examples of how our lives have improved through technology. 
However, one of the most important aspects of technology is not 
what is available but who has access to the latest innovations. 
The only way the World Wide Web and all of the innovations that 
have stemmed from its invention has been able to succeed is 
through consumer access and use.
    It is important to remember that we have to concentrate on 
serving all consumers including those in rural America, and I 
live in rural America in southern Indiana with all these 
wonderful services. Thank you, Mr. Chairman, for holding this 
hearing, which I know is only the first in a comprehensive 
series of hearings that will fully investigate these issues. I 
yield back the remainder of my time.
    Mr. Markey. I thank the gentleman. I don't see any other 
Members at this time so any other statements will be included 
in the record at this time.
    [The prepared statement of Mr. Towns follows:]

Prepared Statement of Hon. Edolphus Towns, a Representative in Congress 
                       from the State of New York

    Thank you, Mr. Chairman. I am very pleased that the 
subcommittee is holding this hearing. It is always interesting 
to try to understand how science fiction becomes reality. I 
would also like to thank you for inviting Sir Berners-Lee. I am 
heartened that he has chosen to help us all reap the benefits 
of what he creates, and I am interested to see if he can 
illuminate some of the pitfalls we can avoid.
    I applaud the goals of his new effort, the World Wide Web 
Consortium. Their ideas for standards, guidelines, development, 
and education will be invaluable as we move on to new and 
better technologies and continue to see the Web grow. In 
addition, I hope his dedication inspires more of our children 
to go into academia.
    Finally, I hope he can show us how we can make sure all our 
constituents benefit as we move into the digital future. They 
want to know that they can still keep some of their information 
private, that they can protect their children, that the Web 
will be available to everyone, and that their lives will be 
easier and more productive than ever. We still have a long way 
to go here in the United States and I am grateful that Sir 
Berners-Lee has come to help us.
    Thank you and I yield back the balance of my time.
                              ----------                              

    Mr. Markey. We will turn to our witness, Sir Timothy 
Berners-Lee, who coined the term World Wide Web, wrote the 
first World Wide Web server, authored the first version of the 
hypertext markup language which evolved into the primary 
publishing format for the Web. In 1994, Sir Tim founded the 
World Wide Web Consortium, and in 2004 he was made a Knight 
Commander of the Order of the British Empire by Queen Elizabeth 
II, but in fact he has been a Knight for the world in providing 
this incredible ability to communicate. It is an honor to have 
you with us today. Please when you feel comfortable begin your 
testimony.

 STATEMENT OF SIR TIMOTHY BERNERS-LEE, MASSACHUSETTS INSTITUTE 
                         OF TECHNOLOGY

    Mr. Berners-Lee. Chairman Markey, Ranking Member Upton, 
members of the committee, the honor is truly mine to be here. I 
am very honored to be invited, and I will do what I can to 
answer some of these questions at least to set the ground work 
to put before us what the things are I feel most important 
about the Web on which we should base its future. So I am here 
as an engineer. Engineers define the protocols by which 
computers talk to each other. You are legislators. Legislators 
can define laws, protocols, constraints on the way human beings 
communicate.
    The Web is not just an engineering construction. The Web is 
really a web of people. When something happens on the Web like 
something new takes off what happens is a very intricate 
connection between the little piece of new technology like blog 
software and a whole social phenomenon of interacting people. 
So really the Web as a whole is humanity connected as connected 
by the Internet, and so it is very important that the 
constraints imposed by the technology and the constraints 
imposed by the legislation work together harmoniously to 
provide the very best we can possibly do. So it is in that 
spirit that I come here.
    I must say that although I have various hats, I wear none 
of them. I do not speak for the World Wide Web Consortium or 
any of its members or for MIT. Anything I express here is 
purely my own personal viewpoint. I would also like to point 
out that although I did invent the Web, I had the benefit of 
doing that and building on the benefit of the Internet, which 
had been invented some 20 years earlier, and in fact the e-
mail, when you get e-mail on your BlackBerry, you have other 
people to blame for that.
    So what I will attempt to do then is explain what I think 
is most important, explain, if you like, what is essential 
about the Web which makes it work which gives it the properties 
which allow all these exciting things to happen, and which 
therefore are those things which we should take away and make 
sure that we preserve as we develop the Web. So then I will go 
into a few specific directions in which I hope that the Web 
will progress. I don't as a rule try to predict the future. I 
do, however, express my hopes about the things which I think 
will happen. It is amazing how all the creative people out 
there will then take hopes and turn them into reality.
    I will conclude by going back to some of the basic 
principles upon which we must depend as we go on and create new 
things like the Web and new things built on top of the Web. So 
what is essential about the Web? I built the Web personally out 
of frustration. It wasn't my job to build the Web. I had 
another job to do but I needed the Web. I was working in a very 
large European physics lab, CERN. There were a lot of systems 
which contained information, documentation systems. They were 
all different. You had to go to different computers. You had to 
use different software programs to get different pieces of 
information. Often you had to talk to different experts. The 
whole thing was very frustrating.
    Wouldn't it have been nice if all those pieces of 
information were in the same system? Now I had seen a lot of 
people decide that and build the big system to end all systems, 
and all these attempts, certainly the ones I watched at CERN, 
were failures. They failed to include everybody and they failed 
to include everybody because they insisted on something. They 
insisted sometimes that you would use a particular computer. 
Sometimes you would use a particular software by a particular 
company or you would store your documents in a particular 
format. You would use a Mac or a PC other than a Mac to prepare 
your data. Everything you did had to be done in English when in 
fact people at the lab came from all over the world and spoke 
all kinds of different languages.
    So it was clear to me, first of all, that in fact we could 
keep all these systems working but surely we could invent some 
imaginary system. The Web, if you like, is an imaginary 
program. We were imagining that all these things are in one 
program but in fact we are keeping them in all different ones. 
If you like, the Web is a white sheet that we are holding up 
and all these different systems are projected onto it.
    What was clear was the sheet had to be perfectly white, not 
have any particular structure. The Web itself could not insist 
that people organize their data in a particular fashion in a 
tree or in a table, it couldn't insist they use particular 
technology. It had to work with people using any sort of 
computer systems. So the most important principle of the Web is 
this universality, the universality of dependence of hardware 
and software and dependence of what culture somebody comes from 
as well as what language they speak. One of the nice things 
that has come out of the Web is one of the technologies really 
where people with disabilities have more power than any other 
technology because information can be presented in lots of 
different ways depending on the abilities of the person who is 
perceiving it.
    So there is excitement there about that dimension of 
universality so it is a universal space. The important thing is 
that anything should be able to link to anything. Compared to a 
lot of transportation systems, mail systems, telephone systems 
where you can telephone across the world all these things make 
the world a smaller place, but the hypertext link, the thing 
that you click on that takes you from one document to another, 
has this very interesting property. Every document, every piece 
of information has what we call URI, the thing that starts http 
normally. That http, whatever it is, may be long and 
complicated and horrible looking but it identifies globally 
without any other context precisely a piece of information.
    And when I am creating a hypertext document, for example, 
if I am writing a Web blog, I can make a link. When I put that 
link and I put a URI, and it can be a link to anywhere that you 
or I can be to anything. So that allows me to point out a 
relationship between two things where no previous relationship 
had been anticipated. That is a really important thing to 
happen when resolving problems, to spot those relationships and 
to be able to represent things, those relationships. Anything 
can connect to anything. Anybody can publish a Web page. It is 
very, very cheap to do so. When they do so, they obviously are 
bound by the laws of the jurisdiction in which they live but 
they should not be bound by the technology. The technology 
should not force them to write in a particular style, to write 
with a particular policy in a particular language, and so on. 
So the World Wide Web is universal. It is an enabler. It is not 
there to constrain.
    So that is the most important part of it is universality. 
In practice the reason that it has actually taken off, the 
reason that so many things have been developed on top of it the 
whole part of that is the fact that the standards, the open 
standards on which it is based, the standards which dictate how 
computers talk to each other when you click on a link and your 
computer goes off to get a piece of information from a Web 
server somewhere, those standards which the person who wrote 
those parameters to determine how the computers talked to each 
other are royalty free. That has been very important. It was a 
given and is relevant to the Internet.
    The people who came before me and developed things like the 
file transfer protocol and the e-mail protocols never dreamt of 
trying to patent them and charge fees for them. When the Web 
came and this explosion occurred and at the same time change in 
acceptable use allowed commercial use of the net. We have seen 
from the amount of spam that you probably get in your own 
mailboxes there are huge commercial incentives out there. When 
there are those huge commercial incentives there is a lot of 
money around there is a temptation for people to say let us see 
if we can get some money out of the infrastructure. Now the Web 
took off in all its glory with all the diversity of things out 
there which have happened because there was a royalty free 
infrastructure. There was another system called the Gopher from 
Minnesota, that came from the University of Minnesota. The 
rumor went around that it might not be, might not be royalty 
free in the long run. The people that were developing it in 
their garage dropped the whole system like a hot potato because 
they didn't want to work for the University of Minnesota for 
free on the weekends.
    People working for large companies were told by their 
lawyers not to read a single part of the code or the specs, 
don't go near it. At that point people came to me and said what 
is the story with the Web so I managed to get a declaration by 
CERN that CERN would not ask for royalties for the technology, 
and all the companies and individuals that come together on the 
World Wide Web Consortium through the World Wide Consortium's 
patent policy agree, progressively agree, to put their cards on 
the table and to agree that when we have produced the standard 
nobody will be charging royalties for it. That is very 
important basis, something that is important because the World 
Wide Web is not important for itself. It is important for what 
is built on top of it.
    That brings me to another important principle. That is the 
separation of the layers. When I designed the World Wide Web, I 
wrote two programs. I wrote a program to be the browser and a 
program to be the server, and I distributed them over the 
Internet. Now these programs wherever somebody installed them 
would just talk to each other across the Internet. The Internet 
itself is a communication medium which allows two programs to 
talk to each other. It doesn't require anything of what those 
programs are about or trying to do. It is as universal itself 
as possible so the provision of the Internet service is 
sometimes represented as an hourglass. Above the neck of the 
hourglass are all the things which use the facility of 
communication which is provided by the Internet, and one of 
those is the World Wide Web, another is e-mail, and underneath 
are all kinds of ways in which technology is supporting the 
transfer of information, and these connect to the very simple 
interface, just a stream of 1s and zeros, which that is the 
service that is provided.
    So I have had the luxury of developing the World Wide Web 
really without having to worry very much about how those are 
sent, and during the time that this has happened I have gone 
from using a 300 board connection on one of those telephone 
couplers to a 3 million board connection, so that is a 10,000 
factor. So the technology underneath this has tremendously 
increased in terms of speed and functionality, and the Web 
technology had happened on top. So the Web technology is also 
designed just to be a foundation. Foundation technology is 
something which tries to be very clean, very general purpose. 
It tries to get out of the way and allow other people because 
what is the most important thing about the future of the Web, 
what is the most important application that is going to be 
developed on the Web. It is something which has been developed 
by somebody, yes, quite likely some woman who is dreaming about 
something or frustrated with something, somebody somewhere, and 
they will develop this thing as a set of Web sites, as a new 
protocol, and they will develop it using the Web 
infrastructure, and they won't have to come to me to ask me 
whether we can solve the World Wide Web construction mode to 
change the Web architecture. They will just be able to use it, 
and we will use the Internet architecture, and all these things 
will evolve independently.
    So the separation of layers really has been a key to the 
growth. This growth would not have happened if one laboratory 
had been responsible for developing the whole thing top to 
bottom. Okay. So the future, which directions are we going? And 
there are lots, and I can only mention a few. One of them is 
date integration. The documents on a typical computer, you can 
think of some of them as data and some of them as documents. 
The documents, the messages you can put on the Web and people 
can read. The data, the spreadsheets, the calendars, and so on, 
you can see perhaps documents representing them on the Web but 
you can't get at the data in such a way that you can put it 
into a spreadsheet. You can pull out all the information about 
the weather, about health care information, and combine it 
together and manipulate it. So there is a serious, if you like, 
whole half of the Web, of the goal of the Web, was this data.
    We succeeded with the documents. We want to do it with 
data, and some of the goals that we have include, for example, 
all the applications on my desktop I should be able to connect 
things together. I should be able to take my photographs and 
drop them onto my calendar and see where in time they happened 
and do the same thing with my bank statements. Very 
importantly, in the enterprise all the applications and the 
enterprise tend to be stove piped at the moment and it is a 
great impediment to the management of an enterprise that you 
don't have a degradation between these different applications. 
But more globally applications like disaster management I think 
would very much be enabled by this web of data, the thing that 
we call the Semantic Web, which will allow what data is 
available as it becomes available no matter what sudden 
disaster occurs, no matter what new eventuality, what new 
disease arrives, what new earthquake or tsunami occurs, what 
data we have should be available so that it can be re-used, so 
it can be linked together. A lot of people see the Semantic Web 
as being a great boon for health care. They see it being a 
great boon for drug discovery. The drug discovery business is 
very much driven by huge amounts of very complex data, and we 
have of course very dire needs to find out things like drugs 
for cancer, drugs for AIDS. There is a huge amount of 
information. Some of it is genomics, some of it is proteomics, 
some of it is clinical trials. All these at the moment are 
stove pipes. To be functional as a human race and solving these 
problems, we need the Semantic Web technology to allow all 
these things to be connected together.
    So data integration is one area in which we expect the Web 
to explode. Another area which is exploding is the diversity of 
devices. You have noticed all these little things. Actually you 
might find that it is quite difficult to access the Web on 
these little devices, but we have the mobile initiative and 
consortium, which is trying to make that much easier to try to 
show there are ways of getting the same information in a way 
that could be accessed with a huge screen or with a small 
device. Also, one of the hopes there is that as these small 
devices come in very much cheaper forms, these might be forms 
that you have, they are coming out very much cheaper, cell 
phones with screens that can be used for browsing the Web so 
the hope is that this will increase the penetration of Web 
access for things like health care, for example, in poorer 
areas and also in the developing world.
    As the development of devices continues I am absolutely 
certain that everything hasn't been invented. Everything that 
could be invented has not been invented. We can imagine very 
soon--have you noticed how things are being covered with 
pixels, covered with displays. It hasn't happened to this room 
yet but if you go to Times Square everything is covered with 
digital displays you can place up on the sign. Things will be 
covered to a very long extent with this place, if I don't have 
a large display on this phone, if my phone can communicate with 
a display that I am next to as I walk into my hotel room then I 
will be able to continue doing what I was doing on the phone 
except with this very large display. That is what we are 
calling ubiquitous where it points to a time where really what 
we are doing, our address book is a virtual thing, something 
which is out there on the Web, and we use different devices to 
see it but it isn't something which we think is connected with 
a physical device anymore. Just as the information is now in 
this space then the Web will be a space which contains the 
things which we now associate with physical devices. Does that 
indicate that I should stop?
    Mr. Markey. Not at all. We go by bells, a system of bells 
here, in the Congress and those bells which are ringing right 
now are telling us that there is a roll call on the House floor 
that we will have to be there in 15 minutes, but you can 
continue to proceed. When it rings the second time, it means 
that there is more than one roll call on the floor which we 
will have to recess at some point.
    Mr. Berners-Lee. As it happens, I have reached my 
conclusion. One of the amazing things about the Web is that 
things happen which we didn't predict. When somebody creates a 
new phenomenon like a blog, like Wikipedia, they don't know 
absolutely that it will take off and become a world wide 
phenomenon. Many, many things don't, of course, and we don't 
hear about them. Many Web sites start, fizzle out, and just 
don't become popular. Some do. So when people design things, 
they design something in a small, those things which are 
successful have this large effect. They produce a large 
hopefully beneficial effect. How are we going to produce new 
Web technology and make sure these are beneficial? There are 
two ways. One is I think we actually have to be aware of this 
difference between the microscopic rules that govern people and 
govern computers, this relationship between the microscopic and 
the macroscopic phenomenon, so we are calling it Web science. 
This awareness of the fact that the Web is now a huge thing. 
There are more Web pages than people. The world is a large 
place. It contains many people. The brain is a complicated 
thing. It contains many neurons. We study those as complex 
things, and they are complex things. They do things which you 
couldn't imagine by looking at the individual elements of them.
    The Web does things which you can't imagine by just looking 
at the individual elements unless you study it as a Web 
science. So we are calling that Web science--one of the things 
that we do then is we try to get people together across 
disciplines because this is not just computers. It is people. 
They are governed by laws. They are governed by psychology and 
incentives. They are governed by economics. There are a lot of 
different ways and different fields which need to look at this, 
as well as computer science and network engineering. So that we 
call Web science. We are not done. We are just starting. We 
really, I think, will not see a slowing down now that we have 
succeeded on the Web. We will see a speeding up. I am afraid it 
is going to continue. It is not going to get any easier to keep 
up.
    What is the second way that we make sure that we do things 
right? Well, we use these core values, I guess just as you do 
creating laws. You base them on core values. You have a rule of 
thumb that if we stick to certain core values on a microscopic 
scale good things will happen on a macroscopic scale. If we 
stick to the Golden Rule everybody should be happy. So what we 
have seen some of these principles for the Web are those of 
universality, keeping the Web universal independent of 
hardware, independent of software, independent of who happens 
to be your Internet service provider at the moment, the present 
instance in time, independent of language, independent of 
culture, independent of disabilities, so the universality is a 
very important thing.
    We have seen the layering, keeping--the development of the 
Internet is a transport of bits, 1s and 0s, independent of 
things which are built like the Web, like e-mail, like now some 
things like Second Life all built on top of the Internet and 
making sure that the Web in turn itself is the blank sheet, the 
blank canvas, something which does not constrain the innovation 
which is just around the corner which somebody is itching to do 
somewhere. And I suppose most importantly we realize that this 
thing does not belong to anybody now. It was based on some 
ideas that I had. I threw them out and they were taken up by 
hundreds, thousands and millions of people.
    It started in the United States. The Internet was started 
mainly with funding but it spread and it is all over the world. 
The Internet and the Web, these two layers are now fundamental 
infrastructure for the global society. It is very important as 
we develop them we make sure that they don't become controlled 
by any one company or for that matter for any one country. 
Chairman Markey, Ranking Member Upton, members of the 
committee, that is the most important thing I suppose I have to 
say. I am very anxious to hear any questions you might have and 
to help you in any way in understanding and helping manage 
working together to manage this in the future. I am very 
grateful for the honor bestowed on me by being invited.
    [The prepared statement of Mr. Berners-Lee appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you. Let me announce to the Members that 
after the 15-minute vote followed by a 5-minute vote, we are 
going to come back and continue the hearing for as long as 
Members do have questions of this great man. Let me recognize 
the gentleman from Michigan right now for any questions you 
might have. We can stay here for another 5 minutes or so. So, 
Fred, if you would like to ask some questions.
    Mr. Upton. Thank you. I enjoyed the testimony, and we all 
have our personal experiences of how this has impacted us and 
for the most part it has been very, very positive. As we look 
back at history for me, for example, I visit a grade school or 
a school virtually every week and I can remember 10, 12 years 
ago I would ask how many people used the Internet and even 
among a second or third grade class and just a few kids maybe. 
Now of course every hand is up. And I often follow up with 
another question how many of you have seen something that is 
probably inappropriate, particularly for these youngsters, and 
again every hand including mine goes up as well.
    And I guess the question that I have, we have a little bit 
of a double-edged sword. There is dangers and there is great 
advantages in many, many ways, families being able to 
communicate with their sons and daughters serving overseas, all 
different things. I have the world's largest appliance 
manufacturer headquartered in my district, Whirlpool, and when 
I go through their lab and I see their new devices in terms of 
tracking food that is in there, recipes, turning on ovens, and 
then all these different things that are quite revolutionary 
from where we were 5 or 6 years ago, but what are some of the 
things that we should be looking at as we look at the future in 
terms of privacy, in terms of things that you might want 
someone not to be able to connect to in terms of pornography or 
other issues? How do we handle some of those issues as we look 
to the future?
    Mr. Berners-Lee. Well, this is obviously a huge topic, and 
we could talk for hours about it, but I suppose fundamentally 
the thing to remember is that every powerful tool can be used 
for good or evil and it can be used by people who are doing 
good things and people who are doing bad things. And to first 
order the job of the Web is to be that wide slate, and of 
course everybody who does illegal things, fraudulent things, 
for example, on the Internet is sitting there in a chair in 
some jurisdiction where they are subject to laws and they are 
breaking those laws, and those laws apply whether things happen 
over the Internet or not.
    There are things like child pornography which are illegal, 
always have been illegal and will continue to be illegal.
    Mr. Upton. And the trouble is that even though we have some 
pretty tough laws here in this country and the UK and other 
places often these relocate some place else where you don't 
have that--they are international and we don't have the same 
type of law enforcement or standards, whatever you want to call 
it, where they are able to skirt those laws.
    Mr. Berners-Lee. Indeed, of course I hope that the 
committee will always be aware of the fact that there are other 
committees in other parts of the world and in fact the 
countries working together in general to solve things such as 
spam, for example, is very important. So the Web Consortium is 
an international group of people. The Internet task force is an 
international group of people. And there is a lot of discussion 
between governments about this but clearly when you have a 
difference between jurisdictions there are issues.
    There are some important things which technology can help 
with. I suppose one of the general rules is technology should 
help make it easy to do the right thing so, for example, when 
looking at copyright legislation, if you find a picture out 
there on the Web and you want to do the right thing, you would 
like to use it in a report but you are not sure whether you 
can, one of the important things that is happening now is data 
about whether what the licensing terms are on that picture is 
more and more being put into the picture itself or put into the 
surrounding documents, automatic tools. Systems like the 
creative licenses allowing people to do the right thing so 
before trying to create systems which prevent people from doing 
bad things, which often is very, very difficult, putting 
systems up there which allow people to do the right thing in 
large part is very important.
    An awareness of privacy, of course, is very important. 
There is a huge amount of information out there on the global 
Internet. What a lot of people didn't realize early on was 
behind firewalls it is very properly guarded. And, in fact, a 
lot of the most important data, the most valuable data for 
companies or for Government agencies is the stuff which is kept 
most secret. Some of the things which I hope to see in the 
future include systems which are aware of the policies which 
relate to the data and the information so that as the data is 
moved around it can be--the machines can be aware of who is 
supposed to be looking at getting it and also perhaps who is 
supposed to be using it for what purpose. So as you track it, 
for example, through a Government agency the system will be 
able to keep track of which data came from where.
    Mr. Markey. Thank you, Sir Tim. We are now going to take a 
break for about I would say 20 minutes when the Members will be 
reassembling here. But we will start again in approximately 20 
minutes so the committee will take a brief recess.
    [Recess.]
    Mr. Markey. The committee will reconvene. I would ask Mr. 
Berners-Lee if he could come back to the witness table and 
welcome to a typical day in the United States Congress. People 
say what is a typical day and of course it is a day where you 
cannot predict anything which is going to occur, not unlike the 
chaotic nature of the World Wide Web itself. Let me turn and 
recognize the gentlelady from California, Mrs. Bono.
    Mrs. Bono. Thank you, Mr. Chairman. And again I thank the 
witness for being here and your testimony was great to hear. I 
wish you would have had about 20 minutes longer to continue on. 
As my colleague Fred Upton was asking, I think you closed with 
basically what was a definition in my mind of DRM. My big 
question is of course property rights, intellectual property, 
on the Internet and how we protect it. You even cite in your 
testimony Steve Jobs talking about DRM and the need to do away 
with DRM, how it is a closed platform. We have seen podcasts 
increase but the sale of music decrease. I was wondering if you 
could elaborate a little bit further on this because in my 
mind, I salute you and all you have done and the exchange of 
ideas, but when somebody has a copyrighted piece of work 
whether it is a song or a movie that translation into the Web 
and the future to me is uncharted territory. Could you 
elaborate a little bit further on where you see the world going 
and how creators of content will be compensated in a world free 
of DRM?
    Mr. Berners-Lee. Well, first of all, what I said then was 
allowing people to do the right thing is important. You can 
allow people to do the right thing without DRM. You can write 
down what the copyright situation is. You can make software 
which will track whether or not you own this. And it won't stop 
you but it will let you know that if you are playing music 
which you shouldn't listen to or because you backed up somebody 
else's machine and so you got access to it it will make it 
clear--it will turn pink. If we promote technologies for the 
method data for information about information, putting on the 
licensing information, putting on the information about who has 
got rights to it. If you go back to that Steve Jobs article he 
points out a lot of issues with DRM, and I think some people 
haven't thought about the problem of what happens when 20 years 
on they are using totally different technologies, but I want to 
go back and see my old LPs and some of my old LPs are vinyl, 
and I can buy myself some sort of laser vinyl record player. 
Some of them are CDs, which are completely, of course, DRM 
free. So if you want to know what Steve points out the DRM free 
world is a world of vinyl LPs or CDs.
    Mrs. Bono. But is that not the equivalent of having a speed 
limit but no enforcement of the speed limit? You could put 
speed warning signs for the people and it is the same thing 
with DRM. You can always tell people the right thing to do is 
to not download this for free but without the enforcement 
mechanism they still will.
    Mr. Berners-Lee. What is the enforcement for a speed limit? 
The speed limit enforcement mechanism is not that the car 
grinds to a halt, right? It is not that you put your foot down 
and suddenly your car refuses to move.
    Mrs. Bono. It might be a great thing actually for my 
teenager right now.
    Mr. Berners-Lee. No. The enforcement for speeding is 
probably--everybody knows that they are supposed to do. Under 
some circumstances people will push the bounds. Other times 
people will stay even further within the bounds.
     But occasionally the cost of getting caught is 
sufficiently great in the long term because the software leads 
you to do the right thing and so it is not natural to do the 
wrong thing because really the only thing which is going to 
seriously affect the economy of people producing music is when 
things happen on a large scale, and when things happen on a 
large scale they are easy to be caught. Then it might be the 
disincentive of punishment is sufficient. That sort of thing I 
must say I am inclined to try to make software that allows you 
to do the right thing first. I don't know, we haven't tried the 
experiment of having something which is like the situation with 
CDs and vinyl, which is DRM free, downloadable music. We don't 
know how the public has reacted. We haven't seen what the 
software looks like. We haven't seen what the user interface 
looks like. We haven't seen what the record company profits 
would look like, and so I think this is the sort of thing which 
needs a lot of--I don't have myself a firm opinion as to 
whether in fact we will be able to do it completely without 
some form of DRM or not but I think we should try to make a 
system which avoids, for example, encrypting things in ways 
that they won't be able to be read in a few years time.
    Mrs. Bono. I agree. That cross platform problem is a huge 
problem for all of us. You have an iPod and now you can only 
use iTunes and you can't move it over to your other devices is 
a problem for me too. But my biggest fear too is in this new 
business model what we are going to change is the content 
creator now has to become a commercial agent that in order to 
be paid for your song or your movie your song is now a ditty. 
It is promoting a commercial product. And movies as we are 
seeing anymore anyway are already doing that. So that is my 
concern in the new world is how do we prevent that from 
happening.
    And Steve, with great respect to Steve Jobs, he is trying 
to sell hardware first and foremost and not the content, and I 
wonder if he would feel the same way about his patents being on 
the Internet free of patent protection so that is my huge 
concern. And I really appreciate what you have done and your 
thoughts here and look forward to this beautiful future of the 
World Wide Web, and I know it is going to be a great place for 
content providers as well as hardware device makers in the 
world, so thank you very much for being here.
    Mr. Markey. The gentlelady's time has expired. The 
gentlelady from California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, again for having this 
hearing, and thank you for your magnificent testimony. I hope 
what I ask hasn't already been asked. One of the myths that the 
big telecom firms like to perpetuate is that the Internet has 
always been free from regulation and that net neutrality 
legislation would be unprecedented regulation of the Internet. 
It has really taken the whole issue of neutrality and kind of 
twisted it into a pretzel. It is very curious to me. Now no one 
knows better than you that from the inception of the Internet 
until very recently the Internet was protected under FCC non-
discrimination rules which require telecommunication carriers 
to take a hands-off approach to the Internet.
    So my question is would you describe for us how these rules 
impacted the evolution of the Web? I think that you more than 
touched on it in your opening statement and how an absence of 
non-discrimination rules going forward would impact the 
development of the Web. That is my first question. And my 
second question is that I am fascinated by your Semantic Web 
that you spoke about in your testimony, and all of the 
descriptions and where we need to arrive and what we don't have 
now and the blending of information. My question is how will an 
automated Semantic Web be able to distinguish between 
legitimate and fraudulent or inaccurate and accurate content 
and sources? So those are my two questions.
    Mr. Berners-Lee. Both good questions. The first one, I can 
only answer to a limited extent because I am not a legislator. 
I haven't studied all the various possible types of 
legislation, and so I can't talk about those in detail. I can 
say that I feel that non-discriminatory Internet provision is 
very important for society based on the World Wide Web. I think 
that is very important. I think that the communication medium 
is so important to society that we have to give it a special 
treatment. We have in lots of other ways.
    When I was growing up, I learned to understand that 
interfering with Her Majesty's mail was an extremely serious 
offense. Why? Because, well, the mails are what actually allows 
the country to function as a country, it allows the state to 
function as a state. And here there is protection of the fourth 
estate--there is the protection of the freedom of speech. 
Because we are only a society inasmuch as we are human beings 
communicating, communication has always been held with a 
special respect, and I think that is very important as the 
Internet starts to becoming a dominating medium. So if there 
were a choice, if there were a possibility that maybe a 
compromise of these principles would maybe deliver a world in 
which perhaps the markets, open markets, would still function 
and perhaps open democracy would still function but it wasn't 
absolutely clear, I would always be in favor of erring on the 
side of keeping the medium to be the blank sheet of allowing me 
to connect if I connect to the Internet to connect to whoever I 
want, so I think that is very, very important. That was the 
first question.
    The Semantic Web, it is a good question how would you 
decide what data on the Semantic Web to trust. How do you 
decide what information on the Web to trust as it is? The 
answer is in practice that you use other people as judges. When 
you read a blog, you read one person's blog because you got 
appointed from another person's blog. And every morning if you 
log on and you have a set of blogs that you read that is a set 
which you carefully nurture. You carefully nurture your 
bookmarks because they are things which you trust and which 
take you to places that you trust. The links provide this 
function.
    On the Semantic Web it is the same even though there is 
data published by many places. All Semantic Web agents out 
there, all the semantic programs that help people, all the 
Semantic Web programs which try to look for disasters and alarm 
situations will be taking data. Some of them will be taking 
data only from fixed places. They will only be monitoring the 
tsunami early warning indicators or they will only be looking 
at the NASDAQ. They will be hooked up to specific feeds. Others 
will roam around looking for data in general, then they will 
come to tentative conclusions, and then they will present those 
conclusions with as an appendix, by the way, this is where it 
came from. So we are doing a lot of research on that. And the 
lab at MIT is trying to make systems more sophisticated, trying 
to show how transparent can you make a system, to what extent 
can you make it policy aware. This, if you like, is an 
extension of the solution that generally we found for things 
like pornography on the Web. We found in general the solution 
to this sort of thing is to allow people to label things, to 
allow people to method data, information about information.
    You asked about something taking data from the Semantic 
Web. Well, somebody that has a child sitting at a terminal and 
wants to protect that child can install software which will 
filter the information coming to that child. There are all 
kinds of commercial systems that you have a choice of them, you 
have a choice of different white lists and black lists, so it 
is demonstrated that information about information is very 
powerful, allows us to provide where we need it a quality 
stream of information, information with known quality 
properties. And I think very parallel things will happen with 
the Semantic Web but probably more sophisticated.
    Ms. Eshoo. Thank you. Thank you, Mr. Chairman.
    Mr. Markey. Thank you. The gentlelady's time has expired.
    On net neutrality, the gentlelady has asked a question 
about net neutrality, and we very much appreciate your views on 
the subject. Just so that everyone on the committee can know 
before the end of the year we are going to hear from all sides 
on that issue so that everyone's perspective is heard and the 
committee before it deliberates will have had access to it. Let 
me now turn and recognize the gentleman from Florida, Mr. 
Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. In your opening 
statement, I was intrigued by some of the things you talked 
about the future and you mentioned that digital displays will 
be on the present, ubiquitous, I think is the word you used. 
And I think what you are saying when you looked around this 
room you said there will probably be some day----
    Mr. Berners-Lee. I didn't say anything about this room.
    Mr. Stearns. OK. I had the feeling that you would say that 
in a home or in a work environment you would have, are you 
talking about digitized high definition videos or are you 
talking--give me your idea in the future what these digital 
displays, you said they will cover large display areas and so 
maybe you might just expand on that future concept.
    Mr. Berners-Lee. I am sure the committee might have noticed 
as I said in Times Square, when you go to Times Square it is no 
longer covered in just neon signs. Neon signs are in a 
minority. It is covered with digital displays like that, 
different technologies, but these are getting cheaper, and so I 
am a little concerned that perhaps there should be a protection 
of neon signs for Times Square. But seriously there will be the 
ability to put displays so that all of the taxi cab instead of 
just the top becomes a moving digital display. So the question 
I would send back perhaps just supposing that when you walk 
into your office the walls are all capable of displaying 
information and the desktop is all capable of displaying 
information because it is not very expensive to do that.
    Mr. Stearns. The entire desk.
    Mr. Berners-Lee. Suppose the entire desk could turn into a 
virtual----
    Mr. Stearns. And you would just touch your desk and----
    Mr. Berners-Lee. Then what would you find most powerful? 
What would you really want to be able to do? How could you use 
that? How would the desk know what to display? How would the 
wall know what to display? Your phone happens to be in the 
middle, for example, of going through a rather tedious exercise 
of trying to book a return flight from Washington, DC, and the 
phone, for example, imagine that the phone, it connects with 
radio technology such as Blue Tooth to the desk and suppose it 
determines that it is your desk, determines that it can trust 
it with information and you are in a position that you can see 
it, and instead of having to communicate on that little screen 
it then will communicate by putting a map of the flight that it 
is proposing, some pictures of the restaurants where it is 
suggesting you are going to eat, and other related information 
about your travel in a much larger format on the desk, on the 
wall.
    To do that, for that to happen, the flight that you are 
booking has to break out of the phone device. It has to really 
be in the abstract medium just as things are on the Web. It has 
to be able to have--to the user it has to be able to have 
independent existence. Lots of problems have to be solved in 
between because you don't want the phone to put details of your 
private condo up on the subway.
    Mr. Stearns. So the machine would have to think in this 
case and determine whether I have access or not.
    Mr. Berners-Lee. Well, it turns out, yes, the machine has 
to be aware of policies for information, what information could 
be used.
    Mr. Stearns. Now you sort of indicated that these devices 
like this, there is a diversity of devices coming too.
    Mr. Berners-Lee. Pretty much, yes.
    Mr. Stearns. And what in your mind is diverse? I mean like 
in this Treo I can get the Web, I can get my mail, I can get 
telephone calls, I can get games, I can do all kinds of things. 
Diversity of devices beyond this, is there something that you 
imagine beyond this in terms of diverse devices?
    Mr. Berners-Lee. Well, there are devices which, for 
example, which are all screen and any interaction is gestural 
and the future may be with cameras you will be able to simply 
gesture without even touching.
    Mr. Stearns. OK. So either voice activated or gesture or 
your facial contact.
    Mr. Berners-Lee. Maybe there will be wrist watch size 
screens, maybe there will be--I like to have a 17-inch screen 
in my backpack because I like to be able to really read stuff 
when I sit down to read. People have different personal tastes 
for what they want to carry around and how they want to use it. 
You can see tablets of various sizes coming out so I think 
there will be large diversity of devices of this sort of genre, 
and also there will be new genres of devices that we haven't 
thought of yet. Perhaps something you wear on your tie which 
will project onto the person's seat in front of you in the 
plane whether or not their aircraft was provided with a screen, 
just hang up your handkerchief and project onto it from your 
tie. I am just speculating.
    Mr. Stearns. One thing you also mentioned the manipulation 
of data in the future to take data from a software program and 
throw it into an Excel sheet and things like that. I mean under 
the Macintosh G4 you can take any photographs and put them on 
greeting cards, you can put them on calendars, you can do all 
kind of things. Is that the type of thing you were talking 
about in terms of manipulation from software to software? Is 
that what you meant? I wasn't clear on that.
    Mr. Berners-Lee. The Semantic Web is about----
    Mr. Stearns. How do you spell semantic?
    Mr. Berners-Lee. S-e-m-a-n-t-i-c. I am sorry about the name 
for it. It is not a very well-chosen word. I think World Wide 
Web seemed to work but Semantic Web really hasn't, but that is 
what we are calling it.
    Mr. Stearns. OK.
    Mr. Berners-Lee. It is about being able to connect through 
from one application to another so for example, imagine that 
there I am doing my taxes and I am looking at a bank statement, 
and I do not know why I spent a few hundred dollars for that 
point, is this an allowable expense. Now the bank statement 
software only provides me with a traditional financial 
analysis. However, there is a date there. The date actually 
would fit on my calendar. If I take that data and try to drop 
it on my calendar it just doesn't work. Suppose it did. Suppose 
I would drop it on the calendar and so now the bank statements 
are all up here in some form on my calendar. I still don't know 
what I was doing on the 26th of March. So I take my roll of 
film for my photos and I drop that and now I see $400 and then 
I have all the pictures of these kids going around on the----
    Mr. Stearns. Disney World.
    Mr. Berners-Lee. Disney World, right.
    Mr. Stearns. So you know.
    Mr. Berners-Lee. And now, OK, that is not an allowable 
expense.
    Mr. Stearns. I see. OK.
    Mr. Berners-Lee. So what I have done is I have gone from 
the world of the financial world through the time dimension 
into personal world of photographs in order to answer a 
question, not to mention a scientist trying to figure out where 
a new virus has come from.
    Mr. Stearns. And, Mr. Chairman, a machine could probably do 
that in the future, analyze, and said this is what you spent on 
this day at this time because you throw all that information 
together into that one application and it will tell you, and 
that is what he is talking about in the future. Thank you.
    Mr. Markey. The gentleman's time is expired. The gentleman 
from Indiana, Mr. Hill.
    Mr. Hill. Thank you, Mr. Chairman. In the last campaign 
that we all had, and especially in my district, the issue of 
health care came up every single day. I could tell you a 
thousand stories about the problems people were having with the 
cost of their health care. The one story I will recite is from 
a jewelry store owner in Salem, Indiana. He is paying $1,000 a 
month for his health insurance, he said, ``Baron, you know, if 
it goes up any more, I have to drop my coverage.'' And I said, 
``I get those kind of comments every single day of the 
campaign.''
    I don't know if you can answer this question or not but do 
you see any World Wide Web supporting applications for health 
care? We are grappling with this problem in Congress, and we 
are trying to come up with solutions. And you are the inventor 
of the World Wide Web. Is there some relief here that we can 
provide customers or tell them about that you can creatively 
come up with in your mind?
    Mr. Berners-Lee. I would like to hope so but I think the 
health care problem, I agree, is really important and very 
difficult as well. I was discussing with people last week so 
you ask whether there could be contribution from the Web to 
this. Well, I must say to a certain extent there has been one 
of the more gratifying stories from the early days of the Web 
was from an ex-colleague from Europe took me out to lunch 
because his son had been suffering from a very difficult to 
diagnose condition. He had been given all kinds of treatments 
by all kinds of doctors and different drugs which really 
worsened this, and he ended up dropping out of school. And then 
somebody had mentioned, oh, maybe he has hypoglycemia and so he 
had gone to the Web and he found a Web page which says 
hypoglycemia, the disease that doctors tend not to diagnose.
    And he read all about it and he gave his son a test 
personally, and he cured him by changing his diet within three 
days. So in that case--so a lot of people are going to the Web 
for health care information. This brings up of course the 
question of whether how you know what information to trust, how 
the public knows how to do that. I know there is a lot of use 
of the Web for that. There are also a lot more ways in which I 
think Web technology could be used. The patient care record is 
very important. That has been outstanding in computing for 
years. Colleagues of mine at MIT have been working on the idea 
of the patient health care record for years since before the 
Web. The complexity of it is of course it involves a lot of 
policies, very important policies to who gets to see what 
information under what circumstances, carrying information 
around in a standard format which is what the Semantic Web 
provides so that anybody can potentially read it not being 
impeded by the fact that they have got their own software.
    Meanwhile, if you take down the barriers from the different 
types of software which exist currently with patient records so 
that if you have something, if you are wearing something which 
contains your patient record and you have an accident in some 
part of the country, some strange part of the country that any 
EMT can then pick up that information and find out your blood 
type and so on. As you break down those barriers then you have 
to erect artificial careful barriers of privacy, 
confidentiality, of course. And so doing that is very important 
work. I think it is work we have to do. I think it is possible 
so I think it is possible to make the patient care system more 
sophisticated.
    I think the problem of dividing up a doctor's time between 
patients is something which personal one on one time with 
doctors is not something which the Web will necessarily solve 
so to use the technology where the technology is appropriate to 
use it for the mechanical things to make sure the computer can 
do the things which it can do and people like doctors and 
nurses are doing the things that only doctors and nurses can 
do.
    Mr. Hill. You don't see any applications that might be 
available to people to try to acquire some kind of health care. 
I understand that there is all kinds of technologies in place 
on the Web that people can refer to for treatment, but this 
whole issue of the cost of health care is becoming a problem. 
Do you see any applications that the World Wide Web would be 
able to offer to give people some relief?
    Mr. Berners-Lee. Well, to cut down on the cost of health 
care, for example, technology has been used for remote presence 
and generally when a remote expert, a consultant is called in, 
obviously it cuts down the cost if the doctor doesn't have to 
travel. It cuts down on the doctor's time if the doctor can be 
presented with all the information about the patient including 
perhaps videos of previous consultants videos and pictures from 
operations, and so on. So giving the doctor access to all the 
data which they legally have about the patient and all the 
relevant data also from the sum of medical knowledge about some 
other cases giving the doctor that quickly and easily and 
intuitively is obviously something which is going to make 
health care much more efficient. We have to make it more 
efficient if we are going to make it affordable for people and 
also pay doctors a living wage.
    Mr. Markey. The gentleman's time has expired. The gentleman 
from Oregon, Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman. Sir, I really enjoyed 
your testimony this morning and have been looking forward to 
asking a few questions. This issue of the Semantic Web is 
intriguing to me and what potential is out there for it. We 
were just talking here briefly that we sort of do that with 
dogs now. You plant a chip in an ISO standard at least for 
identification purposes, and it seems to me that it wouldn't be 
that hard if we can do that for our dogs and our pets to figure 
out how we could not necessarily implant a chip but certainly 
carry those data with us as we go around and yet have privacy 
so I am intrigued by that.
    I want to ask you a question. I know this will come across 
probably as weird but do you see a potential being an MIT 
engineer and a great thinker and visionary where you can ever 
move not just data but matter?
    Mr. Berners-Lee. No. That is for somebody else to see. I 
don't know how to do that.
    Mr. Walden. I just wondered. You know, these things we 
chuckle about now, I bet 50 years ago if somebody had said you 
will carry a phone in your pocket and everything will be 
connected and we would have said never.
    Mr. Markey. Actually Dick Tracy had that two way wrist 
radio.
    Mr. Walden. He did, and we laughed about it. Well, I was 
too young. Of course you would have laughed about it. What are 
you working on now?
    Mr. Berners-Lee. In the consortium two hats. The consortium 
is working on the mobile Web, making the Web so that it can 
work on mobile devices and as part of that hopefully cheaper 
devices which can be used in developing countries and poor 
areas. The Semantic Web clearly. We are also still working on 
HTML. HTML still needs work. There are things that need to be 
in there that our Web site developers feel that there are a few 
things that need to be done there, and every now and again we 
look at even http. So there are new graphic formats and so on. 
There are other languages for user interface, which are always 
interesting.
    So the Web Consortium is in some cases pushing for the 
bounds, the Web surfaces technology, for example, which allows 
enterprise distributor systems to be built and companies to 
communicate with each other and export services, information 
services. We are active in lots of different sorts of areas in 
some cases really leading, having a vision, seeing that it 
could be different and pushing and then leading--getting the 
standards out there, put out there by a few other people who 
see the vision and get the twinkle in their eye and are 
prepared to invest up front because they realize what it could 
be like when everybody does it.
    Other times there is a market need for something like the 
privacy technology which allows--to allow people to set their 
browser up to test the privacy policy of a Web site just 
because, if you like, a hygiene issue because people want to go 
shopping. They don't want to have to worry about privacy and so 
on. That is really developed in a very different spirit. We 
have lots of different activities in the consortium. MIT then 
looking particularly at the Semantic Web, looking at user 
interfaces at the Semantic Web. If there is all this data out 
there and you have somebody whether it is a scientist or a 
government agent or a person at home, how do you give them the 
best access to all this. What is the equivalent of a 
spreadsheet or whatever it is that you need to browse through 
all this data and analyze it and connect things which you never 
connected before.
    And as I mentioned before, the policy aware Web building 
systems which are aware of the policy around data and software 
which is responsible, software which allows people to be 
responsible.
    Mr. Walden. That leads to an issue we have dealt with a lot 
in this subcommittee and in the full committee, things like 
spyware and popup ads and those sorts of things, and how as a 
consumer I can have more control over what comes into my 
computer, and it seems like every time we build a firewall or 
do something to get at that the smarter people figure out how 
to get around whatever was created to stop it. Do you look at 
those issues as well or are those just sort of left to the 
private sector to figure out?
    Mr. Berners-Lee. Well, I have to admit that the World Wide 
Web Consortium felt for a long time that most of that was e-
mail and where http were not--SMTP is the mail protocol. Other 
people, the Internet engineering task force does that, the e-
mail. But then when you look at the way a lot of the fishing 
attacks occurs because the e-mail which is an HTML mail and 
what the e-mail does is it pretends to be a link to one place 
when the user hovers over it. Now they don't hover long enough 
to realize that actually it is not to the bank, it is linked to 
bank of dot--something in Nigeria, so the fact that it is HTML 
and the fact that it has a link is part of the security problem 
there. So now the Web Consortium has an activity for 
specifically looking at security of browsers.
    I have always felt this should be a tactical problem. It 
may be when we send e-mail we won't be so anonymous but the e-
mail system was put together, it was designed originally for an 
environment where everybody was friends talking to each other, 
very academic environment in which messages were forwarded from 
one machine to another for the public good without worrying 
really about who was going to pay for it because the costs were 
so small compared with the benefit. So it was designed--it 
wasn't designed for the current situation. That doesn't mean it 
is impossible. It is fairly straightforward to add things. It 
is such a very large system so there are various technologies 
which I think can be rated against spam.
    I know personally at the World Wide Web Consortium we have 
a lot of mailing lists and so we put the best technologies we 
can find to work on those, and I know that our engineers are 
talking with other people at other sites about implementing 
those. So I think that in the long term it may be more 
difficult for you to send me an e-mail. You may have to show 
that you are related to an institution like this but it will be 
easy for you to do that, and there will be software which helps 
you to do that.
    Mr. Walden. What do you see as the top one or two policy 
issues that we should address and what are the top one or two 
threats to the World Wide Web that we should be aware of? What 
should we be thinking about especially long term?
    Mr. Berners-Lee. I think--well, I hope the net neutrality 
thing is a short-term thing. I think in most of the world 
people regard neutrality as such an obvious requirement that I 
hope it will be short term. An interesting long-term question 
is the patent one. Both in the States and Europe opinions are 
changing about how and when it is appropriate to take patents, 
and I think we are moving to a situation where large companies 
which you think as being the big companies which used to just 
make money from the patent pool have now had an understanding 
at the senior level that when there is an open foundation 
technology like the Internet, like the Web, like the foundation 
technologies to come that those standards have to be royalty 
free, and that understanding is necessary to protect all the 
new markets which come in the future.
    So I think that understanding has come to American industry 
in the majority over the last few years but yet we have to find 
out where that settles down and also across all the 
jurisdictions.
    Mr. Walden. My time has expired. Thank you, Mr. Chairman. 
Thank you for what you have done for the world and thank you 
for coming today to share your thoughts with us.
    Mr. Markey. The gentleman's time has expired. The 
gentlelady from California, Mrs. Capps.
    Mrs. Capps. Thank you, Chairman Markey. It is a distinct 
pleasure to be serving on this subcommittee with you and with 
Ranking Member Upton and the other distinguished members. Sir 
Tim, thank you for taking the time today to speak with us about 
the future of the World Wide Web and the Internet. I think it 
is entirely fitting that the creator of the Web is here to talk 
about the direction the Web may be going in the future. And I 
particularly appreciated in your opening statement your listing 
of some core values. The phrases I wrote down were 
universality, independence, blank canvas, no ownership, global 
society, and I am going to remember those.
    One of the things that you have written that has caught my 
attention, Sir Tim, is that some countries have done a better 
job than others, including the United States, in making sure 
that the Internet continues to be a neutral communications 
medium. That is a quote, your words. On the other hand, China, 
for example, has sharply restricted its citizens' access for 
the Web. My question is to direct you to perhaps talk about 
some of the policies that these countries have adopted, the 
ones we could be learning from and what are the lessons that we 
as U.S. policymakers could be taking away from their 
experiences.
    Mr. Berners-Lee. Well, of course chronologically and 
historically the U.S. was the place where the Internet was 
forged and the protocols were produced and it spread across--
the Internet spread across the world, and in fact I was lucky 
that when I was developing the Web more or less I was at the 
point where I was at the leading edge of that explosion. It was 
just becoming politically acceptable in Europe to talk about 
using the Internet instead of using the previously preferred 
ISO standard protocols. So in many ways the U.S. has led. My 
impression is that in other countries that net neutrality is 
very much the assumption as opposed to something which is 
questioned.
    Mrs. Capps. So it is assumed in other countries?
    Mr. Berners-Lee. Yes. When I, in fact, give a talk in other 
countries, I tend not to mention it. If I do mention it, people 
tend to ask what it is. It isn't an issue, and I hope that 
continues to be the same. Now you asked about China. Some 
countries have restricted policies, some countries try to 
restrain what people can read, what people can publish. I feel 
very at home in the United States as appreciating free speech 
and the openness of communication. We talk at some of these 
debates about policy and very much about the commercial aspects 
but remember that communication is not just for commercial 
reasons. Commercial bias is not the only bias. Political bias, 
of course, is if anything a more fundamental one but without a 
good political forum in which can be open debate and 
accountability then one cannot really set up the commercial 
economy, the market economy, which needs the commercial 
openness and fairness.
    I think it is a pity that there are places where the open 
Internet connection isn't allowed. I can see those countries 
making a change from a very restricted free Internet society to 
a more open society is not something which is easy so I 
wouldn't expect----
    Mrs. Capps. So if you go down a certain road then it is 
harder to get back again than to stay open----
    Mr. Berners-Lee. I am an optimist. I feel that the 
Internet, that it is very difficult actually to engineer, give 
great censorship in the Internet, and that in general the truth 
will win out and information will flow, and those countries 
will have to move with time one way or another. It is just a 
question of how they transition.
    Mrs. Capps. Let me see if I can follow up. As you know, and 
you mentioned the business aspect, many of the most successful 
Internet businesses have been based in the United States. What 
might be the implications for some of these businesses and 
consumers if we don't take some of the steps that you have 
mentioned, for example, to enshrine that neutrality into law, 
could the U.S. lose its international competitiveness in this 
area?
    Mr. Berners-Lee. If we had a situation in which the U.S. 
did not have serious flaws in net neutrality, but, for example, 
Europe did have net neutrality. I must say if I was going to 
start a company, then I would be very tempted to move, yes.
    Mrs. Capps. Good answer. Thank you. Thank you very much.
    Mr. Markey. I thank the gentlelady. I have not asked my 
questions so I think I will take this opportunity at this time, 
but if anyone else has any question which they would like to 
pose to Sir Tim, I think we can accommodate that. You state in 
your testimony that when you invented the Web and launched it, 
you didn't need to ask anyone's permission first and you talked 
about the universality of the Web. Tell us what that means in 
terms of future innovation for the next Sir Tim.
    Mr. Berners-Lee. This is the separation of the layers, I 
suppose. It is the fact that one layer of the technology and 
the social conventions which go around which complete that 
technology form or blank slate. The Internet technology would 
allow me to write a program which would communicate with 
another program. One program signs up for a port number. They 
agree on a port number. Then that port number distinguishes the 
traffic between those two programs from traffic between other 
programs, and the Internet passes that information across.
    Now it is true that when we start to go to the extreme 
bandwidth requirements of video that is not just simply the 
passage of data but it is the passage of data with a certain 
quality of service which is important. And there has always, of 
course, been quality of service issues that some people would 
have slow connections and some would have fast connections. 
Early Web browsers came in at various places that you could get 
Web browsers which were better or better configured for running 
over slow connections. But the essential thing is that the 
Internet technology was designed so that anybody could go out 
and invent whatever they could imagine to run on top of it just 
as the computer for my parents----
    Mr. Markey. So you don't need anyone's permission and as a 
result entrepreneurial activity can flourish.
    Mr. Berners-Lee. Yes. I would like to be able to download--
I have on this phone a Web browser which didn't come with it. I 
downloaded it from the Internet. I ran it on the phone. So when 
anything is an open platform then that means it is open to 
innovation. The Web is an example of innovation built on the 
Internet. We have seen a huge number of examples of innovation 
built on the Web, eBay, Flickr, the list is well known.
    Mr. Markey. So you travel the world. You see broadband 
speeds all around the globe. How would the United States 
compare in terms of deployment and affordability? What is your 
impression as to how the United States is doing in terms of 
speed that we are providing to the American people?
    Mr. Berners-Lee. I shouldn't attempt to give you a good 
answer there because there are people who analyze this and I am 
sure that there must be analysts who have tabulated these 
things. My impression is that in Europe, for example, that 
Europe is very competitive and some Internet service providers 
offer very high bandwidth with a very inclusive international 
phone service for very competitive rates so one point maybe a 
year or two ago I remember there was a claim that the French 
situation was the French were actually beating the Americans 
when it came to the downward price curve, but I think really 
the same spirits of making a faster and cheaper connection is 
fairly pervasive, but I can't give you accurate figures.
    Mr. Markey. Thank you. Now you say that the World Wide Web 
Consortium will only standardize new protocols and technologies 
if they can be implemented on a royalty-free basis. Could you 
elaborate on that?
    Mr. Berners-Lee. The things which have been built up on the 
Web have been built because there was not--were enabled largely 
because there was no fee payable. There are lots of systems 
which have been less successful. In fact, when you look on the 
Internet even when you look at streaming video you find that 
you have to download different players to play the information 
from different places. There are competing standards which are 
not royalty-free. You find it is unlikely that you can get an 
open source copy of these. There are only a very limited number 
of the players for these things. There is a continual 
frustration to users and information providers alike that they 
have to make a choice as to which players that they will use. 
And as an example of what can happen when there is a----
    Mr. Markey. You could have made a lot of money if you 
charged for all the work that you did and do and that the World 
Wide Consortium----
    Mr. Berners-Lee. Chairman Markey, let me assure you that if 
I had charged from the word go, per click, the World Wide Web 
would not have taken off at all, and we would not be here 
talking about it and you would not be getting all that 
information from the Web browser on your BlackBerry.
    Mr. Markey. I think it is important for the committee to 
hear that sentence uttered.
    Mr. Berners-Lee. Had there been a fee, there would have 
been no investment. The investment people made on the Web was 
made by volunteers in their garages late at night. It was made 
by people, system managers, who when their work day was done 
decided that they needed to install something like a Web 
browser. And when it was done by companies allowing me--I, 
myself, was allowed by my boss to do it in spare time. People 
did it in their 10 percent time. If there had been any form of 
fee, they wouldn't have gone anywhere near it.
    Mr. Markey. Let me ask you a final question, which is that 
I would like you to talk about the international nature of the 
World Wide Web Consortium and the importance of building 
consensus across continents on standards, protocols, 
guidelines, recommendations, everything that is necessary to 
maintain this incredible invention.
    Mr. Berners-Lee. Well, from the word go when I put out the 
specs for the first browser and server on the Net, the 
contributions came in from across the planet, from Hawaii, from 
India, from Israel, so the Web development community has always 
been international. So from very early days 
internationalization of the technology has been very important. 
And when we meet together, we try to make sure that we are very 
fair about different cultures and different languages and that 
we use the best--input the best volunteer resources that we can 
get from across the globe, and I think that this makes the 
standards very much higher quality.
    Mr. Markey. Let me ask you one final question. Give us the 
one message you would like us to remember as we deliberate over 
the next couple of years on all of the issues that could impact 
on the World Wide Web. Could you give us just one kind of 
summary message view that you want us to keep with us as we 
move forward?
    Mr. Berners-Lee. I suppose the fact that communication 
between people is what makes us a society, what makes the human 
race the human race, instead of disconnected people behind 
politics, and commerce, and education, and romance, and 
personal diaries, and all the things that makes our society our 
society, and some of those things are very crucial to us. So we 
have learned over the generations that protecting the means of 
communication is really important. For the World Wide Web there 
are certain values which we must maintain such as particularly 
its universality, and separation of the layers.
    If there is one thing that you should take away is that the 
World Wide Web is together technology and society. It is 
computers and people. It is really a big Web of people. So 
while I will do my bit as an engineer it is very, very 
important that you as members of the committee should do your 
bit as legislators.
    Mr. Markey. Thank you, sir. Any of the other members have 
any questions for Sir Tim? Yes.
    Mrs. Bono. I am sorry because that was such a beautiful end 
to this hearing, but I do have one thing I would love for you 
to clarify. And that is in your testimony and what you just 
said to the chairman in the testimony you write the lesson from 
the proliferation of new applications and services on top of 
the Web infrastructure is that innovation will happen provided 
it has a platform of open technical standards, flexible, 
scaleable architecture, and access to these standards under 
royalty-free terms. You have said that repeatedly. But can you 
please just differentiate that you do not mean royalty-free 
content, because I think some people will confuse the two, 
royalty-free platform, the architecture of the World Wide Web, 
and it would help, I think, if you could clarify that you do 
not mean royalty-free content.
    Mr. Berners-Lee. No, I do not mean, no--when I talk about 
the infrastructure this is like the roadway. It is not the 
goods carried in the trucks. So, yes, we are talking about 
being able to use the Web technology itself without having to 
pay a fee for the underlying infrastructure, nothing to do with 
the royalties which we quite properly pay on music and so on.
    Mrs. Bono. Thank you very much. Thank you, Mr. Chairman.
    Mr. Markey. Thank you for asking that question. I think 
that was very helpful to us. Sir Tim, you don't know what an 
honor it was for the subcommittee to have you testify before 
us. I can promise you that but for all those roll calls this 
morning that you would have had full attendance the whole time. 
People are commenting, as Congresswoman Bono did, that they 
wished that you could have just gone on at much greater length, 
and all of the members have made that comment to me. So we 
thank you, and if possible we would like to be able to continue 
to consult with you over the years to get your advice as to 
which is the wisest course in any one of these areas that our 
country and the world should pursue. Thank you. This hearing is 
adjourned.
    [Whereupon, at 12:56 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                THE DIGITAL FUTURE OF THE UNITED STATES

                          THE FUTURE OF RADIO

                              ----------                              


                        WEDNESDAY, MARCH 7, 2007

                House of Representatives,  
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:35 p.m., in 
room 2123 of the Rayburn House Office Building, Hon. Edward J. 
Markey (chairman of the subcommittee) presiding.
    Members present: Representatives Doyle, Harman, Inslee, 
Boucher, Towns, Eshoo, Stupak, Engel, Green, Dingell, Upton, 
Hastert, Stearns, Deal, Shimkus, Pickering, Radanovich, Walden, 
Terry, Ferguson, and Barton.

   OPENING STATEMENT OF HON. ED MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEATLH OF MASSASCHUSETTS

    Mr. Markey. Good afternoon, ladies and gentlemen. This is 
the second in a series of oversight hearings on the digital 
future of the United States that began with testimony last week 
from the inventor of the World Wide Web, Sir Timothy Berners-
Lee. Today we examine the radio industry and assess its power 
and its promise. And we have a diverse panel of witnesses 
before us to illuminate many of the issues in the radio field. 
Radio has a long history of democratizing access to 
information. It is a medium that reaches virtually every area 
of the country, and radio stations are powerful communications, 
assets for the communities that they serve.
    Noncommercial low-power and full-power radio in particular 
help reach underserved areas, air niche programming formats, 
and provide local information of value to diverse community 
segments. I hope that we can continue to protect and enhance 
the role of noncommercial voices through low-power radio.
    Moreover, as the FCC prepares to open an application window 
for new full-power noncommercial stations, it is vital to 
ensure that adequate notice is given to the public about 
opportunities to obtain licenses to ensure that aspirants for 
such licenses may broadly represent the great diversity and 
richness of the country. In the area of commercial, over-the-
air radio, more than 1,000 radio stations are already 
broadcasting digital content. Digital technologies allow free 
over-the-air radio broadcasters to provide upgraded audio 
quality, as well as the ability to multicast their signal into 
multiple feeds. These multiple audio feeds may permit, for 
example, a radio broadcaster to air news, sports, weather, 
traffic, and talk on one feed while two others simultaneously 
broadcast music from distinct musical genres.
    As we move towards the digital era, we must also assess the 
public interest obligations of broadcasters and the effects of 
marketplace consolidation. The commission is in the midst of 
reviewing its media ownership rules, and this review will 
analyze the effect of this consolidation on competition, 
localism, and diversity of viewpoints among many issues.
    In addition, I am concerned about the abysmal lack of 
broadcast licenses that are held by minority-owned and women-
owned businesses. While many licenses were obviously given out 
to original licensees decades ago, it is important to remember 
that half the country is women and approximately 35 percent is 
minorities. Yet women and minorities today reportedly hold less 
than 4 percent of FCC broadcast licenses. This is something 
that this Congress and the FCC should find creative ways to 
remedy, and the commission can take an important first step by 
developing accurate data on current minority and women-
ownership levels, which today is not readily available 
information to the public.
    I also want to note the recent decision by the Copyright 
Royalty Board to hike royalty rates. Previously small Internet 
radio providers were able to pay a percentage of revenues to 
cover royalty payments. The decision by the Copyright Royalty 
Board, which now sets rates on a per-song, per-listener basis 
effective retroactively to 2006. This represents a body blow to 
many nascent Internet radio broadcasters and further 
exacerbates the marketplace imbalance between what different 
industries pay. It makes little sense to me for the smallest 
players to pay proportionately the largest royalty fee. This 
decision runs the risk of hurting not only fledging 
entrepreneurs, but also the online radio services of public 
broadcasters and smaller commercial stations.
    And finally, I want to briefly address the satellite radio 
industry. Obviously XM and Sirius Radio have stated their 
desire to merge. This merger raises several public interest 
issues that this hearing will help to illuminate. Among these 
issues are the merger's potential effect on consumer prices and 
consumer equipment, its effect on content and content 
providers, its effect on localism and the ability of listeners 
to both pay and free radio services to obtain information that 
is local in nature, and its impact on competition broadly. The 
merger may also impact telecommunications policy goals related 
to spectrum efficiency and the prospects for new competitive 
entry and innovation.
    I want to thank all of our witnesses on this star-studded 
panel today for their willingness to testify. Let me now turn 
and recognize the gentleman from Michigan, the ranking member 
of the subcommittee, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman, for holding 
today's hearing. We all know that radio does play a very 
important role in our lives, and I commend all those dedicated 
folks in the industry for enriching those lives. The numbers of 
radio stations in America has roughly doubled since 1970, with 
approximately 13,500 stations in operation today. And satellite 
radio now serves nearly 15 million customers nationwide.
    When we discuss the future of radio, we must also have a 
concurrent discussion regarding the future of broadcast radio 
ownership rules. And while there has been tremendous growth and 
advances that have been made in the world of radio, not to 
mention the overall media world over the years, the unfortunate 
reality is that our nation's media ownership laws do not 
reflect or even acknowledge such great advancement. Current 
ownership laws are especially destructive to the ability of 
broadcasters to compete because they freeze growth. They stifle 
experimentation and innovation and perversely diminish 
diversity of viewpoints. Common sense tells us that the recent 
explosion of media sources should eliminate any concern over a 
lack of diversity of views in the marketplace and competition, 
which have been the principle justifications for the rule. This 
growth remains unabated and more than makes the case for 
regulatory relief in the broadcast sector.
    Let us take a closer look at the local broadcast radio 
ownership rules. In a market of 45 stations, the most that a 
single company can own is eight. In a market with 145 stations, 
a single company can own also only eight stations. Where is the 
logic? Even setting aside for just a moment the competition 
from other media, especially satellite radio, there is 
absolutely no public good enough to justify the same local 
radio ownership cap for Cincinnati as it is for New York, 
Chicago, or Los Angeles.
    And let us remember that ownership diversity is only a 
proxy for viewpoint diversity. The largest markets in the 
country tend to have more diverse populations, and thus they 
demand more diverse program formats. Yet the maximum number of 
formats any one owner can deliver is eight because that cap 
ownership is maintained by the FCC. Increasing the number of 
stations that any one entity could own would translate into an 
increase in the number of formats that can be broadcast into 
that market.
    The result would be to increase the quality of free 
terrestrial radio services to consumers and increase the 
availability of foreign-language programming to them. Moreover, 
the economies of scale that are obtained when commonly owned 
stations are clustered in a market make it possible to take 
risks on new formats that would not otherwise be feasible. The 
result will be that owners will experiment with new and 
different formats, and consumers will be the beneficiaries. The 
public will likewise benefit from a healthy radio industry.
    While the FCC's current regulations recognize that AM and 
FM stations compete against each other, they fail to recognize 
the other competitors in today's marketplace, foremost among 
them obviously is satellite radio. For the time being, the two 
satellite radio licenses can reach approximately 150 channels 
in every market in the country, compared to the current limit 
of only eight stations that restrict the terrestrial radio 
industry. Moreover, licensed radio stations obviously compete 
against new devices, whether they be iPods, Internet radio, 
which will soon be broadcast to cars, using the YBas networks.
    The upshot is that terrestrial radio is engaged in an 
extremely competitive marketplace and one that is becoming more 
competitive virtually every day. Against that type of 
competition, I believe that it is worthwhile to lighten the 
regulatory restrictions on ownership that limit the ability of 
free terrestrial radio to grow in the largest markets in the 
country. I continue to firmly believe that in markets with 60 
or more radio outlets, a modest increase in the number of 
stations that one entity can own or control will confer 
significant public interest benefits. Modest increase would not 
result in undue concentration. It would allow a single entity 
to control 10 stations, would mean that no one entity would be 
able to control more than 17 percent of that market.
    So I look forward to our testimony today from our 
witnesses, looking at a number of different issues, and I 
appreciate the chairman's hearing this afternoon.
    Mr. Markey. Thank you. I thank the gentleman. The Chair 
recognizes the Chairman of the full committee, gentleman from 
Michigan, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, thank you. I commend you for 
holding this hearing today. I also thank our witnesses for 
appearing before the subcommittee. I want to especially welcome 
Mr. Peter Smyth of Greater Media, whose company owns three 
Detroit radio stations and which does an outstanding job of 
serving our community. Welcome.
    This is the second hearing in the committee's examination 
of the Nation's digital future, and it is in an important one. 
Decisions may soon be made that will affect this structure of 
the broadcast marketplace and the level and quality of 
discourse in our democratic society. Since the formation of 
commercial broadcasting, Congress has acted deliberately to 
preserve localism, promote diversity, and ensure competition in 
the broadcast media. Rather than establish a national broadcast 
system, the Congress oversaw the creation of thousands of local 
stations throughout the Nation that are required to respond to 
the needs of their local communities.
    So then what is the state of radio today? Many claim that 
the consolidation of the radio industry over the past decade 
has adversely affected diversity on the public airwaves and the 
service broadcasters provide to their local communities. I must 
observe that there is reason to believe that there is truth in 
these statements. These concerns then must be taken seriously. 
Yet we now find that Clear Channel, the largest group owner, is 
spinning off several hundred radio stations. This offers a ray 
of hope that the trend of declining media ownership can be 
reversed. The last count on this matter shows that minorities 
own a dismal 4 percent of radio stations nationwide. And there 
is reason to believe that this may be in a downward trend.
    I would note that it has been the Congress's policy for a 
long time, longer than I have served in the Congress, that we 
should have full representation of minority broadcasting and 
that the Federal law should and the Federal regulatory agencies 
should encourage that situation to go forward. The FCC now then 
must speed up its efforts to spread licenses among entities 
that better reflect the diversity of people across our Nation.
    The transition to local digital provides an opportunity to 
reinvigorate local broadcasting. With near CD-quality sound and 
multicasting capability, digital radio allows broadcasters to 
improve service and to remain a vibrant and important part of 
the local media landscape. With any luck, we might even see a 
resurgence of classical music on the dial, something which 
would bring me great personal pleasure. Broadcasters are also 
joining a variety of entities using the Internet to serve a 
worldwide audience. Listeners now have a broad range of radio 
entertainment options, including satellite radio, Internet 
radio, mobile phone services, and recording devices such as 
iPods.
    Earlier this week, the Copyright Royalty Review Board set a 
new music royalty rate for commercial and noncommercial 
Webcasters. I think this committee should look carefully at the 
implementation and the implications of that decision, which I 
think at this time are not properly understood. The average 
music consumers are embracing podcasts and interactive modes of 
delivering your information. I have found that my own podcasts 
enable me to better communicate with my constituents.
    Now, what can consumers expect to hear in the future? Will 
the new operations and the new opportunities translate into 
more local and more compelling and more diverse content? Even 
in this new world, radio remains an important fabric of our 
local communities. We must remember the deliberate vision of a 
free and local system of commercial and noncommercial 
broadcasting spread among the urban and rural communities that 
make up our Nation. We must continue to promote new uses of the 
spectrum, such as low-power radio, while protecting existing 
licenses from interference. Even today, a healthy free 
broadcasting service remains an important and vital source of 
local news, culture, and most importantly, emergency 
information. Our national policies must continue to promote 
localism, diversity, and competition in the media marketplace.
    Those with the privilege of using public airwaves, whether 
local or national, should provide a public service. That is the 
law. That was the intention of the Congress when we passed the 
Radio Act in 1927 and has remained so to this day. The FCC has 
been far too laggard in overseeing public interest 
responsibilities of digital and satellite radio providers. We 
must never forget that industries that distribute information 
have a greater responsibility to our society, and consolidation 
among them poses a far more serious concern than, for example, 
those who distribute toothbrushes or toasters. Today's hearing 
begins with an exploration of the merger of XM and Sirius. I 
look forward to learning more about this matter as the FCC and 
others begin what I expect will be a thorough, objective, 
competent, and fully transparent review of the transaction and 
its effect on consumers and the public interest. Mr. Chairman, 
I thank you for your courtesy. I give back the balance of my 
time.
    Mr. Markey. I thank the gentleman. Chair recognizes the 
ranking member of the Energy and Commerce Committee, the 
gentleman from Texas, Mr. Barton.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman. I think this is an 
important hearing, and I appreciate you calling it today. This 
is the second hearing in your series on the digital future of 
the United States telecommunications market. I think it is good 
to investigate the opportunity about whether changes in the 
radio marketplace require us to rethink our approach to 
regulating audio services in this country. Radio has not been 
immune to the same revolution that is making the voice, video, 
and data markets so competitive. We can get music, baseball, 
talk, the news, and even other types of entertainment now over 
these satellites. We can get what we want not only over the air 
from radio stations, but from the satellite, from the Internet 
streamers, yes, Podcasters and even cell phones.
    The broadcasters themselves are going through a mini-
transformation. There is more than 1,000 stations have already 
embraced digital transmissions. This shift should enable 
broadcasters to improve their sound quality and increase the 
number of channels that each station can provide. Thankfully, 
the broadcasters have not needed additional spectrum to do so, 
making their transition to high definition radio considerably 
simpler than it is for digital television.
    Changes in the voice, video, and data markets have led us 
to question legacy regulations, some of which were written when 
people were sitting around living rooms listening to Little 
Orphan Annie over the radio. This hearing presents the 
opportunity to investigate whether changes in the audio market 
suggest that radio regulation also needs reforming. To see the 
importance of matching regulations reality, we need to look no 
further than the FCC's inability to justify either of its last 
two rounds of media ownership restrictions to the satisfaction 
of the courts.
    Judges have decided that strict regulations wouldn't do, 
and neither would loose ones because no one could show how 
either set of rules actually promoted content diversity and 
localism in the real world. At some point, we need to figure 
out who is on first, us or the innovators. I wonder if 
technology and competition won't do a better job of serving 
radio listeners than politicians tinkering with outmoded 
regulations in a constant game of catch-up.
    Indeed, one issue we will address today, the proposed 
merger between XM and Sirius, suggests that technological 
advances make even defining the relevant market a complex task. 
This is an important hearing because it impacts the future, the 
digital revolution in radio. And I am looking forward to 
hearing our witnesses and in hearing of the questions too that 
shows where this committee tends to move its legislation.
    With that, Mr. Chairman, thank you again for holding this 
hearing.
    Mr. Markey. The Chair recognizes the gentleman from 
Pennsylvania, Mr. Doyle.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman, and welcome to our 
witnesses. Mr. Chairman, I want to tell you a little story of a 
local guy done good. His name is Greg Gillis, and by day, he is 
a biomedical engineer in Pittsburgh. At night, he deejays under 
the name Girl Talk. His latest mash-up record made the top 
albums of 2006 list from Rolling Stone, Pitchfork, and Spin 
Magazine amongst others. His shtick, as the Chicago Tribune 
wrote about him, is ``based on the notion that some sampling of 
copyrighted material, especially when manipulated and 
recontextualized into a new art form, is legit and deserves to 
be heard.''
    In one example, Mr. Chairman, he blended Elton John, 
Notorious BIG, and Destiny's Child all in the span of 30 
seconds. And while the legal indy music download site, 
Emusic.com, took his stuff down for possible copyright 
violations, he's now flying all over the world to open concerts 
and remix for artists like Beck.
    The same cannot be said, however, for Atlanta-based hip-hop 
mix tape king DJ Drama. Mix tapes, actually made on CDs, are 
sold at Best Buy and local record shops across the country. And 
they are seen as crucial to make or break new acts in hip-hop. 
But even though artists on major labels are paying DJ Drama and 
others to get their next mix tape, the major record labels are 
leading raids and sending people like him to jail.
    I hope that everyone involved will take a step back and ask 
themselves if mashups and mix tapes are really different, or if 
it is the same as Paul McCartney admitting that he nicked a 
Chuck Berry base riff and used it on the Beatles' hit ``I Saw 
Her Standing There.'' Maybe it is, and maybe Drama violated 
some clear, bright lines. Or maybe mix tapes are a powerful 
promotional tool, and maybe mashups are transformative new art 
that expands the listener's experience and doesn't compete with 
artists as made available on iTunes or at a CD store. And I 
don't think Sir Paul asked permission to borrow that baseline, 
but every time I listen to that song, I am a little better off 
for him having done so.
    Until our questions about the future of music get answered, 
we first have to look at the future of radio. I want to look at 
whether Webcasters saddled with new royalty fees, whether just 
one satellite radio company, whether low-power FM radio 
stations can really help artists break through the clutter and 
be heard by enough people to be successful.
    And I want to look at how consumers experience music and 
how radio shapes that. I look forward to the witnesses talking 
about these issues and more. And, Mr. Chairman, with that, I 
yield back my time.
    Mr. Markey. I thank the gentleman very much. The Chair now 
recognizes former Speaker of the House of Representatives, 
Dennis Hastert.
    Mr. Hastert. Mr. Chairman, I yield back.
    Mr. Markey. The Chair recognizes the gentleman from 
Illinois, Mr. Shimkus.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Shimkus. Thank you, Mr. Chairman. I was just trying to 
figure out half the words that Mike Doyle just mentioned. I am 
clueless, but I think you will help me later on. I will be 
brief. I am all about multiple pipes for competition. The more 
pipes, the better. And that helps consumer choose, and it stirs 
innovation. But it is very schizophrenic in this new era as 
things change. There is a local service requirement for local 
broadcasters that I think is very, very important that we 
preserve for safety. However, then you talk about a Katrina 
event, when towers go down, satellite may be able to provide a 
venue by which public safety information can get delivered.
    So the world doesn't stay the same. It changes, and that is 
why I appreciate the chairman calling this. I love industries 
that modernize and technology advance quicker than we can 
regulate. That is what I like because then it continues to 
inspire new services, and we may be there in this industry. In 
some sectors right now, there are schizophrenic tendencies, 
based upon the ability of the local service requirements, based 
upon new technologies, it is appropriate that we address them. 
And I am glad to be here. Mr. Chairman, I yield back.
    Mr. Markey. The gentleman's time has expired. The 
gentlelady from California, Ms. Harman.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman. I would observe that 
it took one person to educate us about the World Wide Web, and 
clearly it takes at least five to help us with radio, which has 
been around a much longer time. From FDR to NPR, a radio has 
remained a primary source of information for millions of 
Americans, but obviously changes in radio today parallel the 
great strides in Internet, television, and other 
telecommunication services which we are learning about in our 
digital future series of hearings. Maybe, Mr. Chairman, we 
should have a digital future series of hearings about Congress 
some day too. Digital future, if any, series of hearings.
    At any rate, radio is a source of entertainment too. 
Digital, high-quality entertainment. In fact, today high 
definition radio stations broadcast CD quality sound over free 
airwaves. Wal-Mart is now selling high definition audio 
receivers. And in a short time, free digital quality music will 
be the standard in every city and town in America.
    But digital radio, whether satellite, Internet, or over the 
air, is an example of technology outpacing legal protections 
for intellectual property. I know that the Judiciary Committee 
will take a long look at this issue. But, as you have said, it 
is an important one for this committee too.
    Competition in the radio market depends on a level playing 
field for radio outlets and on fair treatment for musicians, 
songwriters, and record labels whose work they broadcast every 
day. I hope our look at competition and fairness in the 
marketplace won't overlook the people who make free music in 
our cars, homes, and office possible. Many of them, I would 
observe, come from Los Angeles where my congressional district 
is located. I think, Mr. Chairman, this hearing is timely, and 
our careful focus is needed. And I confess it is impressive to 
learn that Chairman Dingell knows about Podcasts and that my 
friend and colleague Mike Doyle is so hip. I yield back.
    Mr. Markey. Gentleman from Oregon, Mr. Walden.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Thank you very much, Mr. Chairman. Of course, I 
am very interested in this hearing. I think, I believe, I am 
the only licensee on the committee and in the Congress that 
actually owns and operates radio stations, at least for a few 
more months. We are in the process of selling them after nearly 
21 years in the business. So I first always disclaim that so 
nobody accuses me of a conflict of interest that I haven't at 
least acknowledged. But I have a great passion and interest in 
radio. My father was in it for 38 years. I grew up obviously 
around the tower and the transmitter. Based on my receding 
hairline, you can tell that. And so I am interested in these 
issues.
    And, Mr. Chairman, I would point out that of your 
statistics on 4 percent of the licenses are owned by women or 
minorities, my wife and I actually share the stock in our 
company. So it is 50/50, so we represent, in terms of 
licensees, probably at least half of one of those 4 percent in 
ownership because we have run it and owned it together. And I 
have great passion for the industry.
    I have great concern about its future. I think in many 
markets, consolidation has been very healthy and helpful to 
enhancing program content, especially in smaller markets were 
many stations were on the border of going broke. In our own 
situation, we started with two, acquired two others that 
weren't in the best of shape and put another one on the air. So 
we have actually brought new programming to the marketplace, 
and one of our stations actually won a Marconi, an AM station.
    And so there is a lot of really good local programming 
going on in America in radio, and we hear this talk of the 
effect of consolidation. And yet I think Clear Channel is the 
largest owner of radio stations, owns less than 10 percent of 
the total number of stations out there and is selling 400 of 
those 1,200, just to pick a number out of the air.
    This Congress has also, with the FCC, authorized low-power 
FM broadcasters to fill a need in the communities for great 
diversity, and virtually anyone who is not in the commercial 
radio business can go out and get a LPFM license. And there are 
hundreds and hundreds of them on the air, including in the 
markets that we are in. And so I think there is enormous 
diversity. At the end of the day though, broadcasters are there 
when there is an emergency.
    In our own situation, we have gone commercial-free and 
programming cancelled in cases of emergency to provide full-
time information. I am not alone in that effort. Many of my 
colleagues have done that. And as you mentioned, in Katrina, in 
other crises around the country, that is just what we do. And 
we are there. We are there when the snow piles up on the road 
and the school buses can't run. It is not other forms that are 
telling you that. It is your local broadcasters, and so sure we 
can always do better, but I think we got a great record, and I 
look forward to the panel today and hearing from them and where 
we go with the future on over the air free broadcasting as well 
as mergers and consolidations and alternatives for America's 
listeners. Thank you.
    Mr. Markey. The gentlelady from California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, for holding this 
hearing, and I expect it is going to be another enlightening 
one. Just as the Internet and digitization of content has 
revolutionized commerce, digital audio has transformed the way 
we listen to music, to news, to sports, and other sources of 
information and entertainment today. I think that is 
indisputable. It has changed. It has changed rapidly. It is 
exciting. A lot of people are enjoying it, and it really, I 
think, is a mark of the 21st century.
    Now, whether delivered by satellite, wi-fi, wireless phone, 
cable modem, DSL, digital audio has greatly enhanced choices 
for consumers, for innovators, and for the competition that 
exists in our country. Until very recently, when I think of it, 
the only music that I could listen to was from my local radio 
station from my home or my car stereo, and really not all that 
long ago, from my Walkman when I was on the treadmill. And that 
seems really almost humorous to think that that was not all 
that long ago. It seems as if it is really in the distant past.
    Now, our choices are no longer limited by our local 
broadcast radio stations or by our personal CD collection. In 
fact, the choices are almost limitless. Satellite radio 
delivers hundreds of channels to cars or portable devices. 
IPods carry thousands of songs in the palms of our hands, and 
the Internet delivers really any song we have ever heard of or 
a radio signal from across the globe to any connected device.
    But unlike other Internet content, these innovations are 
threatened by dominant broadband providers who have the ability 
and the incentive to limit consumers' access to the content of 
their choice. I think it is essential that access to Internet 
radio and content distribution services remain unimpeded and 
outside the control of broadband gatekeepers. Without net 
neutrality, it is possible, I think it is likely that the broad 
consolidation in terrestrial and satellite radio ownership and 
limited consumer choice will be duplicated in the online 
environment as broadband providers steer users to their own 
services or their partners' offerings.
    Net neutrality is critical to ensure that Internet radio 
and other emerging online music and information distribution 
services have a chance to compete with incumbent providers.
    So welcome to the witnesses. I think that you are also 
eager to discuss the potential merger of two of America's 
satellite radio providers, and I look forward to you answering 
my questions. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman from Nebraska, Mr. Terry.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Thank you, Mr. Chairman, for having this 
important hearing. Of course, we had the digital television 
hearing and the Internet hearing, and now the radio or aural, 
not O but AU, part of the digital transition. And for 
consumers, what an exciting time. You look at all the consumer 
products where we can get our music or talk radio or 
podcasting. I just wonder what it is going to be like as we 
have the digital breakthroughs that are occurring right now, 
what it is going to look like 10 or 20 years from now.
    I am probably an example of the consumer that we are going 
to talk about or should be the focal point of today's hearing, 
of how best to empower the consumer in this changing 
environment so that they have access to whatever mechanisms 
necessary so they can get the programming that they want.
    I have my video iPod. All my kids have their iPods. Even 
the 6-year-old has to have his own. My wife's Christmas present 
was Sirius for the car and in the house; although; I will have 
to admit we had a discussion about whether to get Sirius 
because of one of their programs, Howard Stern, on there. And 
my wife and I said well, they will probably break Sirius at 
some point anyway. True discussion.
    Maybe we will get the answer to that or not, but certainly 
having Mr. Karmazin here today prompts the discussion of 
whether to ask a decency question about satellite. I think I 
will pass on the decency question, but I think we will have a 
healthy discussion about whether a merger or creating within 
the satellite environment a monopoly is appropriate from the 
consumer's standpoint.
    The question that I want to ask our panelists today is how 
would we define the market today? Certainly if I bought my 
music from a record store some time ago, we would not have 
defined that as competition; although, I guess in a way it is. 
But yes, while there is free over the air, we now have for-pay 
satellite. We have all these other mechanisms. Do we throw 
anything that makes noise into the world of competition so that 
we don't define this merger as a monopoly?
    I think that is one of the questions that should be 
answered today. I am certainly skeptical of these two companies 
coming together as one. I think on the surface that is anti-
consumer. We will ferret that out today. I want to thank all of 
our panelists for being here to aid us in our policy decisions, 
and I yield back.
    Mr. Markey. Next to the gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for holding the hearing 
on the future of radio. The future of radio is quickly 
transforming with many recent changes in the way consumers can 
assess programming. The emergence of HD radio, which has become 
more affordable and accessible is providing new and additional 
programming to consumers.
    On the other hand, the proposed Sirius and XM merger raises 
serious questions the implications would have on localism and 
consumers even if safeguards are put in place remains unclear 
at best. Next week, we will hear from the FCC commissioners in 
front of this panel. I am sure they will be a prominent topic 
in both testimony and questioning after today's New York Times 
article about Chairman Martin's concerns over the merger. It is 
hard to see how prices for satellite radio will come down when 
a big part of the reason for the merger is to make it 
profitable.
    A related issue, which greatly concerns me, is the attempt 
by satellite radio to offer local radio programming. I have 
worked with Mr. Pickering to introduce legislation on this 
issue, and it sounds a bit strange. But the FCC intended 
satellite radio to be a national service in order to protect 
local service.
    But the remarks we will hear today from Mr. Karmazin, 
remarks that call for restrictions on local content were 
ironic, but I respectfully respond that maybe it is backwards. 
What is ironic is if national radio, satellite radio, offered 
local content, it would actually decrease localism and local 
news coverage and local emergency coverage.
    Under its national license, satellite radio is not 
obligated to provide public interest services, such as Amber 
Alerts, coverage and debate of local issues, important 
emergency broadcasts during natural disasters, civil 
disturbances, or terrorist attacks. More importantly, under 
their infrastructure, satellite radio cannot generate local 
content. They can only aggregate it and retransmit it. There 
are no boots on the ground, so to speak, to generate their own 
local news, community fairs, or emergency coverage.
    As evidence, satellite radio only intends to offer and can 
only offer the low-cost profitable local service like traffic, 
weather, and local ads. And while they are offering local 
traffic and weather on national channels for a handful of large 
cities, they do not hire local meteorologists for local weather 
coverage or put traffic reporters in helicopters for traffic 
coverage.
    In contrast, local broadcasters spend huge sums of money to 
generate that unique local content, as opposed to just 
retransmitting basic local information gathered from somewhere 
else. If satellite radio is allowed to cherry pick cheap local 
content and sell local ad revenue, local broadcasters would be 
forced to reduce their expensive local content like news and 
public affairs.
    The threat is more serious for local news stations, which 
are a major source of local traffic and weather information. If 
satellite radio is allowed to pull listeners from these 
stations, we will see fewer local news radio stations in this 
country. In fact, I have that problem in my Houston area. Our 
local news station is now mostly a talk station, and coming 
from our side of the aisle, the folks they have on the talk is 
not one of my favorite people.
    Making matters worse when you reduce the investments that 
local broadcasters make in the local day-to-day traffic, 
weather, news coverage, you reduce the assets available for 
broadcasters to use during local emergencies. The result could 
be catastrophic in tragedy, since local broadcasters are the 
only ones that have again their boots on the ground during 
emergencies like hurricanes and terrorist attacks.
    The legislation Mr. Pickering and I have introduced, H.R. 
983, the Local Emergency Radio Protection Act, clarifies 
satellite radio is not allowed to use their repeater network or 
their receivers to selectively offer low-cost, local 
programming and to cut localism.
    Mr. Chairman, I want to thank you for holding the hearing, 
and I look forward to today's hearing and next week and also 
our consideration of Mr. Pickering and my bill.
    Mr. Markey. I thank the gentleman. The gentleman from 
Florida, Mr. Stearns.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Thank you, Mr. Chairman, and let me also say 
that this is an important, timely hearing. We are glad to have 
these distinguished, competent individuals who pay taxes before 
us.
    When I was looking at this, I am not sure that Congress 
really has a distinct role in whether these two radio stations 
should be merged or not. Perhaps our responsibility is more 
into looking at whether this merger will provide greater 
localism and diversity on a combined service or not, and 
whether this local differentiated programming undermines free, 
over the air radio.
    I think all of us ought to agree though that the merger of 
these two is not going to create a monopoly of any sense 
because there is a lot of competition out there with the 
broadcast and the Internet and the wireless and iPod, as others 
have mentioned. So in the end, I think that we just have to see 
whether competition is going to be there and whether this 
merger is going to upset what I feel is the larger issue, which 
is diversity and provide localism.
    I notice that Chairman Martin of the FCC had a question 
about the increased cost for this, and Mr. Karmazin indicated 
that he thought the price would not go up. I think he said that 
in recent congressional testimony, that subscribers would pay 
the same monthly rate and receive significantly more 
programming. But then, I think, Mr. Martin went on to say well, 
I think it's going to go above the $12.95. And then in 
response, Mr. Karmazin then said that he meant two things. 
Subscribers wanting to keep their existing service would not 
face a price increase, and listeners who wanted the best of 
both services would pay less than the combined rate of $25.90.
    But the long-term outlook on this is that whether they 
merge or don't merge, the price of this will be decided by 
competition. So even if they do merge, they are going to have 
to compete pretty strongly in the marketplace. They have to 
offer a better product, a better price. They must prosper, and 
the free market will decide in the end what is going to happen 
here and perhaps not so much as this congressional hearing. And 
I thank you, Mr. Chairman.
    Mr. Markey. Gentleman's time has expired. The gentleman 
from Michigan, Mr. Stupak.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. Thank you, Mr. Chairman, and thank you for 
holding today's hearing on the future of radio in the digital 
age. I want the record to reflect that my good friend, 
Congressman Mike Doyle, gave up alcohol for Lent. But after his 
opening statement, I believe it would be better if he would go 
back on it. I am sorry he is not here for the comment.
    But the witnesses will provide a snapshot of the radio 
market today and instruct us as to what the market will look 
like in the future. I think we will find that the market is not 
easy to define. Does the real market only consist of AM and FM? 
How much of a competitor is satellite radio to AM and FM? In 
what way is my iPod a competitor to AM and FM? And in what ways 
will my iPod or even my BlackBerry be a competitor to AM and FM 
radio tomorrow?
    Understanding the market is key to Congress legislating and 
the Federal Government regulating in this area. For example, 
how the Department of Justice defines a radio market will 
largely affect whether the Department of Justice approves the 
proposed merger between XM and Sirius Satellite Radio. I am 
pleased we have Mr. Karmazin of Sirius Radio with us here today 
to speak about the proposed merger and his view of the radio 
market. I would also like to welcome the other witnesses 
testifying.
    While I hope we discuss other issues such as access to 
content, royalties, new platforms, and technologies, I think it 
is important that the committee look closely at the proposed 
satellite radio merger. I look at this proposed merger through 
the eyes, or should I say the ears, of my rural constituents.
    Rural Americans depend on local, terrestrial programming 
for crop updates, storm warnings, local news, and sports. 
Whether I am out hunting, boating, or driving hundreds of miles 
meeting my constituents, radio is my lifeline to the world. I 
always have access to the radio. I don't always have access 
through my cell phone. Local radio warns me of when another 
winter storm is rolling in, and it provides me with play-by-
play action of the current Delpino High School hockey playoff 
run. I am not sure what my constituents would say is the more 
important service.
    Satellite radio has also taken off in rural America. My 
constituents have embraced this new option for content they may 
not otherwise have access to. The success of satellite radio in 
rural America is similar to the success of satellite 
television. I believe it is beneficial for my constituents to 
have a choice of providers of both satellite television and 
satellite radio markets. Just as DirectTV and EchoStar's Dish 
Network competing head to head benefits my consumers, so does 
head-to-head competition between XM and Sirius Radio. In both 
markets, competition has kept prices down, increased 
innovation, and strengthened consumer service. Ultimately, I 
believe a competing satellite provider may be a better check 
than a local broadcaster.
    In that vein, I'm concerned approving this merger could 
start us down a slippery slope of approving mergers between 
EchoStar and DirectTV and other providers. That is not 
something my constituents want. When EchoStar stopped providing 
distant signals last year, I heard from many of my constituents 
upset that they were effectively left with only one option for 
satellite television.
    I urge the Department of Justice and the Federal 
Communications Commission to look at this merger with a 
critical eye and protect the best interest of the public 
airwaves, not corporations.
    And with that, I yield back, Mr. Chairman.
    Mr. Markey. OK. The gentleman's time has expired. The 
gentleman from New Jersey, Mr. Ferguson.

 OPENING STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Ferguson. Thank you, Mr. Chairman and Mr. Upton for 
holding this hearing. This subcommittee can play a key role not 
only in highlighting the promise of digital technology and 
content for the American consumer, but also highlighting some 
potential problems.
    Perhaps more important than that is determining whether a 
true problem exists at all. There are more options available in 
the marketplace than ever before. Apple's iPod is a stunning 
success story. Digital audio can now be heard across multiple 
platforms from Internet radio, Web casts, and wireless, to HD 
and satellite radio. In just a few short years, there are more 
options available to our constituents than ever before. I think 
it is safe to say that members of this panel want to ensure 
that the digital marketplace remains robust and competitive.
    In turn, it is important that there remains a maximum 
choice for consumers and that the marketplace is a welcome 
place that encourages innovation. These are indeed exciting 
times for American consumers, particularly with regard to the 
audio industries. And that is one of the reasons why at this 
point, I am inclined to be supportive of this proposed merger 
of XM and Sirius. However, my support is primarily contingent 
on there being a satisfactory resolution of the issue of 
adequate protection for content creators.
    Last Congress, I introduced the Audio Broadcast Flag 
Licensing Act. It urged that both satellite companies and 
broadcasters come to the table with content creators to work 
out fair royalties in the private marketplace. The goal of my 
legislation was not only to ensure that intellectual property 
rights are respected and that content creators are treated 
fairly, but that consumers continue to have access to new 
content.
    I have long said that my preference is to see the issue of 
digital content protection resolved between the respective 
parties in the private sector. Sirius, under Mr. Karmizan's 
stewardship, set a standard by negotiating with record labels 
and illustrating that the marketplace can work. XM followed a 
different route, choosing to litigate the issue in the courts. 
I am eager to learn today how a newly merged company might 
address this particular issue.
    Thank you, Mr. Chairman, again for holding this hearing. 
Radio in the digital age not only holds an exciting array of 
products for our constituents, it also raises many questions 
for this panel to consider. And as we strive to ensure that 
those options not only remain but continue to grow. And I look 
forward to hearing from our witnesses. I welcome all of you 
here today. Thank you, Mr. Chairman. I yield back.
    Mr. Markey. Thank you, gentleman. The gentleman from New 
York, Mr. Towns.

 OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Towns. Thank you very much, Mr. Chairman, for holding 
this hearing today. Let me welcome the chief executive officer, 
Mr. Karmazin from Sirius, a great New Yorker. Thank you for 
coming and also the other panelists. Good to see you because we 
are looking forward to learning a lot from you.
    We need to understand how to maintain a competitive 
marketplace that gives choices and low prices to consumers and 
created value for shareholders. I also look forward to learning 
how more minorities and women can get into this booming 
business and how these companies plan to operate responsibly 
and in the public interest, using the new options offered to 
them by digital technologies.
    I agree with some comments coming from my colleagues that 
we must first view this satellite radio merger from the 
perspective of the consumer and whether or not the combination 
of these two companies will benefit our Nation's audio users 
both in terms of price and content.
    It is clear that the audio market has changed drastically 
between 1997 and today, when the FCC greenlighted the emergence 
of XM and Sirius. And now 10 years ago, when there weren't 
nearly as many audio options as there are today, pitting these 
two companies against each other was more logical in terms of 
diversified consumer choice. Now, however, with iPods in every 
gym and Internet radio on every computer, the audio landscape 
is a bountiful place.
    Therefore we must ask ourselves if this merger will 
continue to provide consumers with great content, a wide array 
of choices, and low prices. And I emphasize low prices. I am 
eager to hear from our witnesses on these crucial 
considerations, and I thank them for taking the time to appear 
before us today so we can learn as much as we can and move 
forward.
    Thank you very much, Mr. Chairman, and on that note, I 
yield back.
    Mr. Markey. I thank the gentleman. The gentleman from 
Georgia, Mr. Deal.

  OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Deal. Thank you, Mr. Chairman. Thanks for the hearing 
and thanks to the witnesses for being here. I think it is 
certainly an appropriate time, in light of the proposed merger 
of the satellite radio stations. I am interested to learn more 
about both the positives and the negatives and how the merger, 
if it is completed, will affect rural districts such as mine 
and not only the constituency but also existing radio station 
operators.
    I understand there are a number of ways, of course, for 
customers to access programming: iPods, HD radio, over the air 
broadcast radio. However, I also know that there are many of my 
constituents who are concerned about what is going to happen if 
there is only one satellite radio provider in the marketplace.
    One question that I would like to see answered is how we 
can be assured that this merger will not result in rising 
prices to consumers. Will there continue to be an active and 
competitive radio marketplace? What will happen to exclusivity 
deals and their effects on consumers? Will there continue to be 
innovation and ingenuity? These are very real concerns for 
millions of Americans.
    I would like to end with one final observation. As I have 
listened to the various parties commenting on this merger, I 
have been struck by one particular aspect of the debate. Behind 
the reality of whether there is competition and parity among 
the various industries involved, I am struck by this one bit of 
irony. The broadcasters, when talking about their television 
programming, seem to have a different message than the one I am 
hearing from their radio interests. When it comes to television 
programming, they have been very vocal in asserting their right 
to negotiate compensation for their product and have asserted 
their power to withhold their product from anyone not willing 
to meet their conditions for payment.
    However, when it comes to broadcasting artists' music, the 
NAB is lobbying Congress that they should not be asked to 
negotiate or pay for another content owner's product, even 
though satellite radio companies and Webcasters do negotiate 
payment. I find this a highly contradictory position. When they 
control the content, they demand payment. When they use someone 
else's content, they don't want to provide payment.
    Mr. Chairman, as we consider the merger before us today and 
debate whether there is parity among the various services, I 
would suggest that we should also consider whether there is 
parity across the telecommunications sector on how we treat 
content owners and whether it is fair and reasonable. Thank 
you.
    Mr. Markey. The Chair recognizes the gentleman from 
Virginia, Mr. Boucher.

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
just have a few thoughts about the XM/Sirius proposed merger 
that I will share with members and others this afternoon. I 
think there are pro-consumer benefits, which suggest that the 
merger is in the public interest. Both companies maintain 
separate entertainment offerings at the present time. The 
merger would extend to consumers larger choices from among 
program offerings, including the possibility of a la carte 
availability to select the channels from a larger total 
inventory that each consumer would desire.
    The extra bandwidth which the elimination of duplication 
would produce could also result in the offering of a broader 
array of public interest programming than either company is 
offering at the present time. And there appears to be, in my 
view, no valid reason to disapprove this merger. It is clear to 
me that the relevant market for competition purposes is the 
entire marketplace for audio entertainment. That market 
includes all of terrestrial radio as evidenced by the repeated 
statements of some of the major terrestrial broadcasting 
companies that they are in competition with satellite radio. I 
think the opposition of the National Association of 
Broadcasters to the merger lends credence to the fact that 
terrestrial and satellite radio are indeed in competition.
    The relevant market also includes Internet radio and both 
Internet-based streams and downloads to computers and to 
portable devices. And in that large, highly competitive market, 
satellite radio is really a small player. Arbitron's recent 
survey that was released last week shows that satellite radio 
listening accounts for only 3.4 percent of all radio listening.
    That same survey shows that satellite radio listeners are 
also avid listeners to terrestrial radio. In fact, satellite 
radio listeners are listening to XM or Sirius for 10 hours, 45 
minutes per week. But those satellite subscribers are mostly 
listening to terrestrial radio for an average of 14 hours 
weekly. They listen to Internet radio 8 hours, 15 minutes 
weekly. These figures clearly show that satellite radio is in 
competition with terrestrial radio and Internet radio and that 
satellite radio listeners are listening to the combination of 
terrestrial and Internet radio more than twice as much as they 
are listening either to XM or to Sirius.
    There are public benefits to be derived from the merger and 
in the market where satellite radio competes. The companies do 
not have market power. In fact, combined, they represent a mere 
3.4 percent of that market. So, Mr. Chairman, in my view, the 
public interest requires approval of this merger. Thank you, 
and I yield back.
    Mr. Markey. The gentleman from California, Mr. Radanovich.
    Mr. Radanovich. Thank you, Mr. Chairman. I will pass on an 
opening statement.
    Mr. Markey. The gentleman from Mississippi, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, thank you. I too shall pass.
    Mr. Markey. We are going for the triple. The gentleman from 
Washington State, Mr. Inslee.
    Mr. Inslee. I'll pass.
    Mr. Markey. There you go. Going to Yankee Stadium here and 
Mr. Engel. Let's see if we can go for the cycle here.
    Mr. Engel. Well, I am afraid I am going to have to ruin it, 
Mr. Chairman. And I will tell you what I will do for you. I 
won't read my speech. I am just going to speak from the heart a 
little bit, and I will try to not take the full time.

 OPENING STATEMENT OF HON. ELIOT L. ENGEL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Engel. I want to say, and I have listened to a number 
of my colleagues, that I certainly have an open mind about 
this. I don't think that we should automatically assume that 
the merger is a bad thing or a bad idea. Like all of us, we 
represent constituents, and the bottom line is what is best for 
the constituents. I think we know that. I think there are 
differences of opinion about that. I think we should listen to 
all sides and come to a conclusion.
    I do know one thing. I do know that my kids run around with 
iPods and all kinds of things I don't have time for. And I know 
that when we look at the total issue, we cannot, I believe, 
just look at the issue of radio standing by itself. I think we 
have to look at the totality of the kinds of entertainment 
people are looking for.
    So I would say that the onus is on these gentlemen to 
explain why this would be good to consumers. I think we should 
give them the chance. They should deserve the chance to plead 
their case, and there is a thing that I have learned in the 10 
or so years I have been on this committee.
    Things are rapidly changing in telecommunications, and the 
genie is really out of the bottle. I am not sure that 
government can or should attempt to put the genie back in the 
bottle. I think sometimes we might be better off letting the 
marketplace decide that as well.
    But again I have an open mind, and I am going to listen to 
the testimony, and I think that this committee has a lot of 
discussion. And I welcome the people who are here to testify, 
and I thank you, Mr. Chairman, for your indulgence.
    Mr. Markey. I thank the gentleman. All time for opening 
statements by members of the subcommittee has expired.
     I would like to inform our witnesses that you have just 
been an eyewitness to history. This is the largest number of 
members of any subcommittee that has ever showed up at 3 p.m to 
make opening statements on any subject at any time in my 30 
years in Congress.
    I know that you probably are wondering what has been going 
on, and history has been made this afternoon. So we welcome 
you. We thank you for your patience, and you are the main event 
obviously. And we are looking forward to your testimony.
     We will begin by hearing from Geoffrey Blackwell, who is 
testifying on behalf of the Native Public Media, and the 
National Federation of Community Broadcasters. Mr. Blackwell is 
currently the director of Strategic Relations and Minority 
Business Development of the Chickasaw Nation Industries. He is 
a member of the Native Public Media Board of the Tribal 
Advisors, and he is also the chairperson of the National 
Congress of American Indian Telecommunications Subcommittee. 
Mr. Blackwell, you have 5 minutes, as does have each one of the 
other witnesses, at which point we will go to questions from 
the subcommittee members of the witnesses. Please begin, Mr. 
Blackwell.

STATEMENT OF GEOFFREY BLACKWELL, DIRECTOR, STRATEGIC RELATIONS 
   AND MINORITY BUSINESS DEVELOPMENT OF THE CHICKASAW NATION 
                           INDUSTRIES

    Mr. Blackwell. Mr. Chairman and members of the committee, 
my name is Geoffrey Blackwell, and I am honored to represent 
Native Public Media and the National Federation of Community 
Broadcasters at today's important hearing on the future of 
radio. Native Public Media represents 33 Native Public radio 
stations in the United States. Native Public Media's primary 
focus is strengthening existing American Indian and Alaska 
Native stations and promoting ownership for more native 
communities by serving as an advocate, national coordinator and 
resource center.
    These stations serve as critical platforms for education 
and language preservation, public affairs, and cultural dialog. 
They meaningfully inform the understanding of localism. Their 
abiding commitment is to serve the diversity in their 
communities. For example, on the Hopi reservations, remote 
mesas in northeastern Arizona, KUYI broadcasts a children's 
program called Shooting Stars every morning during the bus ride 
to school. Produced at the request of the students, the program 
engages community members and elders to read stories in both 
the Hopi and English languages.
    The Tohono Od'ham Nation, which is responsible for almost 
100 miles of our critical international border with Mexico 
relies on KOHN to keep its citizens informed of the local news, 
national threat levels, and Homeland Security activities. With 
these experiences, we have recommendations for Congress and the 
relevant agencies to improve the status of non-commercial 
radio, particularly Native radio.
    The first priority must be to increase Federal funding and 
explore other avenues for supporting Native public radio 
stations, including full support for the Corporation for Public 
Broadcasting and the Public Telecommunications Facilities 
program and additional funding for community stations on needs-
based criteria. In this regard, KILI, the Lakota radio station, 
went dark last year after being struck by lightning. Native 
Public Media provided KILI with proposal writing expertise that 
helped the station secure emergency funding from the PTFP 
program and CPB to repair and resume operations. We learned 
that even small grants can make a big difference.
    Second, support Native Public Media's Blueprint Initiative, 
which envisions a complete inventory of how Native communities 
access and relate to media, both traditional and new advanced 
telecommunication services. The Blueprint Initiative will find 
the critical information on which new solutions can be 
premised.
    Third, ensure that there is adequate public notice in 
advance of the FCC's upcoming application window for full-
power, noncommercial, educational licenses.
    Fourth, pass legislation to lift the prohibition on the 
FCC's issuance of certain low-power FM licenses.
    Fifth, protect the basic ability to stream content or post 
podcasts at affordable rates without receiving prior consent 
from major telecom providers. In addition, access should be 
increased for Native programming on satellite radio services. 
The FCC should hold an official hearing on media ownership 
issues related to Indian country as they continue in their 
review of the existing rules. We need an in-depth examination 
of these issues.
    And finally, Congress should provide customized tools to 
the FCC in the form of new, legal authorities and directions 
based on basic recognition of Federal Indian law and policy to 
work directly with Native nations, open new proceedings, and 
create new rules to address barriers to entry and streamline 
regulatory processes. The vast majority of Native Americans 
have no access or only limited access to media that represents 
their voices and interests. Native-owned radio stations account 
for less than 0.3 percent of the over 13,000 radio stations in 
the United States. There are more than 562 federally recognized 
tribes, yet we only have those 33 licenses for Native public 
radio stations. For Native people across the country, it is not 
about having access to big media. It is about having access to 
any media.
    Profound changes are taking place in the way Americans use 
media, and Native Public Media is focused on helping Native 
communities leverage new digital and wireless platforms that 
will help make it possible to close the existing media divide. 
Critical to our efforts is ensuring the policymakers understand 
the impact of their actions on Native communities.
    In closing, Native nations face several challenges in 
deploying critical emerging information in telecommunications 
technologies while they work to develop sustainable economies. 
As you address the appropriate legal framework in a world of 
technological convergence, Native nations and organizations 
remain ready to consult with you.
    Mr. Chairman, members of the committee, on behalf of Native 
Public Media, thank you again for the opportunity to testify 
today. I look forward to answering any questions you may have.
    [The prepared statement of Mr. Blackwell appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you very much, Mr. Blackwell. Our next 
witness is Peter Smyth, who is the president and chief 
executive officer of Greater Media Incorporated. He is here 
today representing the National Association of Broadcasters. 
Since March 2002, he has been the president and CEO of Greater 
Media, the parent company of 19 AM and FM radio stations in 
Boston, Detroit, Philadelphia, and New Jersey. We welcome you, 
Mr. Smyth. We thank you for your willingness to testify today. 
Whenever you are ready, please begin.

      PETER SMYTH, PRESIDENT AND CEO, GREATER MEDIA, INC.

    Mr. Smyth. Thank you. Good afternoon, Chairman Markey, 
Ranking Member Upton, and subcommittee members. My name is 
Peter Smyth. I am the president and CEO of Greater Media, which 
owns and operates 20 local AM and FM stations in Boston, 
Detroit, Philadelphia, and New Jersey and 13 community 
newspapers in central New Jersey. I am testifying today on 
behalf of Greater Media and the National Associations of 
Broadcasters. I am here to voice NAB's opposition to the 
proposed merger of the country's only two satellite radio 
companies, XM and Sirius.
    But first, I want to make several important points about 
the future of terrestrial radio. As the CEO of Greater Media, a 
company that just celebrated its 50th anniversary in radio, I 
am optimistic about radio's future. I have learned from working 
for a family-owned company that a radio license is not a right, 
but a great privilege.
    And we need to treat that accordingly, respecting listeners 
and delivering quality content to serve their needs. As part of 
this obligation, we are transitioning to the digital 
technology, HD radio, to provide the quality sound and 
additional data that digital service offers. We are also 
focusing on compelling local content that creates the emotional 
bond between listeners and their communities.
    My colleagues understand that localism is our franchise and 
ours alone and that we must retain that unique connection to 
listeners that no other medium can provide, which brings me to 
the satellite radio and the proposed XM/Sirius merger. As I see 
it, there are a multitude of reasons for the Government to 
reject this monopoly.
    First, satellite radio is a national service that provides 
very similar programming to each listener across the country. 
There are only two such services, and they compete ferociously 
against each other in the marketplace. The undeniable fact is 
that Mr. Parsons and Mr. Karmazin want government permission to 
take two highly competitive companies and turn them into one.
    Second, XM and Sirius are two companies with a track record 
of misrepresenting their intentions and not following through 
on the rules that have been established and failing to correct 
those past transgressions. For example, XM and Sirius for years 
have operated terrestrial repeaters in blatant violation of FCC 
rules. XM operated more than 142 repeaters at unauthorized 
locations. And not to be outdone, Sirius constructed at least 
11 repeaters at locations different from the city they told the 
FCC, including one in Michigan built 67 miles from the 
authorized location. 67 miles.
    Moreover, both XM and Sirius promised the FCC nearly a 
decade ago that they would have a receiver that receives both 
XM and Sirius. That receiver does not exist today. And now, 
many local radio companies have complained to the FCC that 
explicit X-rated programming from satellite radio bleeds 
through to their local stations without warning. Viewed against 
this pattern of behavior, why would the Government trust these 
two companies to form a monopoly?
    Third, if the Government-sanctioned monopoly is approved, 
consumers will be the loser. Subscription prices will rise 
because there will be no competition to restrain a monopoly. 
Jobs will be eliminated. Innovation will suffer at a crucial 
time in our evolution. Neither listener nor advertiser will 
benefit. Put simply, private, corporate interests will benefit. 
The public will suffer.
    Fourth, XM and Sirius, by their own admission, are not 
failing companies. Their current highly leveraged position is 
due to extraordinary fees paid for marketing on-air talent, $83 
million in stock that Sirius awarded to Howard Stern, and on 
top of the $220 million bonus. But even with these costs, XM 
and Sirius have made clear they can succeed without a merger. 
Let us remember that when the FCC allocated spectrum to Sirius 
and XM in 1997, it specifically ruled against a single monopoly 
provider.
    I have heard these companies claim the monopoly should be 
granted because local radio competes with XM and Sirius. Let me 
be very clear here. Local radio does not compete against 
satellite radio in their national market. Local broadcasters' 
signals are not nationwide and are not subscription-based. We 
are not a substitute for satellite radio.
    Five years ago, the only two nationwide DBS satellite 
licenses, EchoStar and DirectTV, tried to blaze a remarkable 
similar trail when they proposed to merge. It failed. Indeed, 
the FCC decided unanimously the merger was not in the public 
interest. For these reasons and others, I respectfully ask that 
this Government-sanctioned monopoly be rejected.
    I thank you, and I look forward to your questions.
    [The prepared statement of Mr. Smyth appears at the 
conclusion of the hearing.]
    Mr. Markey. I thank you, Mr. Smyth, very much. Our next 
witness is Robert Kimball who is the senior vice president for 
RealNetworks Incorporated. He serves also as general counsel. 
We welcome you here today, sir.

   ROBERT KIMBALL, SENIOR VICE PRESIDENT, REALNETWORKS, INC.

    Mr. Kimball. Thank you, Chairman Markey, Ranking Member 
Upton, and members of the subcommittee. Thank you for having me 
today to talk about Internet radio. RealNetworks, the company I 
work for, invented streaming media back in 1995, and last year 
we used that technology to deliver over 1 billion song plays to 
our customers, and we did pay royalties to the musicians for 
the use of that music.
    I am here on behalf of both RealNetworks and the Digital 
Media Association, a group of leading Internet media companies, 
including Apple, Microsoft, AOL, Yahoo, and several small 
Webcasters.
    I have good news and bad about the future of Internet 
radio. First, the good news. Internet radio provides a rich and 
diverse music experience that listeners love, and as a result, 
they buy more music. This is great for us and for the music 
industry.
    Now, the bad news. Internet radio suffers from serious 
statutory bias that undermines our competitive opportunity 
because we are forced to pay higher copyright royalties than 
our competitors, and our innovation opportunities are severely 
restricted. This anti-Internet bias is bad for consumers and 
competition, and it reduces our industry's ability to address 
your media consolidation concerns. Today, Internet competes, at 
least in part, with terrestrial and satellite radio. Speaking 
for RealNetworks, we believe that the XM/Sirius merger should 
be put on hold until Congress creates a level playing field to 
enable us to fairly compete with the larger consolidated 
company. Without fair competition, further consolidation in a 
favored industry is just bad policy. Internet radio is simply 
radio programming transmitted over the Internet. Several 
thousand Web-based radio services offer literally hundreds of 
thousands of Internet radio channels to satisfy every 
conceivable musical taste.
    Our unlimited supply of diverse channels and features 
ensures that every artist can find a fan, and every fan can 
find a station. Internet radio enables consumers to choose a 
station by more than its call letters or number on the dial. 
With Internet radio, listeners can identify genres, time 
periods, artists, and moods, and the service can provide them a 
relevant station.
    Internet radio enables independent musicians, who never get 
airplay on big radio, to find an audience. We enable the small 
town listener to have access to music and information that 
local radio simply cannot provide. And while listening to our 
stations, our audience can read music reviews, learn more about 
the artists and buy concert tickets. We are good for local 
musicians and local economies. We also provide simple ``buy 
now'' buttons to sell the music on the spot if you like the 
song you are listening to. Every one of these features benefits 
recording artists, especially those who get no airplay on big 
radio or even on satellite radio. So with all this opportunity, 
what is stopping us from competing fairly against satellite and 
broadcast radio?
    First, the Copyright Act establishes a tiered royalty 
structure that requires Internet radio to pay the highest 
royalties by far while exempting broadcast radio from any sound 
recording royalties. Just last Friday, the copyright royalty 
board imposed a new minimum of $500 per channel, a charge that 
is likely to kill the very diversity that makes Internet radio 
so compelling. If this fee is not overturned, one can easily 
imagine Web radio looking more and more homogenized, like 
homogenized mass market radio.
    Second, the Copyright Act does not regulate broadcast radio 
programming. It only lightly regulates satellite programming, 
but it greatly inhibits the programming flexibility for 
Internet radio companies.
    Third, the Copyright Act allows satellite radio and 
terrestrial radio companies to offer recording devices and 
portable radio services and allows them to encourage recording 
of their radio stations. Meanwhile, the Copyright Act 
punitively regulates personalized Internet radio, which 
essentially eliminates our most compelling features.
    And finally, while broadcast radio has no copyright 
litigation exposure, Internet and satellite radio have massive 
exposure that is a powerful deterrent to innovation. If we 
guess wrong about a Copyright Act provision, the penalty is 
$150,000 for every song performed. I have personally had to 
kill several innovative projects due to legal uncertainty and 
the potential financial catastrophe that could result from 
statutory damages.
    As Tim Berners-Lee testified in this subcommittee just last 
week, the Internet has become a more mobile and wireless 
environment. In the next several years, WiMax and other 
technologies will strengthen mobile broadband capability, and 
the Web and Internet radio will always be on. And it will 
always be portable.
    In the future, a mobile phone, just like this one, is going 
to have three radio services available: broadcast, satellite, 
and Internet. We will compete even more directly against one 
another, especially in a world where terrestrial radio is 
moving to digital HD broadcasts. Why should we pay three 
different royalties and have three different sets of 
programming regulations for radio delivered to the exact same 
device?
    The current state of Internet radio is dominated by two 
facts. We pay higher royalties than our competition, and we are 
subject to more restrictions on our ability to innovate. The 
future of Internet radio and perhaps all digital radio 
competition may largely be dictated by whether there is a level 
playing field. Thank you.
    [The prepared statement of Mr. Kimball appears at the 
conclusion of the hearing.]
    Mr. Markey. I thank the gentleman very much. Our next 
witness, Mel Karmazin, is the CEO of Sirius Satellite Radio. 
Mr. Karmazin has had several top jobs in the broadcasting 
industry. He founded Infinity Broadcasting, one of the largest 
owners and operators of radio stations in the United States. 
Working his way up, he eventually became the president and 
chief operating officer of Viacom. Mr. Karmazin joined Sirius 
in November 2004 as chief executive officer. We welcome you, 
Mr. Karmazin. You may begin your testimony.

           MEL KARMAZIN, CEO, SIRIUS SATELLITE RADIO

    Mr. Karmazin. Thank you very much, Chairman Markey, 
Congressman Upton, Congressman Barton, Congressman Dingell. I 
really appreciate the opportunity to be here today.
    I assumed that when Chairman Markey invited me to attend 
this hearing, it was because he wanted to take advantage of my 
40 years in radio on this important subject. But in judging by 
the comments that have been made by the members, I think that 
rather than getting into talking about the health of the radio 
business, that I spend some time talking about the Sirius/XM 
merger, since it seems to be on everyone's mind.
    So let me begin by saying that before we decided to attempt 
to do this merger, both Sirius and XM obviously consulted its 
boards and had advisors in. We talked about whether or not we 
believed that this merger could be approved. There would 
certainly be no advantage to either company of announcing a 
merger if, in fact, it wouldn't be approved. And what the 
advisors told us and what we have been operating under from the 
time we have announced it is that there are two standards that 
we really need to do.
    One standard is that we need to make sure that this merger 
is not anti-competitive, and the Department of Justice and the 
FCC will take a look at whether or not this is anti-competitive 
or not. I think that you all have heard from all of these 
people talking about the competition that exists in satellite 
radio, and we are absolutely convinced that this is not about 
two companies becoming one or a duopoly becoming monopoly. It 
is absolutely ludicrous for anybody to think that we are not 
competing with all of these technologies that have been talked 
about.
    I also heard that the NAB has a new point, which apparently 
is very different than its members, about whether satellite 
radio competes with them, because if, in fact, the CEOs of all 
of these publicly traded radio companies from Clear Channel to 
CBS to Entercom to Cox, in their SEC filing that the CEOs have 
all signed off on, they all said that they compete with 
satellite radio so it seems a little bit disingenuous to talk 
about the fact that satellite radio is not competing with them.
    So, No. 1, we have to make sure it is not anti-competitive. 
No. 2, we have to make sure that this merger would be in the 
public's best interest. And that is what we are prepared to 
say. And when we go through the process at DOJ and the FCC, if 
in fact it is in the public's best interest, it will get 
approved. And if in fact it is not in the public interest, it 
won't get approved, and we will move on.
    There is some confusion here about what we have said about 
pricing, so I welcome the opportunity to talk a little bit 
about that to clarify it if there is any confusion. So the 
first thing that we said is that because we compete with free, 
that the marketplace dictates it. But we can talk a little bit 
about how you can hold us accountable for everything that we 
are saying. And that is that this deal with not result in 
higher prices. Test us, and you can come up with a way of 
holding our feet to the fire. We will also provide more 
choices.
    So in the specifics, if you are a Sirius Satellite Radio 
subscriber, you pay $12.95. You will not pay more than $12.95 
for that service after the merger. As a matter of fact, we will 
give you an opportunity to pay a lower price, because today the 
cheapest price you could pay is $12.95. But if you don't want 
all the choices we give you, we will give you an opportunity to 
have less. So that will be the first time, and the same thing 
is true with XM.
    And, by the way, Sirius started at $12.95, and 5 years 
later, we are still at $12.95. We have also said that if in 
fact you like the idea of having some content from Sirius and 
some content from XM, where today what you have to do is buy 
two radios, pay $12.95 each, that comes to $25.90, that we will 
make an offering available for less price. So if consumer 
choice and lower prices equal public interest, we think that we 
pass the test.
    We have also heard some things that are just also not 
relevant. From a point of view of serving the rural markets, we 
are proud of our track record on how we serve rural markets. 
And we think that we are really an asset when you compare us 
with the choices that we offer to people in smaller markets 
that they don't have a choice.
    There was also a point about how we received our licenses 
and we paid for that license, to use our spectrum, 10 years 
ago. And what we also think is very strange is that if in fact 
you would use 1997 policy to deal with what is going on in a 
2007 marketplace, but again we will let the FCC decide on that.
    So I know my time is up. I don't want to go over, but I 
really, really hope you ask me a lot of questions.
    [The prepared statement of Mr. Karmazin appears at the 
conclusion of the hearing.]
    Mr. Markey. Yes, I think you won't be disappointed, Mr. 
Karmazin. Mr. Gene Kimmelman is vice president of Federal and 
International Affairs for the Consumers Union. He is an expert 
on telecommunications policy. He has appeared before this 
committee many times in the past. We welcome you today.

        GENE KIMMELMAN, VICE PRESIDENT, CONSUMERS UNION

    Mr. Kimmelman. Thank you, Mr. Chairman, Mr. Upton, members 
of the subcommittee. On behalf of the Consumers Union, the 
print and online publisher of ``Consumer Reports Magazine'' we 
appreciate the opportunity to testify this afternoon. The new 
technologies that have created this explosion of digital 
opportunities in radio, in content, create enormous greater 
potential for consumers to have all kinds of services.
    And it is an exciting time, and for the Congress, we 
appreciate you looking into this because, as you look at this 
burgeoning marketplace of audio availability, there are a 
number of clouds hanging out there that we hope you will begin 
to address immediately. First off, you heard talk of low-power 
FM and recent findings that there is not the interference that 
people had worried about before. We totally endorse Mr. 
Blackwell's idea that there ought to be more availability of 
low-power FM across the country.
    There are many, many groups. You have a submission from the 
Prometheus Radio Project for this hearing today, indicating 
those who want to offer the service. Consumers want to receive 
it. We hope that you will help open this market to new 
diversity and opportunities.
    The other major cloud you heard about earlier is in this 
enormous marketplace, the few minority, the few women owners of 
media properties from radio across broadcast and on. Why is 
that the case? There clearly is marketplace impediments that 
are limiting diverse ownership. We hope the committee will move 
immediately to address those issues. Diversity of owners is 
very different than programming that is targeted to audiences 
but is controlled by few entrepreneurs who do not reflect the 
attitudes, the backgrounds of those diverse audiences.
    This is an important issue to address, and as you look to 
what the marketplace could do, we believe the greatest danger 
to consumers are many of the proposals to allow broad 
consolidation of media properties that concentrate power in the 
hands of a few owners. The great technologies will not serve 
the public interest if too few people control these 
technologies.
    So this afternoon, I'd like to just address the immediate 
proposed merger before you to evaluate from a consumer 
perspective what this means, the Sirius/XM proposed merger. 
Many things have already been said about market definition. Mr. 
Terry, I certainly hope that this is not the marketplace of 
noise. But looking carefully at what consumers need and what 
they use, there is a very distinct difference here between a 
mobile, audio, digital service that local broadcasters do not 
offer and cannot offer, that for immediate sports programming, 
NFL, NBA, Major League Baseball, you can't get on your iPod or 
other devices. There are some very unique elements to the 
services that XM and Sirius are offering.
    And so you can say that a bike and a plane and a train and 
a car all compete on some level, but for the importance of 
defining a relevant market for competition that keeps prices 
down for consumers and options open, that wouldn't make sense. 
And we believe in this case this merger suffers from very 
severe anti-competitive limitations. And unless Mr. Karmazin, 
who is extremely gifted, can show us how there are other facts 
not available right now, we don't believe it is in the best 
interest of consumers to allow this merger to go through, 
either from the limitations of the licenses of the FCC or 
antitrust review.
    I will just speak for a moment about the price promise. I 
very much appreciate Mr. Karmazin clarifying what we could get 
for $12.95 and the fact that there will be dual offerings for 
less than $25. And he indicates there will be more choices from 
this, but I would like you to step back as policymakers, not to 
review the merger, but as policymakers to think about if there 
were one satellite radio offering, what would you want to do to 
lock in that, if that is the appropriate deal that you would be 
getting? Do you just trust it in the marketplace that there is 
no other mobile satellite radio provider? Or what conditions, 
what regulations would you need? And let me ask you this: Do 
you think you need two licenses in the hands of one company to 
offer that service?
    Is it possible that what we are really hearing is if there 
are benefits of combining these, we could free up some of the 
spectrum from satellite radio for mobile digital television, 
for more broadband possibilities? Is there a policy option here 
that is really being presented to you that would create more 
opportunities for consumers?
    We urge you to look at those issues in the context of what 
is being proposed in the marketplace. And please help us in 
driving more innovation and diversity, and please be skeptical 
about consolidation. Thank you.
    [The prepared statement of Mr. Kimmelman appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Kimmelman, very much.
    Mr. Karmazin, will you permit consumers to buy channels a 
la carte?
    Mr. Karmazin. No, at this point, we don't have the set-top 
box such as what exists in your home. What we will do is offer 
more choices, and we might be able to get to a la carte-like 
services. But the idea of having somebody pay for two channels, 
if they only want two channels, is not something that is a 
financially viable alternative in satellite radio.
    Mr. Markey. So will prices for consumers stay the same, 
increase, and how will anything that you say be binding upon 
your company?
    Mr. Karmazin. Sir, we are certainly willing to have 
discussions with this committee or with the FCC or any 
appropriate agency on crafting a timeframe. But I will make it 
very clear in answering that question. No, prices will not go 
up. Again, if you are a subscriber to one service, it is 
$12.95, it will not go up. The only increase in pricing would 
be if you were taking content from both companies. And there, 
the price comparison is $25.95, and the prices will drop 
significantly from that.
    Mr. Markey. What is significant? So that if one of them has 
the NFL, the other one has Major League Baseball. Now, if 
someone wants to get what the company that they now subscribe 
to doesn't provide, will they have to pay the full $12.95 in 
order to get it, or will there be a discount for that person as 
they are now subscribing to the other channel? And how big is a 
significant discount? Is that $10 off or only $2 off?
    Mr. Karmazin. There will be a significant discount. Without 
getting into any specifics, Congressman, because we are not 
prepared to come up with a specific number. But I will tell you 
that it looks closer to $10 than to $2.
    Mr. Markey. Now, on the issue of local content, such as 
news, weather, sports, et cetera, not just national content, 
there is some concern by the local broadcasters that this 
merger will make it more possible for you to provide more local 
content which will cut into the local radio stations' revenue. 
Could you answer that question in terms of the threat to the 
local broadcasting?
    Mr. Karmazin. Sure, Mr. Chairman. Our business model does 
not provide for us to really do local advertising and local 
content. I have heard from different people in the course of 
the last 2 weeks where some people would like to see us do more 
local programming. And others are looking for assurance that we 
are going to do less or no local programming. So we are happy 
to work with our regulators. We are happy to work with this 
committee in getting a sense as to what it is we are being 
asked for. Sometimes we are being asked to do more in the way 
of local services, and some people have advanced that. And 
other people have advanced doing less. So we don't currently 
plan on getting into the local advertising----
    Mr. Markey. Do you believe that you are a threat to local 
broadcasters?
    Mr. Karmazin. Yes, I believe there is a fact that when we 
compete with local broadcast, there is no question--and if what 
you mean by threat, are they going to be out of business? 
Absolutely not. There is an AM/FM button right next door to 
every satellite radio subscriber. We are not replacing local 
radio. So I don't know what you mean by threat. Do we compete 
with them? Absolutely. They compete with us? Absolutely.
    Mr. Markey. All right, let us go to Mr. Smyth then. Mr. 
Smyth, how do you respond to Mr. Karmazin?
    Mr. Smyth. My response to Mr. Karmazin is first of all, I 
am a local business. He is a national business. I do not 
compete with him on a national business because my signals in 
Boston, MA cannot be heard in Lansing, MI or Detroit, MI. If 
this merger is put together, he can bring 288 signals into 
Boston, MA, where I currently have five radio stations. CBS 
would have five. Entercom would have four. I think that there 
is a disadvantage in that. Do I compete with him in a national 
arena? No, I don't. No. 2, my question is with this terrestrial 
repeater, when you start to get into exclusive programming, 
there are some concerns there that you can start to see them 
come into the local markets. Mr. Karmazin just said that it has 
been going both ways. Some people want him in. Some people do 
not want him in. From my colleagues, they do not want him in 
the local markets. I have never heard anybody say we want you 
to come in.
    Mr. Markey. Let me get a quick comment from Mr. Kimmelman. 
Then my time is expired.
    Mr. Kimmelman. Mr. Chairman, I think it is quite clear that 
this is a national service that does something unique. It 
combines national programming, all Major League Baseball, all 
NFL, all NBA, with the potential for local programming. Mr. 
Karmazin says he is not really in that business, but he can 
offer it. He would offer it on some level. So I can understand 
why local broadcasters would fear that this could cherry pick 
some of what they offer.
    Mr. Markey. And what are the consequences of that, Mr. 
Kimmelman, quite quickly?
    Mr. Kimmelman. Well, I think that this is something local 
broadcasters are going to have to address, whether there is a 
merger or not. It is just a greater problem if there is a 
merger to them.
    Mr. Markey. OK, my time has expired. I recognize the 
gentleman from Michigan, Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman. I have got a number of 
questions as it relates to the merger request as well. And I 
just want to thank publicly both the NAB and Mr. Karmazin for 
actually spending a little time with us in addition to the 5 
minutes that we are allotted today and down the road too.
    Mr. Karmazin, are you able to succeed as Sirius or XM, 
either one able to succeed if the merger does not come through?
    Mr. Karmazin. Yes, I believe so.
    Mr. Upton. And let me go into one of Mr. Markey's questions 
to clarify. One of the things that you indicated was that you 
would perhaps look at lowering prices if you looked at perhaps 
a smaller service field or a smaller number of stations, not 
exactly a la carte, as we would like to imagine, but perhaps a 
couple of fewer stations. And the question that I have as we 
relate is one has NFL, the other one has baseball. I don't know 
what the subscription time period is. When someone signs up for 
the service, are they billed monthly? Are they billed yearly? 
Do you have a choice?
    Mr. Karmazin. Yes, sir. As a matter of fact, you can sign 
up for a lifetime subscription for $495. It is done, and you 
don't have to pay any increase ever.
    Mr. Upton. The question I was going to ask though, can you 
do a 6 month/6 month so in essence you could sign up for NFL in 
the winter and then maybe in March, with the change of Daylight 
Savings Time, be able to move to the spring games and get 
baseball through September, October?
    Mr. Karmazin. Currently, you need a separate radio. So in 
the case today of both services, you have to buy a separate 
radio. But there is no minimum required. I would say the vast 
majority of our subscribers do an annual plan or more, but you 
can subscribe on a monthly basis. And if you wanted to, to pay 
for a month, disconnect, and go to another service, you can do 
that.
    Mr. Upton. Now, I am co-chair of the auto caucus with Mr. 
Kilby, an important venture in Michigan for sure. So if I buy a 
new Ford, and I signed up with--is that Sirius or XM?
    Mr. Karmazin. That is Sirius.
    Mr. Upton. What happens if I buy this new Ford, and all of 
a sudden, I decide that I want the NFL and MLB to be part of 
that? What do I do as that relates to the receiver that I have 
in my vehicle?
    Mr. Karmazin. If the merger goes through,what we would hope 
to offer you, as a Ford customer, is the ability to get both 
services on your same radio.
    Mr. Upton. You will be able to do that without changing the 
receiver or the device that I would have or not?
    Mr. Karmazin. That is correct, and that is where we made 
the analogy of saying that today you would have to buy the 
second receiver to attach to it and pay a second subscription, 
$25.90. And going forward, there would be a substantial 
reduction, and you will be able to get it both on the same 
receiver.
    Mr. Upton. Mr. Smyth, you are shaking your head.
    Mr. Smyth. If I understand the question properly, sir, you 
asked if you had a Sirius radio in a Mustang, and the merger 
came together today, you would have to have another radio in 
that car. You could not receive both XM and Sirius on a Ford 
radio today. It is inoperable. It would cost the consumer more 
to do that, and Mr. Karmazin was saying that. I mean he is far 
wiser than I, but I was somewhat of a doubting Thomas to see 
how did that----
    Mr. Upton. My question is who is going to pay for this 
receiver that I am going to get?
    Mr. Smyth. The consumer.
    Mr. Upton. And what is the cost going to be?
    Mr. Karmazin. Congressman, what we are saying is that every 
single receiver that exists today is not going to be obsolete. 
And in order for the consumer who has that Ford vehicle today, 
if the companies merge, you don't need a second receiver. That 
we will be able to provide you with content to your existing 
receiver without a new receiver and at a lower price than you 
currently have the choice today.
    Mr. Smyth. You are saying that the same chip will receive 
the same two signals from XM and Sirius?
    Mr. Karmazin. Is that a question you want me to answer?
    Mr. Upton. Yes.
    Mr. Karmazin. We didn't say it is the same chip. What we 
said is that we would feed that content via the satellite into 
that respective service. So we would take XM's contents. It is 
not very complicated. You have been in the broadcast business a 
long time. We would take the baseball content, if we got 
permission, and feed that on the Sirius system into the Ford 
vehicle.
    Mr. Upton. My time has expired. Thank you.
    Mr. Markey. We are going to have a series of roll calls on 
the House floor that will require all of the Members to leave 
here in approximately 5 minutes. We will then recess for about 
15 minutes and come back and reconvene for perhaps only 15 
minutes then, at which point, there will be another couple of 
votes on the House floor, after which we will have to make a 
game time decision as to what we do. But at this point, I will 
recognize----
    Ms. Eshoo. Mr. Chairman.
    Mr. Markey. Yes?
    Ms. Eshoo. Mr. Chairman, can I have a unanimous consent 
request that members be able to put questions in writing to the 
witnesses?
    Mr. Markey. Without objection.
    Ms. Eshoo. Thank you.
    Mr. Markey. I thank the gentlelady. Let me say this, with 
the indulgence of the witnesses, I would like to keep the 
subcommittee hearing going even after the second set of roll 
calls. There are bathrooms easily accessible to everyone here 
that perhaps during the break we can take advantage of. I turn 
now to recognize the vice chairman of the Telecommunications 
Subcommittee, the gentleman from Pennsylvania, Mr. Doyle, and 
ask him at the conclusion of his questions to just gavel the 
committee into recess.
    Mr. Doyle. Thank you, Mr. Chairman. Mr. Chairman, I want to 
set the record straight. My colleague and friend Mr. Stupak had 
said I had given up alcohol for Lent, and I want you to know 
that is not true. I gave up brussels sprouts.
    Mr. Markey. You are Irish, after all.
    Mr. Doyle. I want that on record, yes.
    Mr. Karmazin, you have acknowledged that both XM and Sirius 
have limited channel capacity. So if you have to cut XM 
stations to make space for popular Sirius content like Howard 
Stern and NFL, for those who want to pay extra to get that, 
aren't the people who just want XM and want to pay $12.95, 
aren't they going to end up paying the same price for fewer 
stations than they get right now?
    Mr. Karmazin. Congressman, there has been tremendous 
technology advancements including where you are able to squeeze 
more channels into the same bandwidth. Compression technologies 
that enable you to use the same bandwidth that you have but to 
be able to make more choices. We compete with free radio, and 
if we don't satisfy these subscribers for $12.95, we don't have 
a very good business model. So to your point about whether or 
not we are going to be able to accommodate a number of 
additional channels on top of the core channels that we have 
today, we believe that we will technically do it with no 
disadvantage to the Sirius or XM subscriber.
    Mr. Doyle. Excellent. So for that XM subscriber that says I 
like what I have, I just want to pay $12.95, he is going to get 
what he asks?
    Mr. Karmazin. He is going to get pretty much. I can't tell 
you exactly what because we constantly make changes. So as an 
example right now, we are not using all of our channel capacity 
today. So we have the ability today to put more channels into 
our existing service than we are using right now.
    Mr. Doyle. Mr. Kimmelman, when Dish Network tried to 
purchase DirectTV in 2002, a merger that would have combined 
the only two satellite TV providers, you told the Senate 
Judiciary Committee, and I quote ``that the merger could offer 
consumers some significant benefits.'' So what is different 
about the satellite radio market that instead of seeking 
conditions, you seem to outright oppose the merger?
    Mr. Kimmelman. With cable rates going up three times the 
rate of inflation, we were looking to satellite to try to do 
something to bring down prices for consumers. The last time I 
looked, free over the air radio is not going up in price. So 
there is a huge difference here into who the adjacent market 
is.
    Second, the merger of DirectTV and EchoStar that was 
proposed included a significant offer of spectrum divestiture, 
at that point, to Cablevision systems which sought to offer a 
new competing video service. If something like that were on the 
table today, that would be a very interesting addition to the 
other kind of promises Mr. Karmazin has made.
    Mr. Doyle. Mr. Karmazin, in response to that last comment 
by Mr. Kimmelman, what is the possibility of that?
    Mr. Karmazin. Yes, if you take a look at the way people get 
free over the air television, well over 90 percent of the 
people get it from a pay service. So when you take a look at 
the market, you are looking at a cable and two satellite 
companies. So therefore, I think that merger didn't happen 
because there were three companies becoming two. When we talk 
about today, the vast majority of all the people are getting 
satellite radio in addition to their free radio. 216 million 
cars have free radio. So the market is very different between 
satellite radio and the situation with DirectTV and EchoStar. 
So we really don't see it as analogous at all. We see that they 
didn't have free as something to hold their pricing back. And 
it is just economics. I don't know if there is anybody who sort 
of follows it a little bit. But when you are trying to get 
subscribers and you are charging $12.95, you are more apt to 
get a subscriber than if you are going to charge $14.95. So if 
the option is free, why on Earth would there be higher prices? 
But we said, you know what? Forget whether you buy into that 
argument, OK. If you don't believe the economics, then we 
believe that we should be held accountable to everything we are 
saying. And we are prepared to be accountable for everything 
that we are saying.
    Mr. Doyle. Thank you. I want to ask Mr. Kimball my final 
question. Mr. Kimball, I have gotten a lot of calls from 
constituents about the Copyright Board's recent decision to 
increase the royalty fees, which I personally think is 
outrageous that Webcasters pay for music right now. If the 
Webcasters die off because they can't afford the new fees, 
doesn't that cut into the argument that they are going to be 
able to compete with satellite radio?
    Mr.  Kimball. I think that is exactly right. I think the 
problem we have today is that the entire Internet radio system 
is at a disadvantage with satellite radio. We pay a higher 
royalty than the satellite system pays, and we are under a 
different standard to set that royalty than satellite pays. And 
I think until we have a level playing field, the Internet will 
not be able to compete fairly with satellite. And that is why I 
think that this merger should certainly be reviewed very 
carefully and, I think, put on hold until we have a legislative 
framework that is fair. The Internet should not be 
disadvantaged.
    Mr. Doyle. Thank you. This hearing is now adjourned until 
after the next vote. Thank you. In recess, not adjourned. In 
recess. Stay put.
     [Recess.]
    Mr. Markey. Mr. Kimball, what is your reaction to the 
Copyright Royalty Board's decision on Internet radio royalty 
rates, which rejected all of the arguments made by Webcasters 
and instead adopted a per-play rate proposal and made this 
proposal retroactive through 2006?
    Mr. Kimball. Well, to say we are disappointed would be, I 
think, a bit of an understatement. I think we are very 
concerned that the Copyright Royalty Board procedure is still 
lacking a fundamental understanding of how the Internet works, 
what the economics are on the Internet, how small Webcasters 
will be affected by this kind of a ruling, which for companies 
like RealNetworks that are in the subscription business is not 
as significant as for the small Webcasters, some of whom are 
going to have to pay multiples of their total revenue in back 
royalties. And how they handle that is really a complete 
mystery to them. Companies that are small mom and pop 
organizations that could have $100,000-plus back royalty 
obligations is absolutely disastrous. And what is more is the 
$500 per channel minimum really has a significant impact on the 
diversity of programming offered on the Internet. That is truly 
one of the best things about Internet radio, that we can 
provide so many different channels to satisfy so many different 
interests. And with a $500 per channel minimum, companies like 
Live through 65 and Pandora and RealNetworks that provide tens 
of thousands of channels of content, that of every possible 
conceivable genre and configuration, whether you like classical 
music and rockabilly, we can put those two together, if that is 
what you happen to like. That is all going away with a $500 per 
channel minimum.
    Mr. Markey. OK, thank you, Mr. Kimball. Mr. Blackwell, do 
you think the FCC should separately allocate non-commercial 
radio licenses for tribal lands or other rural areas where 
spectrum is abundant, rather than allocating all non-commercial 
licenses simultaneously? Tell us how important low-power radio 
is to your people in your community.
    Mr. Blackwell. Well, Chairman Markey, I suspect that you 
asked me that question perhaps because I am the only man at 
this table that wasn't afraid to wear a necklace to this 
hearing. Perhaps I am here because localism and diversity are 
one of the most important elements of this dialog of this 
inquiry. In Indian country, oh that we had the ability to 
compete with some of the entities that are sitting at this 
table. We are among the most underserved areas in the United 
States. We would welcome a particularized inquiry by the 
Federal Communications Commission as to new services in Indian 
country, specific to Indian country.
    Mr. Markey. OK, great. Mr. Kimmelman, can you address that 
issue briefly?
    Mr. Kimmelman. I think it would be a tremendous service to 
the unique local community needs to separately allocate 
spectrum to ensure that we really take care of the needs of the 
tribes. And it would in no way harm any of the other 
competitive concerns about spectrum allocation the FCC needs to 
address.
    Mr. Markey. Mr. Karmazin, Mr. Kimmelman noted earlier that 
the FCC only had 25 megahertz of spectrum to auction for 
satellite radio services. It subsequently allocated all of the 
available spectrum, 12.5 megahertz each, to Sirius and to XM. 
You noted that compression technology allows greater 
efficiency. So given the efficiencies generated by the merger, 
can Sirius and XM operate together on a single allocation of 
12.5 megahertz?
    Mr. Karmazin. Mr. Chairman, what we want to do is make sure 
that this is not in any way, shape, or form disruptive to the 
American public. So if you have a Ford vehicle, as was talked 
about earlier, for at least the next 10, 15 years, we are going 
to have to provide service into that Ford vehicle. And the only 
way we can provide that service into the Ford vehicle is 
through our network. And the same thing would be true for XM. 
So we are going to put up three more satellites over the next 3 
to 5 years, each one costing about $300 million, and each one 
having a life term of about 10 to 12 years. So the first time 
that we would be able to consider something like that would be 
somewhere in the 2017, 2018 where we would be able to have the 
ability to use one platform. And again, if in fact, there was 
some interest in that area in that timeframe, of course, like 
anything else, we would be open to it. We are not spectrum 
hogs. We bought our spectrum. We paid for it, and if, in fact, 
at any time that we have excess spectrum, we would certainly be 
open to hear any suggestions in that regard.
    Mr. Markey. OK, so, Mr. Kimmelman, could you comment on 
that?
    Mr. Kimmelman. Well, I am just curious, Mr. Chairman, that 
if we can compress a lot more and get the same current base in 
a lot less capacity, at least consider as a matter of policy, I 
don't know if it makes sense in the merger context, but 
certainly as a matter of policy, what could the Government get 
for 12.5 megahertz through an auction? And as we have done with 
the digital television transformation and progression, consider 
holding consumers harmless, making sure that monies are used to 
take care of the person with the Ford, the person with embedded 
base radio equipment that would need a new receiver. I would 
just be curious to know whether there is a way to actually get 
more of a benefit by having the spectrum made available for 
other purposes, broadband, mobile, digital, holding consumers 
harmless. And if it is believed that it would be better to have 
one satellite radio company rather than two, cover all these 
bases.
    Mr. Markey. So let me understand, Mr. Karmazin. When you 
swap out the equipment for one half of your subscribers and 
then would you continue to operate both systems simultaneously?
    Mr. Karmazin. No.
    Mr. Markey. And for how long, if that is your choice, would 
you operate both systems?
    Mr. Karmazin. Mr. Chairman, what we have said is that we do 
not want the consumers to be disadvantaged because of this 
merger and we don't want their existing receivers to be made 
obsolete and that we are going to continue to have to operate 
on these two networks for----
    Mr. Markey. For how long?
    Mr. Karmazin. I think I mentioned to you somewhere in the 
2016, 2017 area because there will still be consumers out there 
who will have a General Motors vehicle that would only be able 
to take content from the XM satellite so the Sirius--in other 
words, we can do some compression technology and shoehorn a few 
more channels into our 12.5 megahertz. But we can't feed their 
satellites into our vehicles. And that is why when we are asked 
a question about the Ford and getting both content, what we 
would do is take the content and put it into our network and 
vice versa. What we would need to do if the time came that the 
technology was such that we wouldn't need it, we would 
certainly be open to it. But that is not for the foreseeable 
future.
    Mr. Markey. OK, so that's 2016?
    Mr. Karmazin. I am making up a year.
    Mr. Markey. I understand.
    Mr. Karmazin. But it is somewhere in that area.
    Mr. Markey. About 2016; and 10 years ago, the FCC had a 
rule for interoperable receivers. And I know that because 
obviously I was a part here of a big discussion at that time. 
And we are only beginning to see them now, 10 years later.
    Mr.Karmazin. But, Mr. Chairman, both companies have spent 
$25 million on developing an interoperable receiver and we have 
developed an interoperable receiver. And if there was any 
equipment manufacturer who wanted to make it, we would 
absolutely give them our intellectual property so they could 
make it. The issue on it is, sir, is that we will not subsidize 
it today, and the reason we will not subsidize it today because 
it is possible that Sirius would subsidize an interoperable 
radio, which would result in XM getting a subscription. It 
doesn't make any sense for us to subsidize a radio where we 
don't get a subscription. Post-merger we are prepared to 
subsidize that radio. We have developed it. We have lived up to 
our license. There is not a question. Nobody is going to find 
something in that license that said anything other than that we 
would develop it. There was never a requirement that said that 
we would subsidize it and bring it to the market. We are 
prepared to do that in a post merger.
    Mr. Markey. Yes, let me go to you, Mr. Smyth. Any comments 
in that area?
    Mr. Smyth. I would have two comments on that. I think that 
if you said 10 years ago that you were going to build an 
interoperability capability, then don't say what you can't 
deliver. What concerns me today, when you put two companies 
together, what happens is innovation is taken out of the 
equation. No. 2, I think there is something that I had 
mentioned to Mr. Karmazin, and he is far wiser about this than 
I. That if you have the Ford car that we used earlier and the 
Ford car is the one receiving Sirius programming and you want 
to shoehorn in additional channels and their content, that is 
going to come in at a lower bit rate. And that audio quality is 
going to be depreciated, and therefore if the consumer is going 
to be paying more money eventually for that, they are going to 
be getting a lower quality at a higher price.
    So my question would be if you are waiting until 2016--and 
I know that that is a hypothetical date, that is not a fixed 
date, but still those are questions that would go through my 
mind. Again, the whole digital revolution is about quality of 
sound and the ability to use this at its best rates. And I just 
think that when you start to get into cutting these bit rates, 
there is only so much you can cut them.
    Mr. Markey. So, Mr. Smyth, let me ask you this. The threat 
that is posed by satellite theoretically to terrestrial 
broadcasting is that it lowers the value as well of terrestrial 
AM/FM radio stations.
     Can you just give me a little bit of a sense of what is 
happening in the radio market? As I said, in terms of resale 
value of radio stations, what has been the impact of the first 
14 or 15 million people subscribing to XM and Sirius in terms 
of the values of local radio broadcast stations?
    Mr. Smyth. I think in the major markets, the values for 
radio stations held a bouquet. I think there is a lot of 
different issues. There has been no growth in the overall radio 
advertising market over the past 4 to 5 years. I think zero to 
negative growth, and I think that that has definitely hurt the 
economic viability of it. The issue about satellite really 
comes down to when you look at--not on a national basis, I 
don't compete with Mr. Karmazin on a national basis, not at 
all, I compete with him on the local basis that he would have--
if you combined these companies, you would have 288 signals to 
my five. And under current regulations, I am allowed to have 
five FMs and two AMs, and that's it.
    Mr. Markey. All right, so I got that. Let me go back to Mr. 
Karmazin. How do you respond to that?
    Mr. Karmazin. I will do anything you want me to, Mr. 
Chairman, if this is a debate. So first of all, if HD radio has 
the ability of having an improved sound or multiplexing a whole 
bunch more channels in it, they clearly are using that spectrum 
to shoehorn more stations in there. Second, there is clearly 
on, I believe, Greater Media Stations, though I don't follow 
them a great deal--they are carrying programs like Sean Hannity 
and Rush Limbaugh, which, I guess, aren't local programs. I am 
saying it is fine. I don't object to anything that they are 
doing. If they want to carry national programming in their 
local market, certainly we have no objection to it. I think I 
can give you a good answer on how terrestrial radio is doing, 
14 million subscribers with satellite radio, is Clear Channel 
is about to do an LBO, which is one of the largest LBOs in this 
history of business, so I don't see any signs where they have 
poverty. If you take the $21.5 billion of revenue that is 
represented by what terrestrial radio is doing, our local 
advertising, so they do $21.5 billion of advertising revenue. 
Our combined companies do $60 million of advertising, $60 
million of $21 billion.
    Mr. Markey. I'll give Mr. Smyth the final word on this 
round.
    Mr. Smyth. Thank you, Mr. Chairman. First of all, I am a 
local broadcaster, the most successful radio--I ran Magic in 
Boston for many years. The reason Magic was successful was 
because it was grounded in the community and it is local. 
Greater Media does not carry Sean Hannity and the other 
individual that he mentioned. I believe that if you look at 
national syndication for radio personalities, there is probably 
two or three who have ever made it, and that is it. So 
successful radio in America is local.
    Mr. Markey. Should there be additional public interest 
obligations placed upon the radio industry, given that they 
will have this new digital service capability?
    Mr. Kimmelman. Well, Mr. Chairman, we have had a hard time 
having the radio industry and the broadcast television industry 
live up to the previous public interest obligations that they 
have had.
    Mr. Markey. What new ones would you impose? What makes 
sense to you as we get into this?
    Mr. Kimmelman. I believe Congress ought to look at a 
different model for how we approach public interest 
obligations. As you do the compression and the multiplexing 
that Mr. Karmazin is talking about in the digital era, there is 
an enormous capacity for radio and for broadcast television. I 
believe they should be asked to share that with the public, 
make it available to the public and not try to regulate the 
content on those stations but share what has been given to them 
for free. And in that way, I think we can have more public 
access available on all of these platforms that will be 
generated by the community and by consumers rather than by 
broadcasters.
    Mr. Markey. This is what I would like to continue the 
conversation looking at. Back when we did the Cable Act in 1992 
and we were looking at what the new public interest standards 
should be for the direct broadcast era, for the satellite era, 
this committee determined that 4 to 7 percent of the 
transponder capacity should be for non-commercial educational 
programming from alternative sources. Just briefly, Mr. Smyth, 
does that make any sense to you? What do you think about 
additional public interest obligations for the local?
    Mr. Smyth. Well, I can speak for my own company. I mean we 
just introduced a program in Boston where we had the new 
Governor, Deval Patrick, has a show every first Thursday of 
every month.
    Mr. Markey. No, I don't mean program, but I mean a generic 
set of rules that are on the books in terms of the public 
interest responsibilities.
    Mr. Smyth. I think that the broadcaster has the 
responsibility to be reflective of what is going on in his 
community.
    Mr. Markey. So should we put that in the rules as we move 
into the digital era, more specifically that is?
    Mr. Smyth. I think we have to have more time to discuss 
because I think it is very hard to make a generic rule because 
each market has different issues and things that need to be 
addressed. I think that country radio, in general, has done an 
incredible job in helping St. Jude's.
    Mr. Markey. No, I understand that. Now, Mr. Karmazin, very 
briefly, would you support a 4 to 7 percent set aside?
    Mr. Karmazin. Yes, I don't have a horse in that race, and I 
will leave it to the terrestrial broadcasters to decide what is 
in the public interest.
    Mr. Markey. How about in your service?
    Mr. Karmazin. Yes, in our service, if, in fact, that is 
something that you are asking us to consider what we have said 
is that we would be open to considering things in connection 
with the merger.
    Mr. Markey. I appreciate that. I have to again recess the 
committee for about another 10 minutes, and then the committee 
members will be coming back. Thank you.
    [Recess.]
    Mr. Markey. With apologies again to the witnesses, I think 
that our attention is now focused exclusively upon you. The 
roll calls on the House floor, I think, are pretty much over 
for the rest of the evening. So let me turn now and recognize 
the gentleman from New Jersey, Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. Mr. Karmazin, I 
mentioned in my opening statement, of which we had many, last 
year I introduced legislation, which I did so because I was 
concerned about new, portable devices turning satellite radio 
or performance services into distribution services. The new 
devices have enabled consumers to cherry pick songs or create 
an unlicensed music library without necessarily paying artists 
that, frankly, help make radio so compelling.
    I am concerned about the same thing happening when HD radio 
rolls out. Your company, as I mentioned before, had reached an 
accommodation that compensates artists and their record labels 
for distributions that are made possible by the S50 and the 
stiletto devices. Last week, Congressman Berman mentioned as he 
commended your leadership for taking this action, and you had 
mentioned that you tend not to like to use the courts to 
achieve your goals but to use the marketplace. I said in my 
statement that I obviously agree with you on that and I commend 
you for that.
    But I want to ask about this proposed new company, a merged 
company. What is going to be your policy going forward on this 
particular issue? And are you going to essentially adhere to 
this perspective with the new merged company?
    Mr. Karmazin. Congressman, thank you. I think you know what 
my viewpoint is because we are implementing my viewpoint at 
Sirius to where we have obviously made an accommodation with 
the various labels to compensate them for this service. So that 
will give you a sense as to what I believe should be done. 
After the merger, I will be the CEO of the combined company, 
and all I can say is that you know my viewpoint on the subject. 
But there is obviously a court action that is taking place as 
we speak. I have no idea if, in fact, before the merger is 
approved hopefully that there will be a result of that either 
through a negotiation or what. My hope is that we can continue 
to have a terrific partnership with the music industry because 
their content is very valuable to us. And we are paying for it.
    Mr. Ferguson. I want to pick up also on something that Mr. 
Boucher had referenced earlier, this recent Arbritron survey, 
showing that satellite radio currently, I guess, accounts for 
3.5 percent of all radio listening in the fall of 2006. The 
survey also found that satellite subscribers actually spend 
more time listening to traditional radio than to satellite 
radio, which I think is interesting, at the very least. Given 
these findings, can you reply, I guess, or address NAB's 
concerns or the suggestions that this is going to create a 
monopoly? Is that an accurate characterization of the market 
right now?
    Mr. Karmazin. Congressman, first of all, my comment on that 
3.4 percent is that I am sad about it because I certainly would 
like it to be higher.
     I think that it is really very disingenuous. We play 
music. Terrestrial radio plays music. We play sports. 
Terrestrial radio has sports. We have talk. They have talk. It 
is hard to see how they are not, in fact, competing in fact and 
we are competing with them. I just don't even begin to see it, 
and I have to believe that the fact that they are here today 
must be for some reason. They are not at the global warming 
conferences that took place today. They are at the satellite 
merger today. So they must have a greater interest in satellite 
radio, and if they don't compete with it, I don't know how they 
should be worried about that. They should be worried about 
global warming, and they weren't at that hearing.
    Mr. Markey. I was at both hearings.
    Mr. Ferguson. We were trying to keep things light here, but 
now we have gotten very--you piqued the chairman. I appreciate 
that. Mr. Chairman, that is all the questions I have right now.
    Mr. Markey. The gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I wasn't at the 
global warming conference. I surely wouldn't want Congressman 
Markey not to think I am really concerned about global warming. 
Mr. Karmazin, you know my concern. You heard my opening 
statement about satellite radio cherry picking a low cost, and 
I think they do compete. I think satellite radio and my 
terrestrial radio, my over the air competes. And my concern is 
about picking low-cost radio services without the high-cost 
services. You are doing your job as a salesman today in being 
real flexible about whatever conditions. But if DOJ and the FCC 
determines the merger is in the public interest, I would expect 
numerous conditions to be applied to protect localism and 
consumers. My concern is with the past history though of 
satellite operators over the years about repeaters, receivers, 
and the attempts to evade the commitment of the national 
service, can you give us some assurance of our fear of that?
    Mr. Karmazin. Sure, Congressman. I don't think it is proper 
for any company to violate any FCC rules. I have been a 
licensee of the FCC for the better part of 40 years, and you 
should play by the rules. And the FM modulator issue and the 
repeater issue are things that should not have happened. So 
that is clear. But those things don't challenge the character 
of us as a licensee or our ability to do this merger. And just 
as an example, this week a very large number of broadcasters 
were fined for payola rules. And a number of companies have 
paid fines dealing with political advertising and indecency, 
and we are not suggesting that Clear Channel shouldn't be 
allowed to do their multi, multi-billion dollar transaction 
because they have violated various rules in the 30 or so years 
that they have done it. So, yes, we believe in following the 
rules. I apologize even though I wasn't here at the time, but 
it took place in our company, and we should be playing by the 
rules. And I assure you that we will continue to play by the 
rules, and if we make a mistake, then there should be a 
penalty, just like there was on payola, or just like there was 
where Univision just paid a $24 million fine for violating 
children's programming rules on television. I don't see those 
two related, other than that we should be a good corporate 
citizen, and I believe we are.
    Mr. Green. Well, I don't know about comparing Univision 
with decency because I know there has been some discussion 
about requiring satellite radio to also match the decency 
requirements that, for example, Univision or some of our over 
the air radio has to compete with.
    Mr. Karmazin. And I think the answer on that, sir, is the 
fact that one of the great interests on indecency was 
protecting children, and there was no mechanism at the time, 
and I still believe today, to where you can have a radio that 
gets the Boston radio stations and you can block out that 
station from coming through that clock radio or that car radio. 
We are a subscription service. You need to pay $12.95 in order 
to get that service. If you don't want any of our content, we 
have the ability to block it from that receiver. You have the 
ability to block it. We broadcast the Catholic Church channel. 
There are some people in our subscription service that don't 
want that channel. You can block it, and it never comes into 
your home, and you have paid for it. So therefore, we think 
that it is a very different model than the free over the air 
model where children have access to all of these radios. So I 
think it is different.
    Mr. Green. Well, I also understand because I was waiting 
for Congressman Upton or Congressman Dingell because I bought a 
Chevy Tahoe, and I have, what, 90 days of satellite radio. And 
there are things, I was hoping to have the Astros, because up 
here in DC, even the Washington Post doesn't cover them. But 
there are things that I could see how you would compete. And 
again, the concern I have is that the things that I listen to, 
that Amber Alert. Congress was involved a few years ago to make 
sure that my local TV and radio stations would have Amber 
Alerts and things like that.
    Mr. Karmazin. And we would like to do it, Congressman. In 
other words, we are hearing sort of little conflicting things. 
So in some ways, people are saying we don't want to give the 
consumer that much choice by allowing satellite radio to do 
some of this content. And what we are saying is: do you want us 
to do Amber Alerts? Because we are. But if you are saying we 
shouldn't do local things like Amber Alerts, then someone needs 
to tell us. We are hearing again conflicting things.
    Mr. Green. No, I am not saying you should do it. If you are 
going to compete with over the air terrestrial radio, then you 
ought to have the same hoops they jump through, which would 
include decency requirements, even though you have a 
subscription service. And that is the concern because again I 
can see why people would both want a subscription but also with 
taking away local ad revenue, we could end up with many, many 
fewer stations. If Congressman Walden is trying to sell his, I 
am sure the value of them would go down very quickly.
    Mr. Karmazin. Yes, I know there are differences. Again we 
paid for our spectrum, and terrestrial radio broadcasters have 
not paid for their spectrum. We pay royalties to performers, 
and terrestrial radios don't. So I think that there are a 
number of areas where we are different and again coexist. In 
other words, we are not trying to say that terrestrial radio is 
not doing a good job.
    Mr. Green. I think that shows I have run out of my time.
    Mr. Markey. The gentleman's time has expired. The gentleman 
from Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. And just to follow 
up, Mr. Karmazin, that is kind of the schizophrenia that I was 
mentioning in the opening statement because I really do support 
my local broadcasters because of local interest. But the 
reality is, in the post-Katrina world, there may be some 
benefits in the digital carriage, and we just can't dismiss 
that. But if we say do it on the one hand and don't do it on 
another. So it is good public policy concern, and I don't have 
any answers. But I readily admit the schizophrenia that you 
observed is what we are observing also.
    Mr. Kimball, Internet radio clearly reaches across states, 
not to mention countries. But can Internet radio promote 
localism?
    Mr. Kimball. Absolutely. One of the great things about 
Internet radio is that it is very simple and very inexpensive 
for anybody to set up a channel from anywhere. So it doesn't 
require that you have the kind of capital to put up a satellite 
for $300 million or buy a radio tower. You can get free, open-
source software in your own media room connected to the 
Internet and be broadcasting your own Internet radio channel 
with local information. I have that in my small hometown. We 
have local guys who love the weather and put up all the 
information about the weather. It is the same thing for radio. 
You could put together a channel that is about local bands, the 
local music scene, local concerts, local information and put 
that up on the Web. And it would be extremely inexpensive to do 
that, but for the CRB minimums and some of the royalties that 
you would have to pay, which frankly the broadcasters don't 
have to pay at all, and which the satellite companies pay less, 
we would just like a level playing field for those small, local 
broadcasters to flourish.
    Mr. Shimkus. Thank you. Mr. Blackwell, you indicate in your 
testimony that the Internet streaming and satellite 
transmission of radio is helping Native American audiences. Can 
you elaborate on that?
    Mr. Blackwell. Thank you very much for that question. I do 
believe that every platform that is represented at this table 
is utilized to one level or another in Indian country. And one 
of the challenges, however, is for Internet service. We like 
broadband service in Indian country. While telephone service 
nationwide is about 95 percent, telephone service in Indian 
country is somewhere just south of 70 percent. There is no 
reliable data for broadband development, for the deployment of 
broadband services. One hears rumors that it is 5 percent or 8 
percent. Those are just rumors. What we need are better metrics 
to be able to answer that question accurately. But it does 
certainly have great possibility, as each of these services 
does in Indian country.
    Mr. Shimkus. Thank you. Mr. Smyth, can you talk about the 
transition to digital, and how is it going, and what benefits 
do you see from that?
    Mr. Smyth. I would be glad to, Congressman. Thank you for 
asking. I think it is a gradual evolution. Today we have about 
1,100 stations that are broadcasting in HD quality on their 
primary channel. I can tell you that in Detroit, for example, 
we own a station, WRIF, and RIF-2 has become a station that is 
really targeted towards kids between the ages of 12 and 
probably 18. It has given access to local bands in the 
community. It is programmed by a programmer who is probably 21 
years of age. It has got the buzz of Detroit, MI today, and 
what it does is it gives them great access and affordability 
where normally they wouldn't find those in other venues.
    So I also think that the HD-2 channels will have a 
multitude of different effects as we move forward. I think in 
terms of the community, that they will be able to offer 
literacy channels. I think they will be able to work on Head 
Start. I think they will be able to do a lot of other different 
things that people really haven't thought about today, and I 
think that those will have community and economic benefits to 
the people that own those. I know, and as I said earlier, you 
know, we are doing an Irish channel in Boston, kind of obvious. 
But I do think that the limitations are only in the creative 
people's minds, and I think that what you have to do when you 
move into the digital world is try to take back as many of 
these barriers to success as possible and open the floodgates 
to creative license.
    So I feel pretty good with what we are doing, but we have 
got a long road to go. I think Congresswoman Harman said it 
earlier. Wal-Mart has just racked the product, and we are 
starting to get some good retail distribution. And I think we 
will just get some good distribution in Detroit very shortly.
    Mr. Shimkus. Well, since the chairman found that chair, I 
am going to move the previous question. No.
    Mr. Green [presiding]. Whatever you would like, sir.
    Mr. Shimkus. That is right. No, I will end by saying Mr. 
Karmazin, I was in another hearing this morning on global 
warming, and I talked about being the Neanderthal because I am 
a Creationist. And that is probably not politically correct, 
but I do have concerns on the decency issue, and I have been on 
that side of saying it is going over the airwaves. We should 
have standards. So I just want to put that on public record and 
hope that we can help clean up the airwaves a little bit. And 
with that, I yield to Mr. Green, yield back my time.
    Mr. Green. Do you believe Eddie Markey gave me the gavel?
    Mr. Shimkus. Take a chair. That is what I would do.
    Mr. Green. The Chair recognizes Congressman Walden.
    Mr. Walden. Hey, Mr. Chairman, did you want to get into 
global warming now? Well, you have the gavel.
    Mr. Green. I am just glad my colleague from Illinois didn't 
call me a Neanderthal on global warming.
    Mr. Walden. Again, I appreciate having this hearing today, 
and you have heard a lot about indecency and all. I think, Mr. 
Karmazin, you were here when we had the discussion on the 
wardrobe failure, I think, during the Viacom era and CBS, and 
so you have been here before us. And we have dealt with those 
issues. Now, I want to ask a couple of questions. Mr. Karmazin, 
you have said repeatedly, and so have your counterparts at XM, 
you bought your spectrum, in a sense, from the FCC. You paid 
for your spectrum, right, your license?
    Mr. Karmazin. Yes, that is factually correct.
    Mr. Walden. And was that in an auction?
    Mr. Karmazin. I was not there at the time.
    Mr. Walden. Sirius, though.
    Mr. Karmazin. Yes, Sirius paid $80 some odd million, and XM 
paid $80 some odd million for that spectrum.
    Mr. Walden. Right.
    Mr. Karmazin. I assume that there was an auction. I assume 
it had other people bidding for that spectrum.
    Mr. Walden. So, Mr. Smyth, don't broadcasters occasionally 
show up bidding in an auction for spectrum today?
    Mr. Smyth. I would say that----
    Mr. Walden. The answer is yes.
    Mr. Smyth. Yes, they do.
    Mr. Walden. Let me assure you the answer is yes.
    Mr. Smyth. Yes, they do.
    Mr. Walden. If going to an auction and getting the 
allocation of the frequency, why is that different between him 
and you then in terms of how you are managed? It is different 
because of the legacy rules that are in place, right?
    Mr. Smyth. Correct.
    Mr. Walden. Now, I think Mr. Karmazin made an interesting 
reference to the fact that the rules under which you all 
operate date back to 1997.
    Mr. Smyth. We were granted the license in 1997, and I think 
what I responded to was a question where a statement was made 
about the two companies owning it. That's correct.
    Mr. Walden. The monopoly issue.
    Mr. Smyth. Yes.
    Mr. Walden. And the rules at that time, as I understand 
it--I have not gone back and read them--said two companies 
won't be merged. Two separate, so we have a competing 
environment out there in this particular product line of 
delivering national satellite audio.
    Mr. Smyth. Yes.
    Mr. Walden. That was the theory.
    Mr. Smyth. Yes, I know I am in the minority by not being a 
lawyer.
    Mr. Walden. That will be two of us.
    Mr. Smyth. I do not believe it is a law. I mean it is not 
as a rule. I don't believe it is a rule. I think it was a 
policy statement that was made at the time the license was 
given, but I don't believe that if you were to go into the 
rulebook of the FCC there is such a rule.
    Mr. Walden. I try to avoid that book if possible.
    Mr. Smyth. It doesn't mean that that is still not the 
belief, but that is just the fact.
    Mr. Walden. Because I was going to say that we operate, as 
broadcasters, under the 1927 rules, the 1934 rules, the 1996 
Act. And so I think that we see this industry evolving. The 
thing that is troubling to me, whether or not the merger makes 
sense, and then that will get argued out somewhere else, it is 
the issue of this hearing, which is the future of radio. And as 
I see it, the over the air free broadcasters in the communities 
are providing a service at no charge. So anybody in America 
basically can turn on a radio. They get the entertainment or 
information. They can push a button if they don't like a 
channel. Somebody is indecent, they can turn it off or they 
can't do exactly what you do. And they can't do subscription 
service. All they can do is advertising, and the only thing 
that drives advertising rates is audience. And so I know you 
would like to get your Arbitron ratings up, and I understand if 
I were in your shoes, I would too. But for this committee and 
for public policy for the country, you say what happens to 
those who can't afford $12.95 or whatever your combined fee 
might be a month? What happens to them down the road if 
commercial broadcasters, who are not only licensed by the 
Federal Government, but required to do public interest 
obligations, public commentary? What happens to that service 
down the road if you and a combined effort become a market 
force and take a huge chunk of the audience away?
    Mr. Karmazin. Sir, I have been a broadcaster for an awful 
long time and I could tell you that the first radio station 
went on the air in 1926, KBKA in Pittsburgh. It was a 
Westinghouse station. It is still one of the top two radio 
stations.
    Mr. Walden. How old is satellite?
    Mr. Karmazin. Five years. From the point at which we got 
our first subscriber. I can assure you that local radio is very 
important to the consumer. Free radio will always coexist with 
satellite radio, no matter how successful satellite radio is. 
And I can give you an analogy, sir. If you take a look at cable 
and the local broadcasters, so that the local TV stations, 
local ABC and NBC and CBS affiliates, absolutely are vital 
today but so is HBO and so is ESPN.
    Mr. Walden. Do your local translators, the repeaters, are 
they mechanically electronically set up so that you could 
insert local programming?
    Mr. Karmazin. Yes, I can't tell you whether or not they are 
rigged that way, but I can assure you that we have no interest 
in using the local repeaters for local advertising or local 
programming. That is not our business model. Whether or not 
they are rigged that way or they aren't rigged that way is 
academic because we have no plans to use them that way. And 
again remember what I said earlier, I am sure everything I said 
you could figure out a way to hold me accountable.
    Mr. Walden. Thank you.
    Mr. Doyle [presiding]. Mr. Pickering from Mississippi.
    Mr. Pickering. Thank you, Mr. Chairman. I just have a few 
questions and again having not taken any position on the merger 
but wanting to understand how we can make sure from a policy 
point of view that whatever happens is pro-competitive. And so 
I just have a few questions, and I know that you have had a 
discussion with the chairman, Mr. Markey, as it relates to the 
policy at the time your licenses were granted, and there is a 
requirement of the policy that there should be two. If the 
merger goes forward, my question relates to the spectrum, the 
combined spectrum of both companies. Would there be any gained 
efficiencies between the merger of the two in such a way that 
there could be, as part of the merger condition, divestment of 
some of that spectrum so that if there were in the future a new 
entrant or a possibility of a new entrant, are you going to use 
that spectrum so that you could maintain the policy as you 
strengthen the financial standing of your two companies? Do you 
understand my question?
    Mr. Karmazin. I do, sir, and it is possible that that kind 
of technology could be worked out so that the consumer is not 
deprived of the service on their receivers today, but it would 
probably be somewhere in the 10-year timeframe. And I know, as 
you look at things, that may not be that long, because of when 
these spectrum things. But we don't see how before 2016, 2017 
that that could be done. But it is possible that it could be 
done with our next generation of satellites that we can do to 
make the receivers, and the way it would work is that we would 
design the satellites and the repeater network so that they 
could feed either of the radios that currently exist today as a 
way of not making those radios obsolete. So it is a possibility 
down the road.
    Mr. Pickering. What would have to be done to make that?
    Mr. Karmazin. I think what would need to be done is that 
you would need to get the new satellite configuration to be 
able to feed both companies' receivers and terrestrial repeater 
networks.
    Mr. Pickering. And is there a way to accelerate that 
timetable?
    Mr. Karmazin. Well, we are going to be launching our next 
generation, we mentioned earlier, Congressman, that we have two 
more satellites, each one for $300 million that we are going to 
be launching over the next 3 or 4 years. Those things have been 
committed to. Those things will not be able to handle this, and 
we haven't gotten the merger approved. And we are going to be 
launching one in 2008. So the idea would be that it would have 
to be the next generation of satellites after this generation.
    Mr. Pickering. Well, let me ask a hypothetical question. 
If, as part of the merger approval by the FCC, they required an 
acceleration of that timetable, an upgrading of your 
investment, so that it could be possible to give back or divest 
some of the spectrum in a more rapid time period so that you 
could have a pro-competitive possibility within your market 
segment, is that something that would make the merger 
impossible, unattractive?
    Mr. Karmazin. Yes, I don't think it is possible for us to 
be able to do it, but again, I am not an expert on satellites. 
If I am going to give you an answer, I just need to make sure 
that my answer is right. So without being an expert on 
satellites, I don't believe it would be possible for us to 
accelerate that timeframe without spending hundreds of millions 
of dollars for satellites. And the reason we are fighting so 
hard for this merger is that we feel it is justified, but there 
is also about $300 million or so that the analysts have said 
that are available in synergy. If in fact, we have said, on 
pricing, we are going to give the consumer some of that 
advantage on synergy, and if, in fact, we are going to use all 
of the other synergy for the ability of spending more money on 
an infrastructure that we don't really feel serves any purpose, 
then it really defeats any of the purpose of the merger. And it 
just may not make sense to do the merger.
    Mr. Pickering. Mr. Smyth, do you have any comments?
    Mr. Smyth. Yes, I do. Thank you, Congressman. First of all, 
some of the statements that Mr. Karmazin made earlier about all 
the bills in radio, I would remind him that he did run CBS 
Radio also. So I wouldn't forget that. And No. 2, I think 
important to note here is--that the question that keeps running 
through my mind as you were talking, Congressman, is if these 
two companies, these individuals have said they could run their 
two companies by themselves, they would survive, and Mel just 
basically said that if you can reach some of these different 
terms you talked about. Why would we put these two companies 
together, form one company, and lose all that innovation? Why 
would we take that innovation out of the marketplace when the 
digital era is just starting to come into its own? And we are 
going to take these two companies together, and we are going to 
stop that. And again it is about 288 signals going into your 
market, your market, your market, where the local broadcaster 
in your market can own a maximum of seven signals or eight. And 
you are going to have 288 signals. Why? If these companies are 
doing well, what you are doing is stopping innovation.
    Mr. Pickering. Mr. Karmazin.
    Mr. Karmazin. So, first of all, you have that today. I 
don't really know what he is talking about. I mean we are 
talking about the fact that XM has these channels and Sirius 
does today. So that is not new information that there are these 
channels in the market. No. 2, the innovation would not be 
hampered, and the reason that you would, if the merger is 
approved, is because you believe that it is in the consumer's 
best interest because they get lower prices and more choice. At 
the end of the day, the reason for the merger would be that. If 
you don't believe you are going to get more innovation, more 
choice, and lower price, then you wouldn't approve it.
    Mr. Pickering. But this is my concern. We are going from 
two companies to one, and it is a little bit counterintuitive 
to say that is more choice. Having said that, I do see some 
legitimacy in your argument that there are multiple platforms, 
Internet, iPod, radio, traditional as well as satellite. And 
your financial health and condition does not appear to be very 
strong at this point. So is it a matter of surviving as one or 
losing both?
    Mr. Karmazin. No, I don't think so. I mean I know it is an 
easy argument to make that we have lost $3.8 billion so far 
since we have started. We have not made a dime. Probably a low-
power radio station has made more money than we have made to 
date. Also the idea is that this last 12 months, we have lost a 
billion dollars. We believe that we have a high fixed-cost 
business. We have launched the satellites, and when we get more 
subscribers, our profitability will improve. So we are not 
making a failing company argument. We believe both companies, 
if in fact it is decided that this merger is not allowed to go 
forward, that XM and Sirius--I believe both will be OK, but I 
can speak for Sirius--will be a very healthy company. So this 
is not about survival. This is only about whether you believe 
the consumer is better off or not.
    Mr. Pickering. I appreciate your comments and your answers. 
I am concerned that if you draw up the drawbridge and there is 
the impossibility of a new entrant, as you go from two to one, 
is that pro-competitive or not? And so I just want to see if 
over time we can have additional investment, additional entry, 
and the innovation that will come from that, the competition 
that comes from that, and the choice that comes from that. And 
so, Mr. Chairman, I yield back my time.
    Mr. Engel [presiding]. Thank you. The gentleman's time has 
expired. I yield myself 5 minutes.
    Mr. Kimball, in your testimony before, you were talking a 
great deal about Internet radio, and I took some notes before 
on how Internet radio is the same and is different from over 
the air radio, and you were talking about it. Don't you approve 
of Mr. Karmazin's point that when we are talking about choices, 
we cannot just look at radio, paid-for radio in a box, but that 
people can have many choices? They can turn on their AM/FM 
radio, or they can go to the Internet or use an iPod. Aren't 
you actually making that case?
    Mr. Kimball. I actually think the market definition 
questions that Mel is going to have to deal with, as part of 
getting this merger approved, are fantastically complicated, 
and I won't begin to pretend I am an economist who can solve 
how you slice that market. It is complex. I do believe that 
there are areas in which we compete with satellite radio, 
particularly when somebody is in their office or somewhere 
where they have an existing broadband connection in their home. 
We don't currently compete with satellite radio somewhere like 
the car, and how an economist is going to slice that market and 
make a decision about where you get market power is very 
difficult to say. But I will say that if satellite had a 10-
year running start to build all the radios in all the cars over 
10 years, it would be very difficult for a new market entrant 
to step in there and win back that car business. And I think 
the car is a pivotal place for the use of music.
    Mr. Engel. Mr. Karmazin, I again made notes, and you will 
excuse me. I don't remember who said it, but it wasn't you, 
said that the merger should not go forward, and they compared 
it to the EchoStar and DirectTV merger. I would suspect that 
you would disagree with that, that you would say that it is not 
a parallel. I would like you to explain why it wouldn't be a 
parallel.
    Mr. Karmazin. While you were out of the room at a vote, I 
mentioned it, but if you will allow me to repeat myself. That 
in the case of EchoStar and DirectTV, virtually every consumer 
gets their television through a cable or satellite. There are 
very few people who are getting it with the rabbit ears. There 
is probably about 10 percent of the population on a national 
level that gets it with the rabbit ears. So in the case of 
EchoStar and DirectTV, there were three companies: a cable 
company and two satellite television companies, all pay 
services that were competing. That was going down to two. In 
our scenario--and I have had conversations with this 
gentleman's boss about Internet radio and getting into the car 
and things that they have planned to do with WiMAX and things 
like that, not only are we competing with free, which is very 
different than EchoStar and DirectTV, but we are also competing 
with Internet radio. We are competing with jacks that are now 
inserted into vehicles so you could plug your iPod into it. We 
also are competing with cell phones that have content because 
802.11 and BlueTooth, you are able to put your cell phone in 
your vehicle and be able to get through your speaker system, 
through your radio, so you are able to get whatever content 
that you have on your cell phone. And there is an awful lot of 
talk content. There is a lot of sports content. There is a lot 
of music that is on the cell phone. So, unlike EchoStar and 
DirectTV, we are competing with all of these options, and 
therefore that is what will encourage competition. And that is 
why this one is not eliminating a competitor.
    Mr. Engel. I have read a lot of the editorials, both pro 
and con, and the editorials that say the merger should continue 
basically what Mr. Karmazin said and what I had said in my 
opening remarks. That when we look at people's entertainment, 
we have to look at the whole situation. Mr. Kimmelman, why is 
that not the case? Can we really go back to the way things were 
10 years ago and pretend that we can put everything in neat 
little packages?
    Mr. Kimmelman. Absolutely not, Mr. Engel. But the point 
here is what segment of consumers is desiring what form of 
radio entertainment. You have it at home. You have it in the 
office, but there is a unique segment in the car. And it is not 
just any car. It is people who drive maybe more than 25 miles 
can't get over the air broadcast signals to keep going across 
that distance. People who want to hear National League baseball 
games from outside their own community or the NFL or the NBA. 
There is a unique product that has been developed. I 
congratulate Mr. Karmazin's company for doing it well and XM. 
More than 14 million people buy it. About 50 percent increase 
in subscribership last year, almost 60 percent increase in 
revenue last year from subscribers. Yes, I hear all the crying 
about the red ink, but they are growing like gangbusters 
because a lot of people want this. But that is different from 
what you maybe want to do at home, different from the people 
who don't drive more than 25 miles. So I would suggest for 
competition policy, that is a unique segment of the public that 
wants choice, wants competition. And I believe that is a 
somewhat unique service. Just like cars and airplanes and 
trains are all forms of transportation, on many levels they 
don't really compete for people, and I would suggest that that 
is the same here. It is not going back 10 years. It is just 
realizing the reality. Maybe Internet radio will become that. 
Maybe cell phones ultimately will have some of this, but today 
they don't compete for that segment of the public.
    Mr. Engel. But if I buy a car, and I am locked into XM or 
Sirius, and I cannot get the things that I might want to listen 
to, why am I not better served if I can get a car and can get 
the best of both? Why is that somehow hurting me as a consumer? 
It would seem to me that if I have to choose between the NFL or 
Major League Baseball, and I get a car and maybe it is already 
in and I can only get Major League Baseball, am I not better 
served by being able to get both?
    Mr. Kimmelman. Well, I think it would be wonderful to get 
both, and I wish that we had the interoperable radio so that 
people could choose between the one or the other, and it was 
promised many years ago. It is now like the consumer, as you 
are describing, is held hostage. That we don't have the 
interoperable radio so is the only solution to merge? I would 
suggest there are other ways in order to get the maximum 
choices for consumers at the lowest prices. And if the merger 
is not the best way, Mr. Karmazin is offering some concessions. 
I think if you get to the point of looking at that, you should 
look carefully as to whether you can really oversee those kind 
of concessions and still get the maximum consumer benefits.
    Mr. Engel. Mr. Karmazin, I would like to give you the 
chance to rebut, and then I see our chairman has come.
    Mr. Karmazin. I think what we have asked for is that we get 
a fair opportunity to present our case, and it is amazing how 
people have formulated these opinions without any facts. So we 
have yet to file our Hart-Scott-Rodino filing, which we will do 
next week. We have yet to make our public interest argument 
with the FCC, which we will do shortly after it. But I think 
that everyone has already, without the facts, formulated an 
opinion. And all we have asked for is that we be allowed to go 
through the process. And that if, in fact, our merger is deemed 
to be in the public interest, it be approved. And if it is not, 
we understand. But to have experts making comments without 
knowing what the facts are is a little bit troubling for me.
    Mr. Engel. OK, thank you. I am way over my time. I see our 
chairman has arrived, so I will vacate the seat.
    Mr. Markey[presiding]. I thank the gentleman from New York 
for chairing, and that completes the time for questions from 
the members. What I am going to ask is each one of you to give 
us a 1-minute summation of what it is that you want the 
committee members to remember as we are going forward in terms 
of all the issues that we were discussing today. What is the 
core, one-minute message you want to give to us? We will begin 
with you, Mr. Blackwell.
    Mr. Blackwell. The first priority would have to be 
increased Federal funding, and Federal funding that works in 
Indian country, in economically distressed communities. Second, 
we need better metrics in Indian country. The Blueprint 
Initiative is aimed at getting the information that you can act 
on appropriately. Indian country can measure itself well in 
this regard. And finally, you should provide customized tools 
for the FCC to open up new regulations, to create new 
procedures that deal with the challenges, particular challenges 
in Indian country.
    Mr. Markey. Thank you, Mr. Blackwell. Mr. Smyth.
    Mr. Smyth. Thank you, Mr. Chairman, for having us here 
today. I applaud your efforts in what you are doing. I think if 
I had to leave one impression on this committee, I think that I 
would say that we are in the midst of a great digital 
revolution, and I think that we should do everything to 
encourage that. No. 2, I think that we should recognize that 
what we are looking at here today are two companies that can 
sustain themselves on their own efforts. Putting them together 
for what reason, I don't understand. I think it inhibits 
innovation, and I think it causes too much consolidation in the 
national radio market. I think that you have to look at this is 
that I am a local broadcaster. I compete with Mel in Boston, 
MA. I do not compete with him on a national basis. For him to 
have 288 signals in Boston, MA and Paducah, KY with a repeater 
network sitting out there, I think is something that everybody 
should reflect upon. And they should also make sure that the 
most successful thing radio has today is its commitment to 
public service in the communities that it operates in. And I 
hope that we will in that vein. Thank you for inviting me here 
today.
    Mr. Markey. Thank you, Mr. Smyth, very much. Mr. Kimball.
    Mr. Kimball. Thank you, Mr. Chairman. We completely agree 
that there is a digital revolution underway, and we ask that 
the Internet be allowed to participate in that revolution 
without one hand tied behind our backs. There is a clear 
statutory bias against the Internet in this space. It should 
not matter what method of transmission you use to send your 
radio station to this device. In the future, it simply should 
not matter, and I think that Congress should do something to 
level the playing field before it allows consolidation.
    Mr. Markey. Thank you, Mr. Kimball. Mr. Karmazin.
    Mr. Karmazin. In my one minute, I would like to say that I 
believe that we ought to be thinking in terms of what is in the 
consumer best interest and whether or not a combination of 
these two companies are going to give the consumer better 
pricing and more choice. And if that is the case, there is a 
public interest standard in doing it, and there clearly is a 
public interest standard from a regulatory point of view that 
this merger is not anti-competitive because you have heard all 
of these people talking about how we compete with each other. 
So I think we would like to have a fair hearing. We would like 
to go through the process, and we will deal with what the 
regulations think should happen.
    Mr. Markey. Thank you, and, Mr. Kimmelman.
    Mr. Kimmelman. Thank you, Mr. Chairman. I think we all know 
that technology has great promise, but it really means nothing 
for us. It cannot deliver us competition. It cannot promote our 
democracy unless we have diverse owners of the media, the means 
of using that technology to deliver diversity of entertainment, 
news, information from radio across all media. And we hope that 
Congress will continue to ensure that consumers get those 
benefits as the technology progresses.
    Mr. Markey. Thank you. We apologize to the witnesses for 
the inconveniences of this afternoon. You have greatly 
enlightened our committee. We thank you. We wish, if possible, 
to work with you over the next several weeks and months as we 
are developing policies in these areas. And without objection, 
Members will be permitted to ask post-hearing questions of the 
witnesses. And the witnesses may also, if they wish, supplement 
any comments which they have made or answers to the questions 
which they have given here today. Without objection, that will 
be so ordered. And with that and the thanks of the committee, 
this hearing is adjourned.
    [Whereupon, at 6:15 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
                 DIGITAL FUTURE OF THE UNITED STATES

            SPECTRUM OPPORTUNITIES AND THE FUTURE OF WIRELESS

                              ----------                              


                        THURSDAY, APRIL 19, 2007

                House of Representatives,  
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Edward J. 
Markey (chairman of the subcommittee) presiding.
    Members present: Representatives Doyle, Harman, Gonzalez, 
Inslee, Hill, Towns, Eshoo, Stupak, Green, Capps, Solis, 
Dingell, Upton, Hastert, Stearns, Shimkus, Pickering, Fossella, 
Radanovich, Bono, Terry, Barton.
    Also present: Representative Blackburn.
    Staff present: Johanna Shelton, Colin Crowell, Mark 
Seifert, Tim Powderly, David Vogel, and Jesse Levine.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Good morning. Today we have another in the 
series of hearings that we began with Sir Timothy Berners-Lee 
on the future of the World Wide Web.
    We have sought oversight hearings on the FCC, the NTIA, 
digital television, public safety interoperability, and the 
radio industry. Today, we look at wireless services.
    As television broadcasters move out of TV channels 52 to 69 
as part of the digital TV transition, a significant and 
valuable amount of spectrum will become available for other 
purposes in 2009. Congress stipulated that 24 megahertz of this 
spectrum, the area today occupied by TV channels 63, 64, 68, 
and 69, should be allocated for public safety use. And last 
year's budget bill required the auction of another 60 megahertz 
of this spectrum, an option which must begin by January 28, 
2008. This upcoming auction presents a huge opportunity to 
achieve important public policy objectives, including 
addressing public safety needs.
    So what should guide the development of the FCC's auction 
rules and the band plan for those frequencies over the next few 
weeks? The answer is the policy objectives Congress mandated 
the Commission to promote in the underlying auction. In 
general, the law specifies that the Commission should seek to 
achieve the following:
    No. 1, the development and rapid deployment of new 
technologies, products, and services for the benefit of the 
public, including those residing in rural areas, without 
administrative or judicial delays.
    No. 2, promoting economic opportunity and competition and 
ensuring that new and innovative technologies are readily 
accessible to the American people by avoiding excessive 
concentration of licenses and by disseminating licenses among a 
wide variety of applicants, including small businesses, rural 
telephone companies, and businesses owned by members of 
minority groups and women.
    No. 3, using auctions as a way to obtain, for the public, a 
portion of the value of the frequencies made available while 
avoiding unjust enrichment when using such options.
    No. 4, the efficient and intensive use of the spectrum.
    No. 5, ensuring that, in the scheduling of any auction, 
that interested parties have sufficient time to develop 
business plans, assess market conditions, and evaluate the 
availability of equipment for the relevant service.
    These objectives underscore that Congress knew that simply 
throwing more spectrum into the marketplace by selling it to 
the highest bidder does not, in itself, create the greatest 
value for consumers. Moreover, absent sufficient competition, 
the sale of more licenses for additional spectrum does not, in 
itself, mean innovative new services and gadgets will 
necessarily arrive for all consumers in all neighborhoods or 
arrive in a timely fashion.
    While it is alluring to budget policy types to raise 
billions of dollars, literally, out of thin air, 
telecommunications policymakers know that the taxpayers are 
also consumers, and the consuming public will get more in the 
form of lower prices, innovative new services, increased 
service quality, and job creation if the auctions are done the 
way Congress intended than any benefit a short-term injection 
of cash provides to the Treasury from this, or any, auction. 
For this reason, the subcommittee will be watching the FCC's 
implementation of the auction law, with respect to these 
auctions, very closely over the next several weeks.
    Today's panel will also allow us to look at issues beyond 
the upcoming auction, including how to get service to rural 
markets, how smaller companies can participate, the level of 
competition and the policies needed to ensure wireless 
competition in the future, how business plans that encompass a 
wholesale or open-access model might reach the market, and how 
we can best advance public safety interests. Today's panel will 
also allow the subcommittee to analyze how the Commission 
addresses, in an efficient and equitable manner, requests to 
utilize spectrum that is otherwise not being used. With a 
market segment as broad as the wireless industry, it is obvious 
we could have several hearings. And we may well return to the 
wireless area to look at some other important issues in the 
coming weeks, such as the so-called wireless policy, use of 
unlicensed spectrum, or white spaces, consumer protection 
issues, State preemption, public interest obligations, 
municipal wireless issues, and others.
    I want to thank the witnesses for their willingness to 
participate in today's very important hearing.
     Let me now turn and recognize the ranking member of the 
subcommittee, the gentleman from Michigan, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman. Good morning.
    I want to also thank the witnesses for testifying today on 
this very important issue, and I commend you for holding this 
important hearing.
    The topic of our hearing today is spectrum opportunities 
and the future of wireless, and I think that we would all agree 
that the explosion of wireless services and devices is nothing 
short of amazing, and the wireless industry has revolutionized 
the way that we communicate. I also believe that Congress has 
taken some critically-important strides in spectrum policy, 
which will help fuel the continued explosion, not to mention 
greatly advance the cause of public safety communications.
    As a Member coming from a diverse district, I understand 
the incredible opportunity that the 700-megahertz auction 
presents. The technical properties of the 700-megahertz 
spectrum makes it particularly valuable when it comes to 
serving rural areas. Carriers can use this technology to cover 
large geographic areas in a more economic way, enabling them to 
serve regions like southwest Michigan, where customers may be 
spread out over a large geographic area.
    Between those benefits and the benefits that will come from 
the 24 megahertz and $1 billion for public safety, we cannot 
allow other factors to delay or sideline that auction or 
transition.
    The horrible tragedy that occurred just earlier this week 
at Virginia Tech further demonstrates the important role that 
wireless technology can play in times of crisis. Heartbreaking 
tragedy has given us yet another reason and another example for 
why we must make this spectrum auction a success.
    There are lessons to be learned from the tragedy this week, 
and some of them speak directly to our hearing today. I would 
like our witnesses to address in their testimony, and I will 
ask, how they think we can better use wireless services to 
directly, and swiftly, notify students or other large 
populations about threats to their safety. Technology currently 
exists for as little as $2 per year per student for a text 
message-based emergency warning system.
    During a disaster, there are many important lifelines of 
communications, all of which are instrumental in relaying 
important information and, hopefully, saving lives. One 
lifeline comes from the communication between first responders. 
Another lifeline comes from our local broadcasters delivering 
important public safety messages over the radio or TV. And the 
third lifeline comes from direct communications, often by cell 
phone, e-mail, text messages, between the people on the scene 
and their friends, family, and loved ones. And it is so 
important. And in a disaster, all three of those lifelines can 
be used simultaneously as redundant layers.
    I am aware that proposals have been made to combine the 
first responders network with the commercial broadband network. 
And while I remain open-minded and look forward to hearing this 
testimony, I am highly skeptical of proposals to rig the 
auction for particular parties. The proposals are very complex, 
and the odds that the Government finds the right balance in 
advance in such a tight timeframe is not necessarily good.
    After 10 years of legislation, plannings, hearings, 
roundtables, negotiations, which culminated in the passage of 
the DTV Act, I am very concerned about the 11th-hour calls for 
700-megahertz rules that may significantly lower the value of 
the spectrum in the eyes of potential bidders, thereby 
depressing interest in the bidding and jeopardizing auction 
proceeds for the billion-dollar Public Safety Interoperability 
Grant Program, and the $1.5-billion set-top box program.
    While the proposals may have the best intentions and 
promise to give first responders preferred access in times of 
need, the better course may be to let public safety negotiate 
with the winners of the auction, or any other spectrum holder, 
for construction of a public safety network in exchange for 
sharing of the public safety program. It is not clear why the 
Government should be hard-wiring, particularly, business models 
into the auction rules at the onset.
    Again, I thank you all for being here this morning, and I 
yield back the balance of my time.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentlelady from California, Ms. 
Harman.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. I thank the chairman for yielding and welcome 
our witnesses.
    Though we are here to discuss the long-term future of 
wireless services, we cannot ignore its short-term future, 
which is specifically the 700-megahertz spectrum to be 
auctioned in coming months.
    I listened to the last speaker's comments, and I think I 
disagree, to some extent, and here is why. It seems to me that 
we are in the process of building out a lot of operable 
emergency networks throughout our country. And we are going to 
share $1 billion, and maybe $4 billion if money is added in the 
conference report on the 9/11 bill. But I am not for a national 
collection of operable networks. What I am for is a national 
interoperable network. That is the only way that we will keep 
our communities safe in the future if we have another terrorist 
attack or another natural disaster on the scale of Katrina.
    So I do think, in this case, and I may disagree with Mr. 
Upton, that the FCC is right to try to chart a course here that 
will give clear direction to the auction that we have set up 
for much of this spectrum. And I am watching carefully to see 
both what the FCC rule, which will come out shortly, says and 
what our witnesses have to say about the best way to get this 
done. We, obviously, have talented people here. We have an 
enormously innovative private sector, and I think through 
innovation, like the M2Z idea and some of the other ideas we 
are going to hear, will come the right answer, which is to have 
this innovation create a space for emergency communications, 
which will then pull all these operable networks into true 
interoperability. I do not think it will happen if we leave law 
enforcement alone. I think we will waste a lot of money and 
actually move backwards. I think it will only happen if we 
couple law enforcement with our innovative private sector.
    And I think that the FCC is the key to do this and clear 
and focused oversight by this subcommittee to keep everybody on 
course.
    Thank you, Mr. Chairman. I yield back.
    Mr. Markey. The gentlelady's time has expired.
    The gentleman from Illinois, Mr. Shimkus, is recognized.
    Mr. Shimkus. Thank you, Mr. Chairman. I will waive.
    Mr. Markey. The gentleman from Mississippi, Mr. Pickering, 
is recognized.

  OPENING STATEMENT OF HON. CHARLES W. ``CHIP'' PICKERING, A 
    REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSISSIPPI

    Mr. Pickering. Mr. Chairman, thank you for having this 
hearing. It is of critical importance that we get this right. 
The 700 megahertz is the best, and I believe the last, 
opportunity for us to have the broadband services in rural 
areas across the country. The specific, distinct and unique 
characteristics of 700 megahertz for its propagation in rural 
areas, being able to cover large geographic territory very 
efficiently and with broadband capability is why, for my State 
and many States like mine, getting this right with the market 
sizes, with the build-out requirements, and for the public 
safety, I think, is vitally important.
    So I am glad to have this hearing. I look forward to the 
witnesses today.
    As it relates to public safety, the proposal by a number of 
different advocates is worthy of our consideration. I happen to 
think that it is more dangerous not to have an interoperable 
network than it is to worry about the complexities of the 
particular auction proposal.
    As we have learned from 9/11 and from Katrina and the 
tragedy at Virginia Tech, it is time that we have not only an 
interoperable system that is compatible with devices, but it is 
critically important that we have a network that serves the 
entire Nation, the public safety community and can advance and 
advocate very important, pro-competitive principles.
    And so I am looking forward to the testimony on that.
    I do want to share some concerns of the purported 
recommendations or proposal on the 700 megahertz. Even though 
this is uniquely and distinctly suited for rural areas, I am 
afraid the current proposals are more suited for urban areas, 
high density populated areas, and for the larger companies. It 
is not as balanced as I would like to see as far as small 
markets, mid-sized markets, and having the geographic build-
outs that I think can be effective in keeping the very valuable 
spectrum from being squatted, squandered, or speculated in a 
way that does not bring us service into rural areas.
    And so, I am looking forward to the hearing today and 
seeing if we can find the right balance. I believe the AWS 
model, the most recently concluded auction, was extremely 
successful, and it is a model that we should look to and build 
upon as we go forward in this auction, because it did look at 
the balance between small, medium, and large, and it is a 
balance that I think we should replicate in the upcoming 
auction.
    Mr. Chairman, thank you for this hearing. I look forward to 
the testimony from the panel.
    Mr. Markey. I thank the gentleman. The gentlelady from 
California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you for recognizing me, Mr. Chairman, and 
welcome to all of our witnesses.
    I would particularly like to welcome John Muleta, whose 
company, M2Z Networks, is based in my congressional district, 
and he has made a very exciting new company, one of the most 
exciting, I think, in recent decades. And M2Z is emerging from 
Sand Hill Road in Menlo Park, an address that many people from 
outside my district recognize.
    When we embarked on this series of hearings last month, the 
chairman of our committee began the series with one of the most 
distinguished individuals in the world, Sir Tim Berners-Lee, 
inventor of the World Wide Web. And he told us that wireless 
connectivity and mobile broadband services will likely be the 
most important development in our digital future. That is quite 
a statement that he laid down. So it is important that we 
examine the wireless industry and our Nation's spectrum policy 
very, very carefully and thoroughly.
    It is particularly crucial that we conduct oversight 
related to the distribution of the valuable 108 megahertz of 
the communication spectrum that will be relinquished by 
television broadcasters as part of the digital TV transition. 
This spectrum and the 700-megahertz band is considered, I call 
it ``beachfront property'' by telecommunications carriers, 
because wireless signals, at this frequency range, pass easily 
through buildings, trees, and other interference, so it's 
highly, highly valuable. You can tell by how many people are in 
the room today, I think.
    I believe the DTV spectrum offers a historic opportunity to 
provide the equivalent of a third wire into the home, an 
alternative to telephone or cable broadband access, and that is 
why I have supported the efforts in this committee to ensure a 
swift completion of the DTV transition. I am very pleased that 
we were able to enact a hard date of February 17, 2009 and that 
the DTV spectrum auctions are scheduled to occur by January of 
next year. I have been waiting for a long time, in fact, since 
I came onto this committee in January 1995.
    I am encouraged that the FCC is steadily moving forward 
with the auction process, but I am concerned that there hasn't 
been sufficient attention paid to the auction rules and the 
policies that underlie the distribution of spectrum. Without 
incentives for new entrants and innovative services to 
participate in these auctions, this, what I call ``beachfront'' 
spectrum property, could become, what I call, the ``new wing of 
the mega hotels'' that already dominate the shoreline.
    So if the bulk of the spectrum that becomes available is 
purchased by incumbent wireless carriers, many of whom are not 
utilizing all of their current capacity, I think we will have 
lost a once-in-a-lifetime opportunity to create new competition 
and incentives for new entrants, innovation, and broader 
service offerings. The committee's DTV legislation included an 
amendment I offered which describes the opportunities of this 
spectrum and the FCC's responsibility to promote the deployment 
of new technologies, economic opportunity, and competition.
    So it is critical for the FCC and Congress to establish a 
spectrum policy for these new options that encourages new 
entrants and competitive services, and I look forward to 
working with my colleagues on the committee and the Commission 
to ensure that we don't miss this historic opportunity.
    Thank you, Mr. Chairman.
    Mr. Markey. The gentleman from Nebraska, Mr. Terry.
    Mr. Terry. I will waive.
    Mr. Markey. The gentleman from Michigan, Mr. Stupak.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. Thank you, Mr. Chairman, and thanks for holding 
today's important hearing.
    The digital future of the United States hearings have been 
very informative and helpful.
    In my district today, we have several wireless hotspots and 
entire wireless communities, including Gladstone and Mackinaw 
Island. Wireless Internet is fully taking hold in my district. 
In fact, just about every day, another marina is deploying 
wireless communications, because the people who vacation in my 
district expect to have Internet access from their boats when 
they dock.
    Now is the time to move beyond ``hot spots'' to efforts to 
cover entire regions. The 700-megahertz spectrum is the 
``beachfront spectrum'' and especially well suited to do the 
job. Its propagation properties allow for fewer towers to be 
built, making wireless an efficient alternative for rural 
America.
    But the promise of this spectrum to rural America will only 
be realized if networks are built there. That is why it is 
critical that the 700-megahertz auction is done right. I have 
long advocated for the auction to be conducted in a way that 
allows small- and medium-sized carriers and new entrants to 
compete. I am encouraged about what the FCC has said in the 
past, and I urge the FCC to construct the auction rules in a 
way that will maximize both competition and build-out in rural 
America.
    Of course, public safety is my key constituency who would 
benefit from this spectrum. By statute, public safety receives 
an additional 24 megahertz. The FCC has several different 
proposals before it to determine how public safety can utilize 
this 24 megahertz and additional spectrum.
    It is important for policymakers and the FCC to carefully 
consider public safety's views on the broadband proposals. We 
must structure our spectrum policy in a way that allows public 
safety to participate in the wireless broadband revolution.
    We must also have a spectrum policy that encourages 
interoperability, not discourages it. As co-chair of the 
Northern Border Caucus and the Law Enforcement Caucus, and as a 
representative of a border community, I hear often from law 
enforcement, Border Patrol, and Canadian officials about 
communications interoperability between the two borders. The 
spectrum must be divided in a way that protects the ability of 
border law enforcement to communicate with their colleagues 
along our borders with Mexico and Canada. Any plans that hinder 
law enforcement to communicate should not be tolerated by 
Congress.
    I yield back the balance of my time, Mr. Chairman.
    Mr. Markey. The Chair recognizes the gentleman from 
Florida, Mr. Stearns.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Thank you, Mr. Chairman. And again, I 
compliment you on having this hearing.
    The wireless industry is, perhaps, one of the fastest-
growing and most competitive sectors in the United States 
economy. Congress has, more or less, let the industry alone and 
let consumers decide. Obviously, a lot of us think the 
consumers are the best judge of this industry. Congress laid 
the groundwork, however, in 1993 to create a competitive 
wireless industry.
    During that time, the number of wireless subscribers has 
leaped from about 16 million to more than 233 million today. In 
addition, the wireless penetration is now more than 76 percent 
of total in the U.S. population.
    I think, like many of the members here, we have a 
BlackBerry. I have a Treo. And on the Treo, you can stream 
video, download video clips, take pictures, and as well as get 
your e-mail, and obviously use the phone. So this new 
technology is available at our fingertips. And what is so 
exciting is that with the continuation of wireless, there will 
be even more opportunities for high definition as well as 
broadband.
    The content is outstanding. For example, when one thinks of 
large-content providers, they obviously think of Disney in 
Orlando and others and Amazon, Google, and even Yahoo. All of 
these folks come to mind. But it is not just these companies. 
The sports industry has a tremendous amount of deliverable 
content that they would like to provide. Major League Baseball 
and college basketball games can be streamed over the Internet 
to a compatible device so that rabid fans, I represent the 
University of Florida, recent with its championship in both 
basketball and football, these rabid sports fans would love to 
be able to look at that game with the Buckeyes again, and 
again, and again. And they could do it in their spare moments 
while they're waiting for the train or the bus. And so we want 
to help them out. So this is a simply outstanding technology 
that we want to continue.
    Now, I imagine that these newer 4-G technologies are going 
to require much more bandwidth going forward, so I look forward 
to hearing from our witnesses Mr. Chairman, how do they plan to 
manage all this required bandwidth, and what are they going to 
do to ensure that the users do not experience too much 
congestion or other service delay as this amount of data 
increases. Do these technologies require the dedicated circuits 
for wireless companies to transport voice and data from the 
cell towers? If so, who supplies these circuits, and how does 
this process work?
    I imagine many wireless providers, with the exception of a 
couple, do not have a sufficient wireline network to handle 
this amount of traffic. The electronics industry is converging 
rapidly, and each segment of the telecommunications industry is 
reliant upon another to deliver its services. How this process 
works and whether or not it is competitive should be a clear 
focus of this committee.
    And I thank you, Mr. Chairman, and I look forward to this 
hearing.
    Mr. Markey. The Chair recognizes the chairman of the full 
committee, the gentleman from Michigan, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, thank you. I commend you for 
this hearing today. And today, we will hear about the future of 
wireless communications. We will be focusing on the upcoming 
spectrum auction. I expect further opportunities to hear from a 
broader range of interests on what American consumers can 
expect in the mobile environment of the future.
    The Nation's airwaves are a scarce natural resource, and 
the Congress is entrusted with the high duty to manage them on 
the public's behalf. This committee has worked diligently to 
promote competition in the wireless industry, and we have also 
worked to see to it that the allocation of spectrum was done 
fairly and in the broad public interest. These efforts will, 
and should, continue today. It is critical and crucial that 
this committee pay close attention to the upcoming 700-
megahertz auction. This auction holds great promise to bring 
more competition in the delivery of voice, video, and data 
services to consumers. The propagation characteristics make 
this spectrum particularly well suited to a third pipe in the 
home.
    Next week, the Federal Communications Commission is 
expected to release a preliminary set of service rules and to 
seek further comment on particulars of the band plan. 
Unfortunately, the FCC must resolve important questions. These 
include the size of available spectrum blocks; the geographic 
scope of the licenses; build-out obligations, a matter of 
particular concern to me; the structure of small business 
credits; the rights of minorities; and whether the band plan 
will advance the utilization of public safety spectrum. I am 
also concerned that the end result be fair and in the interest 
of all and that no special preferences, beyond that required by 
the public interest, be afforded here.
    I expect the FCC to proceed with a transparent and a sound 
auction structure based on the congressional objectives set 
forth in the statute, and the committee will monitor these 
matters carefully to assure that that is so.
    The threshold question here is whether the auction 
structure will produce greater competition in the broadband 
marketplace. This auction presents an opportunity for new 
entrants to emerge as a national broadband competitor. The FCC 
should adopt rules that maximize the opportunity for new 
entrants to obtain sufficient spectrum.
    Next, the FCC must adopt robust build-out requirements to 
help speed the deployment of wireless broadband to people's 
homes, particularly in rural areas. The auction structure 
should provide for licenses of different geographic sizes. 
Sufficient blocks of spectrum auctioned in smaller geographic 
areas, combined with robust build-out requirements should 
produce meaningful deployment in rural and underserved areas. 
The auction structure should promote a variety of business 
models such that both large and smaller entities have a 
realistic chance to obtain spectrum licenses.
    Diversity in wireless communications is no less important 
than diversity in other communications and media industries.
    I expect the FCC to provide smaller companies with a 
workable program and sufficient time to prepare for this 
auction. I also expect the allocation of spectrum will be done 
in the best overall fashion with regard to seeing to it that 
everybody gets what is needed, but not more than what is 
required for any particular special interest.
    Finally, the band plan must promote efficient overall use 
of the spectrum. Public safety has a strong need for a 
nationwide, interoperable broadband network. Small carriers 
seek a nationwide, wholesale provider. Proposals, such as 
Frontline, appear to provide a technologically-efficient way to 
achieve worthwhile policy objectives while preserving an open 
auction format. Installed accountability measures will be 
required to assure that the public receives the benefit of such 
proposals, as the proposals produce the intended result.
    Mr. Chairman, I thank you for your courtesy. I yield back 
the balance of my time.
    Mr. Markey. The Chair recognizes the gentleman from 
California, Mr. Radanovich.
    Mr. Radanovich. I thank you, Mr. Chairman. I waive for 
questions.
    Mr. Markey. All right. The Chair recognizes the gentlewoman 
from California, Ms. Solis.

 OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Solis. Thank you, Mr. Chairman and Ranking Member 
Upton, for holding this very important hearing today.
    I want to thank our witnesses for being here and for your 
expertise that you are going to lend our committee.
    As an advocate for diversity in media, I am pleased that 
today's hearing will give us an opportunity to discuss the role 
of small businesses in spectrum auctions. And as we all know, 
but sometimes need to be reminded of, spectrum is a public 
resource. It is not sold; it is licensed. License holders have 
a responsibility to act in the public interest, in addition to 
the services they provide using spectrum.
    As we approach the 700-megahertz auction, we must continue 
to examine whether the rules that will govern this auction are 
serving the public interest. The auction is one of the most 
important opportunities in the near future to encourage 
diversity among spectrum license holders. The auction could 
also help foster innovative solutions to close the digital 
divide and accelerate broadband deployment throughout the 
country.
    We need to find a balance that protects the public interest 
and levels the playing field for spectrum auctions, and I look 
forward to hearing from our witnesses today on that topic.
    And I am looking forward to learning more about proposals 
to expand wireless broadband Internet throughout the country. 
As we weigh in on broadband deployment strategies, we must 
ensure that minority and low-income communities are not left 
behind. Approximately half of the Latino community, about 56 
percent, goes online as opposed to 71 percent of whites who use 
the Internet.
    Proposals such as M2Z Networks' to efficiently use spectrum 
to provide free wireless Internet across the country could be 
an important part of the broader discussion of how to close the 
digital divide. I look forward to hearing more about this 
proposal. We must increase access to high-speed Internet and 
other communication services for all consumers and eliminate 
these disparities that currently exist in minority communities.
    Thank you, again, to our witnesses, and I look forward to 
hearing from you.
    I yield back the balance of my time.
    Mr. Markey. The Chair recognizes the gentleman from Texas, 
Mr. Gonzalez.
    Mr. Gonzalez. I will waive.
    Mr. Markey. The gentleman waives.
    The Chair recognizes the gentleman from Indiana, Mr. Hill.
    Mr. Hill. I will waive an opening statement.
    Mr. Markey. The gentleman waives.
    The Chair recognizes the gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman. I was just checking to 
make sure I didn't step in front of you, and I have concern, we 
are from Texas, of getting in front of our California members.
    Mr. Chairman, I have a full statement I would like to place 
into the record. And I am just saying, after yesterday's 
interruption to BlackBerry service, even some of those who are 
not technologically proficient realized that we can't function 
now without the technology we have. And when we see a rollout 
of the faster mobile broadband service technologies, such as 
WiMAX, I look forward to hearing from Mr. West on his company's 
use of WiMAX. WiMAX will offer the wireless convenience of Wi-
Fi, but with greater mobility, and the deployment of this 
technology will increase competition and benefit consumers by 
offering what is a third broadband pipe. By increasing 
competition, companies will be forced to provide consumers the 
information and service they want at speeds they want, or these 
consumers will find another service that can.
    We also have an opportunity today to look at the plan for 
public safety and use of the spectrum we will set aside during 
the digital transition. There are several proposals for 
addressing public safety broadband needs, and I am not 
convinced the proposals put forward to this point are the best 
to the public safety and the consumers, but I believe a public/
private partnership of some kind to address the public safety 
broadband needs deserves attention. And while the recent 
proposals from Cyren Call and Frontline Wireless, who are here 
today, have generated a great deal of controversy among 
wireless carriers and policymakers, even Verizon Wireless 
recently made some proposals at the recent Southern Governors 
Meeting, which are interesting. And I encourage all our 
panelists today, along with others involved in public safety 
communications, consider innovative solutions involving 
commercial wireless providers and the public safety. To make 
more efficient use of our valuable spectrum that will be set 
aside for public safety, a public/private partnership would be 
more economical for creating a public safety broadband network. 
And maybe compromise is not possible, but since we have a short 
window of opportunity, all parties should engage in good faith 
negotiations about their options.
    Given that timeframe, the FCC will likely be the source of 
any plans to involve public safety in the upcoming 700-
megahertz auction, but Congress has an important role.
    Mr. Chairman, before I close, I would like to also note my 
concern with the upcoming public safety grant distribution by 
NTIA and DHS. Apparently, these funds it has now been decided 
will be divided into 50 blocks and according to formulas for 
the States to distribute. I am very concerned that this 
approach will not produce tangible benefits and 
interoperability in our major metropolitan areas of the 
country, which are the primary terrorist targets of our 
country. Hopefully, our subcommittee will continue our strong 
oversight on the public safety grant distribution to see what 
benefits we will actually see from that $1 billion that now 
will be divided into 50 parts. And again, we will see what 
happens in our States, if they actually get to the higher-risk 
areas instead of what we have seen happen with our other 
funding in Congress.
    So, I yield back my time.
    Mr. Markey. The gentleman's time has expired.
    The gentlelady from California, Ms. Capps, is recognized.
    Ms. Capps. Thank you, Mr. Chairman, for holding this 
hearing and to our witnesses for appearing and your testimony, 
and I will submit my opening statement for the record.
    Mr. Markey. The gentlelady will reserve her time.
    The gentleman from Washington State, Mr. Inslee, is 
recognized.
    Mr. Inslee. I waive, Mr. Chairman.
    Mr. Markey. The gentleman from Washington State reserves 
his time.
    The gentleman from New York, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.

 OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Let me begin by thanking you and Ranking Member Upton for 
holding this hearing.
    It is important that we understand what the future holds 
for our constituents in the wireless arena. It is our 
responsibility to oversee how the public airwaves are used, 
with special attention to public service requirements, build-
out requirements, mitigation efforts, equipment, compatibility 
and public safety requirements.
    The upcoming 700-megahertz auction will bring a new 
generation of products and services to our consumers and 
improve the way our public safety professionals communicate. I 
look forward to working with my colleagues to ensure that the 
benefits of this spectrum are maximized in a positive way for 
the public.
    Let me say this. The wireless industry has been a huge 
success for consumers and the economy. Wireless customers are 
pleased with their choices. The use of these services has led 
to tremendous productivity, gains for businesses and families, 
and has contributed billions in taxes and fees to our 
Government and has spurred innovation and competition all over 
the world. Just look around here, on any given day, and you 
will see everybody checking their cell phone.
    I look forward to hearing from the witnesses today on how 
best to manage this spectrum. Each of them has an important 
perspective to contribute. There have been a few hiccups in 
spectrum management in the past, and we must admit that.
    It is my hope that the testimony today will help us 
determine the best way to move forward. Our constituents want 
us to make sure that none of the spectrum goes unused.
    I am a primary sponsor of the Telecommunications 
Development Fund, which uses auction's deposit interest to give 
small telecom startup access to capital. And I am particularly 
interested in assuring that it receives maximum funding from 
the auction. This will require that the spectrum be auctioned 
under the most competitive process without conditions that 
reduce its value. I also want to make sure that the designated 
entity program works so that small and minority businesses can 
participate and win.
    On that note, Mr. Chairman, I yield back, and I look 
forward to hearing from the witnesses.
    Mr. Markey. All right. That completes all opening 
statements by members of the subcommittee. Other statements for 
the record will be accepted at this time.
    [The prepared statement of Mrs. Capps follows:]

  Prepared Statement of Hon. Lois Capps, a Representative in Congress 
                      from the State of California

    Thank you Chairman Markey for holding another important 
hearing on our country's digital future.
    At the earlier hearings this subcommittee has held, I have 
called on the FCC and NTIA to do a better job measuring and 
encouraging broadband deployment in the United States.
    Study after study has shown that the United States is no 
longer the leader in broadband deployment and access, and this 
could have dire effects for our economy in the future.
    Most Americans have just one or two choices for broadband 
access today--cable or DSL, and some don't even have those 
choices.
    We need to do more to promote a third and fourth pipe into 
homes, and I'm pleased that we will be hearing from companies 
like Sprint, Frontline, and M2Z that have innovative ideas to 
provide Americans with wireless broadband access.
    The upcoming 700 MHz auction could be a great opportunity 
to increase quality, choice, and competition in the wireless 
and broadband markets.
    It's important that we keep the DTV transition on track so 
that we can get the spectrum into commercial use quickly and 
also to provide the 24MHz of spectrum to improve 
interoperability for our brave first responders.
    I want the FCC to ensure that the auction rules allow small 
businesses to compete for this valuable spectrum.
                              ----------                              

    Mr. Markey.We will now turn to our very distinguished 
panel, which consists of Mr. John Muleta, who is the chief 
executive officer of M2Z Networks. Mr. Muleta also served as 
the wireless bureau chief at the Federal Communications 
Commission and as a vice president of PSINet.
    Ms. Shelley Spencer is the president of Wirefree Partners, 
a small wireless company. Ms. Spencer has been actively 
involved in managing and forming wireless companies for over 15 
years. Mr. Victor ``Hu'' Meena, Mr. Meena is the president of 
CellularSouth, a rural cell phone company. CellularSouth is the 
largest privately-owned wireless carrier in the United States.
     Mr. Barry West is the chief technology officer and 
president of mobile broadband at Sprint Nextel Corporation. 
Prior to joining Sprint, Mr. West spent 35 years at British 
Telecom. Ms. Janice Obuchowski is chairman of Frontline 
Wireless. She is also a former head of the National 
Telecommunications and Information Administration. And Mr. 
Michael Gallagher is a partner at the law firm of Perkins Coie. 
He also served as the head of NTIA for the Bush administration, 
and more importantly, as a chief of staff for a member of this 
committee, Rick White.
    So, we welcome each of you to our committee today. You will 
each have 5 minutes to make your opening statement.
    Mr. Muleta, when you are ready, please begin.

         STATEMENT OF JOHN B. MULETA, CEO, M2Z NETWORKS

    Mr. Muleta. Mr. Chairman and Ranking Member Upton and 
members of the committee, my name is John Muleta, and I am the 
co-founder and CEO of M2Z Networks, and I thank you for the 
honor of inviting me to testify on spectrum and our country's 
digital future.
    As an initial matter, I would like to request that my 
testimony and supporting documents are incorporated into the 
record of this hearing.
    Mr. Markey. Without objection, that will be included in the 
record.
    [Editor's note: Because of its size, Mr. Muleta's 
supporting documents are on file with the committee.]
    Mr. Muleta. Thank you.
    Let me start by quickly telling you about M2Z.
    My business partner, Milo Medin, and I founded the company 
in 2005 with the support of three leading Silicon Valley 
venture capital firms. Our goal was to use spectrum and 
wireless technologies to solve two of the more pressing 
problems in the communications industry today. these challenges 
are: first, how to provide for affordable, universally-
available and accessible broadband to the over 100 million 
Americans today, and their children, who continue to be 
stranded on the wrong side of the digital divide, to our 
country's ultimate disadvantage; second, how to make better use 
of underutilized fallow spectrum, one of the country's most 
precious natural resources, with innovative technologies so 
that it benefits American consumers of all types and all means, 
just as Congress intends spectrum to be used.
    In light of these challenges, the key to equitable and 
effective use of spectrum is a transparent and timely 
assignment process that is driven by well-defined public 
interest objectives, such as solving the broadband divide. 
There is bipartisan support for this idea, led by the President 
and the Speaker of the House, that the public interest today is 
best served by a renewed and aggressive commitment to solve the 
broadband divide. It is also manifestly clear, despite what you 
might hear otherwise, that auctions are not the shorthand for 
determining such public interests. In its license application, 
M2Z has transparently demonstrated that it is the best and 
highest use of the 20 megahertz of unpaired and fallow 
spectrum, found at 2155 to 2175 megahertz band.
    M2Z is committed to building a family-friendly, nationwide 
broadband network that provides the public the following 
immediate and direct benefits: access to an always-on, free 
broadband connectivity at least six times faster than dial-up; 
the filtering of pornography and other indecent material from 
the free network so it is safe and accessible to our children; 
a free secondary, interoperable broadband data network for 
public safety officials and first responders; and payments to 
the Federal Treasury of 5 percent of our gross annual revenues 
from premium subscription services.
    Most importantly, M2Z is using private sector funding to 
build this competitive, nationwide third pipe that will reach a 
minimum of 95 percent of the U.S. population, all without 
taking any monies from the Universal Service's funds.
    Today, perhaps the greatest impediment to our Nation's 
digital future is the sad fact that the U.S. broadband market 
is a duopoly that limits consumer choice and discourages price 
competition. This is not a statement that I am making of my own 
accord. In fact, both the GAO and the Congressional Research 
Service reported this very same fact to Congress last year. 
Likewise, the FCC's annual status report on broadband Internet 
access shows that incumbent phone and cable operators have a 95 
percent market share in the broadband market.
    Without a doubt, U.S. broadband consumers are starving for 
services and prices like those that M2Z will bring to the 
marketplace. As you know, spectrum is a critical, if not the 
only, means for new, nationwide, broadband players, like M2Z, 
to enter the market and create the vibrant competition that is 
needed to close the broadband divide today. M2Z wants to 
recognize and thank Congress for having the wisdom and the 
vision to mandate transparent and timely procedures that invite 
innovative entrepreneurs like us to remedy this problem. 
Congress has done so by empowering the FCC with numerous 
statutory tools that facilitate the goal of providing universal 
and affordable broadband access to the American public.
    The FCC can use its statutory tools for authority found in 
section 7, section 10, section 309, and section 706 to 
immediately act on M2Z's license application. The FCC has 
already acted wisely by establishing a full and complete record 
on the merits of the M2Z license application. The FCC record 
contains uncontested economic analysis as well as the support 
of thousands of citizens and Government officials from nearly 
every part of America who are in overwhelming support of M2Z's 
use of the spectrum. That support is based on M2Zs transparent 
and vigorous public interest commitments and I am proud to say 
the character of its principles. Nevertheless, but for 
Congress's vision, M2Z would not have the means or the 
incentive to forward its innovative plans to the FCC, and, most 
importantly, to the American public.
    In closing, the M2Z team has the technology, has the 
capital, has the energy, and the overwhelming public support to 
make Congress's call for a broadband future for all Americans a 
reality. M2Z has made explicit and enforceable commitments that 
will significantly advance the public interest. There is no 
reason to wait any longer in granting M2Z's license to provide 
a free, fast, and family-friendly broadband network to all 
Americans.
    So I thank you very much for asking me to speak here today, 
and I look forward to answering your questions.
    [The prepared statement of Mr. Muleta appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Muleta.
    Ms. Spencer.

STATEMENT OF SHELLEY SPENCER, PRESIDENT, WIREFREE PARTMERS, LLC

    Ms. Spencer. Thank you, Chairman Markey, Ranking Member 
Upton, and members of the committee.
    I am pleased to participate today and reflect the 
perspective of a small business that has participated over 10 
years in spectrum auctions.
    [Slide shown]
    As you can see from this panel, innovation often comes from 
the small, new entrants that are seeking to create new jobs, 
create opportunity, and use spectrum in a wise way.
    Small businesses like mine are at the forefront of bringing 
innovation and new services.
    Based on our decades of experience in participating in 
spectrum auctions as a small business, we have three 
recommendations for spectrum policy that are important to keep 
in mind for the 700-megahertz auction.
    First, bidding credits have proven critical for small 
business participation. Bidding credits allow small businesses 
to accommodate for their difficulty in accessing capital and 
compete against large incumbents who also come to the auction.
    Second, less Government regulation versus more once we 
acquire the spectrum and start to run our businesses are 
important. Innovation takes different forms at different stages 
of a company's life, and without the ability to have a flexible 
business plan and adapt to the changing market conditions, 
small businesses will not be successful in the use of their 
spectrum.
    Third, we need adequate and sufficient advanced notice of 
auction rules. We are close to May, and this auction, as has 
been pointed out today, is supposed to start in January. Small 
businesses typically need 6 to 12 months to begin to raise 
capital, which we have raised from Sand Hill Road, as well, and 
we are closely becoming very close to the close of that window 
to have an adequate chance to participate.
    As has been pointed out this morning, small businesses were 
concerned when the FCC was granted auction authority. 
Specifically, Congress recognized that the FCC must design 
auction rules so that small businesses and businesses owned by 
women, such as myself, and minorities, have an adequate 
opportunity to provide spectrum-based services.
    To implement this mandate, the FCC established the 
Designated Entity Program, which has been used over the past 10 
years in many different forms. My company's experience in 
bidding on spectrum provides an interesting reflection on how 
that program has worked.
    In each auction we have participated in, we have taken a 
disciplined, business approach. And the first large PCS auction 
in 1996 for small businesses, we left that auction, and we sent 
our $20 million back to Sand Hill Road, others did the same, 
because we didn't want to bid outrageous prices and experience 
business failure.
    In subsequent auctions, where we did purchase spectrum, we 
always honored our commitment to pay in full for those 
licenses.
    In the late 1990s, we created a company that built a 
network in the southeastern United States from the ground up, 
creating over 200 new jobs, bringing new competition to the 
market, and creating a financing standard that allowed other 
companies to follow behind us. Significantly, those companies 
were also start-up companies.
    Most recently, we raised over $150 million of our own 
equity and debt to fund the purchase of 16 licenses. We are 
currently rolling out a network on half of that spectrum that 
we need for our business, and the other half we are leasing to 
Sprint Nextel.
    Significantly, despite our success, the last auction of AWS 
spectrum shows that small businesses are not faring well under 
the current auction rules. The auction results also show that 
small businesses are not acquiring spectrum at the same degree 
that they participate in the U.S. economy.
    According to the last auction results, small businesses by 
revenue, value, or designated entities won only 4 percent of 
the licenses auctioned in that auction. We hope that will not 
be repeated in the auction to start in January.
    According to SBA, small businesses fuel economic growth in 
our country. Small businesses generate 60 to 80 percent of all 
the new jobs in the United States. We are responsible for 45 
percent of the private payroll. Small businesses receive 13 to 
14 percent or more patents than large patenting firms, showing 
we are leaders in innovation. And women, such as myself, own 
6.5 million businesses in the United States, generating over 
$940 billion in revenues and employing 7.1 million workers.
    In wireless, it takes a lot of money to be a small 
business. The AWS auction raised $13 billion. T-Mobile spent 
over $4 billion. The 10 MHz license in Boston sold for $30 
million. Pittsburgh was $10 million. And Detroit cost $50 
million for a single, 10-MHz license. Not surprisingly, none of 
these licenses were won by small businesses.
    Our experience in starting a wireless company leads us to 
our second recommendation: less Government regulation of 
ongoing business operations versus more is better for small 
business success.
    While we applaud FCC efforts to ensure that ownership and 
control truly rest with small business entrepreneurs, 
regulations beyond these standards stifle innovation and the 
ability to raise capital. Streamlined regulation is also 
consistent with section 257 of the Act, where Congress asked 
the FCC to report on any regulations that could eliminate 
market entry barriers.
    Finally, we need adequate notice of auction and service 
rules.
    The statute expressly requires that adequate notice be 
given to bidders so they have time to develop a business plan. 
I regret to inform you that that opportunity is quickly 
slipping away.
    Thank you.
    [The prepared statement of Ms. Spencer appears at the 
conclusion of the hearing.]
    Mr. Markey. I thank the gentlelady very much.
    And now we turn to Mr. Meena. Welcome.

       STATEMENT OF VICTOR ``HU'' MEENA, JR., PRESIDENT, 
                CELLULARSOUTH, INC., JACKSON, MS

    Mr. Meena. Thank you for providing this opportunity to let 
me testify.
    CellularSouth serves all of Mississippi and portions of 
four other southeastern States. Most of the areas we serve are 
rural areas, and it is critically important that the future of 
wireless services include rural customers.
    In many ways, this hearing could not come at a more crucial 
time. The FCC is preparing to auction the last block of 
spectrum suitable for providing wireless services to rural 
areas. And it is considering dramatic changes to the Universal 
Service Fund. It is important to note that these two topics are 
not separate, and the issues are closely linked. Decisions 
regarding the 700-MHz auction and USF will determine the future 
of broadband services in rural America.
    Because of its physical characteristics, 700 MHz offers the 
last realistic chance to provide broadband to rural areas. 
Lower-frequency spectrum, such as 700 MHz, travels farther than 
the higher frequency spectrum, making it ideal for serving 
rural areas. By contrast, spectrum in the higher frequency 
ranges is abundant and well-suited for serving urban areas.
    Today, there is a digital divide in our country. This is 
particularly true in rural America. The United States ranks 
15th in the world in broadband penetration, due, in part, to 
the large rural areas in the United States that don't have 
broadband access. Wireline networks have not filled this need, 
and broadband access via satellite remains prohibitively 
expensive.
    The upcoming 700-MHz auction promises wireless carriers a 
method of delivering broadband to unserved areas, while USF 
support offers the means to provide the service. The Universal 
Service system is already in place to aid in providing services 
to rural and high-cost areas, and rulemakings should allow, or 
even require, carriers to use these funds to deliver these 
services to rural America.
    In the upcoming 700-MHz auction, carriers should be 
committed to serving all customers with the spectrum they 
acquire. FCC Chairman Kevin Martin recognized the importance of 
700 MHz to rural America in his testimony before this 
subcommittee earlier this year when he stated that the FCC 
``should consider policies to make sure that people are 
actually building out and utilizing the spectrum they are 
purchasing in geographic areas.'' We agree with the chairman. 
Because CellularSouth is serious about, and firmly committed 
to, continuing to deliver advanced services to rural areas, we 
support strong geographic build-out rules. This can and should 
be done, and it is the only way that rural America will be 
built out with 700 MHz.
    In the 2006 AWS spectrum auction, the FCC used a well-
balanced mix of small-, medium-, and large-sized licenses, 
which allowed numerous carriers to participate. The success of 
that auction was due to the significant opportunities available 
to small- and mid-sized carriers.
    Recent reports are that the proposed 700-MHz band plan is 
not even close to the band plan utilized for the AWS auction 
where over half the spectrum was licensed on either a CMA or EA 
basis.
    In order to provide small- and mid-sized carriers an 
opportunity to acquire 700 MHz, there must be at least three 
blocks of spectrum designated as small CMA licenses or medium-
sized EA licenses. And each of these blocks must contain at 
least 10 MHz of paired spectrum. If the FCC does not have 
multiple small and medium blocks, all regional carriers will be 
forced to compete against each other in one or two blocks of 
spectrum, while the large carriers and others will have the 
very large spectrum blocks to themselves.
    We support Frontline's proposal, because it addresses 
crucial public safety needs and also provides opportunities for 
regional carriers, like CellularSouth, to provide nationwide 
broadband services to our customers when they leave our 
network. The FCC currently has no rule in place that requires 
wireless carriers to cooperate with one another through roaming 
agreements to provide customers with automatic access to 
advanced wireless services when they travel outside the area 
served by their home wireless carriers. The Frontline proposal 
addresses this important issue.
    As you can see, this is an important time for the wireless 
industry and for the future of telecommunications. Decisions 
made over the coming weeks may determine whether we succeed in 
connecting our entire country through a comprehensive broadband 
wireless network.
    Thank you, again, for the opportunity to be here today.
    [The prepared statement Mr. Meena appears at the conclusion 
of the hearing.]
    Mr. Markey. We thank you, Mr. Meena, very much.
    At 11 o'clock today, there is a Holocaust remembrance 
event, and I think it would be appropriate for this 
subcommittee to pause at this point for a minute to reflect 
upon the Holocaust, but also to remember in our prayers the 
families and the victims from Virginia Tech. So let us just 
pause here for a moment.
    [Moment of silence observed.]
    Let us now turn to you, Mr. West. We welcome you. Please 
begin your testimony.

   STATEMENT OF BARRY WEST, CHIEF TECHNOLOGY OFFICER, SPRINT 
                       NEXTEL CORPORATION

    Mr. West. Good morning, Chairman Markey, Ranking Member 
Upton, and members of the subcommittee.
    I recently became a U.S. citizen, a country that I am very 
passionate about, and I am honored to testify before you today 
on a topic that I am also passionate about: the future of 
wireless technology.
    I head a division at Sprint that has a task no less than 
launching a service to revolutionize communications. Our vision 
coincides with the increasing prevalence of two powerful 
forces: the Internet and mobility. We plan to mobilize the 
Internet.
    Sprint Nextel is using its 2.5-gigahertz spectrum to build 
a 4G nationwide broadband mobile network. This transformational 
technology is designed to offer consumers and business 
customers faster speeds, lower costs, greater convenience, and 
enhanced multimedia quality using WiMAX-enabled devices.
    With our new network and its speeds of 2 to 4 megabits per 
second, four times faster than today's best wireless networks, 
you will be able to send photos wirelessly from your digital 
camera to a printer, share content you have created wherever 
there is Internet access, enjoy high-quality videoconferencing 
from your laptop, and do business anywhere.
    With our new service, you will be able to have a more 
rewarding conversation with full motion video. With my 
grandchildren in the UK, I have four wonderful grandchildren, I 
look forward to the day when my daughter can take a video 
camera with her and a laptop PC and granddad can ``be there'' 
when my granddaughter takes her first ballet lessons. That can 
be a reality.
    We are bringing this vision to life. By the end of next 
year, we expect to reach 100 million Americans with our new 
network. Once in place, our service will enable customers to 
obtain business information and personal entertainment easily 
and inexpensively in ways in which one day we will wonder how 
we lived without, just as we do mobile voice today.
    But our mobility broadband services and the broadband 
services of others face a significant impediment in the United 
States. That impediment is the market failure of last-mile 
special access connection.
    Sprint Nextel, like other providers, is heavily dependent 
on Verizon and the new AT&T to provide last-mile special access 
services. At 99 percent of our cell sites in their territories, 
we find that either Verizon or the new AT&T is the only choice 
to connect our sites back to our network. Sprint Nextel would 
very much prefer to have the option to obtain these dedicated 
special access circuits from someone other than the parents of 
our largest competitors. Indeed, the GAO recently concluded 
that there are significant barriers to competition for the 
BOC's special access.
    In an industry with an FCC-authorized rate of return of 
11.25 percent, Verizon reported a 51-percent rate of return, 
and AT&T reported 100-percent rate of return on special access 
for 2006. These returns were not a 1-year aberration. Special 
access rates of return have grown steadily.
    Special access will become even more critical as the 
capacity needs explode to support the broadband services that 
this subcommittee is committed to encouraging.
    Congress needs to mandate the FCC impose a price discipline 
that the marketplace has failed to provide. Failure to reduce 
special access rates will impede broadband development and 
competition in the United States.
    The FCC also has before it a number of complex policy 
decisions in the 700-MHz spectrum band. It is critical for 
public safety communications that the FCC not cobble together a 
hasty hash of rules for this spectrum. Also, if the FCC is 
interested in allowing commercial and public safety entities to 
use spectrum jointly, it should consider joint use in other 
spectrum outside of 700.
    America has the opportunity to foster a revolutionary 
change in telecommunications with the marriage of the Internet 
and mobility in wireless broadband. Sprint Nextel is building 
the most advanced wireless network ever, and we are doing it 
now. We have the technology and the know-how, and you can help 
bring broadband to America faster by fixing this critical 
marketplace failure.
    Thank you.
    [The prepared statement of Mr. West appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. West, very much.
    And now we turn to you, Mrs. Obuchowski. Welcome back to 
the committee.

 STATEMENT OF JANICE OBUCHOWSKI, CHAIRMAN, FRONTLINE WIRELESS, 
                         WASHINGTON, DC

    Mrs. Obuchowski. After 18 years, still talking about 
spectrum.
    Mr. Markey. Welcome back.
    Mrs. Obuchowski. Thank you.
    Mr. Chairman, Ranking Member Upton, members of the 
committee, thank you for welcoming me back and welcoming 
Frontline.
    Due to your hard work and your vision, the hard work of 
this Congress, and ultimately, the consent of the President of 
the United States, our country is about to embark on something 
virtually unprecedented, a mandatory, mandated, technology 
transition.
    As a result, we are asking many of our citizens, often 
among the poorer, and some of whom are quite old, to part with 
their old television sets, to buy a subsidized converter box, 
and to free the radio waves for a higher and better purpose.
    This is a good decision, but it causes all of us to reflect 
that these airwaves are a public good. Going digital in the 
United States should answer many of the problems of public 
safety. Going digital in the United States wireless industry 
should open access for greater innovation and leadership moving 
forward.
    Failure is not an option. We must ensure that the radio 
spectrum adequately serves those first responders, who, in 
turn, serve all of us. This is why this real estate, the 
product of this seismic technology shift affecting many, not be 
predestined to control by an entrenched few.
    OBRA '93, the legislative vehicle that launched this 
program, to which you eluded, Mr. Chairman, envisioned this 
result when it directed the FCC to rely on spectrum auctions to 
promote competition in licensing new spectrum-based services.
    Frontline has put forward a proposal that would achieve 
common ground, we hope. We build upon the sound work in the 
FCC's 9th NPRM to bring a public/private partnership approach 
to solve this chronic problem of public safety 
interoperability.
    By leveraging private-sector investment to yield public 
safety benefits, Frontline's proposal is a bipartisan effort to 
put these beliefs into action. Frontline was formed by former 
FCC Chairman Reed Hundt; Haynes Griffin of Pioneer Cellular; 
Jim Barksdale, a high-tech pioneer and a leader of the Gulf 
Coast renewal post-Katrina; and Ron Shriram and John Doerr, two 
legendary Silicon Valley entrepreneurs and investors, together 
with myself.
    We propose that 10 MHz of the airwaves be designated to 
meet public safety's needs and to promote competition and 
innovation after the auction. Public safety will get a free 
nationwide build-out of its spectrum, as well as increased 
spectrum access. This plan delivers nationwide 
interoperability, a goal which public safety has not otherwise 
been given the resources to achieve on its own.
    The unique propagation characteristics of 700 MHz makes 
this the most important auction ever held. The FCC has a once-
in-a-generation opportunity to write rules of the road for the 
use and auction of these airwaves that provides advanced tools 
for first responders and also innovative choices for consumers.
    We believe that robust auctions should promote competition. 
We do not believe that these auctions ultimately are destined 
for warehousing of spectrum or increased dominance and stifling 
of competition and innovation. Frontline's proposal would open 
the spectrum to a cross-section of competitors, from technology 
innovators to rural entrepreneurs and optimize Government 
revenues. To maximize competition for the spectrum for diverse 
bidders, the small business credit should be available for this 
slice of spectrum, as it is for other spectrum.
    An urgent problem we face is a rapidly-consolidating 
wireless market. In its most recent competition report, the FCC 
found that the wireless market was heavily concentrated. The 
wireless market's concentration index stands at roughly 2,700. 
The Department of Justice considers an index over 1,800 to be 
highly concentrated. This index is growing higher, having 
increased by 250 points over the past year.
    Finally, Frontline's plan would promote innovation by 
proposing open-access requirements on this limited slice of 
spectrum, which would be open to any choice of equipment 
selected by public safety agencies, individual device users, 
and different retail service providers.
    That is why the stakes are so high. We need to ensure that 
the next market shift in technology advance to emerge from the 
backyard of a curious child, comes from an American child, in 
an American garage, and can find its way directly into the 
American market.
    The stakes are so high because we need to make sure that 
the public radio spectrum adequately serves those who respond 
first to local, regional, or national trauma. To those people 
who cynically call this a ``spectrum game,'' let them look at 
the people of the Gulf area after Katrina or New York City 
after 9/11, and you will realize that this is no game. The 
Commission is at a crossroads in spectrum auctions, and this 
committee should give it guidance. It can use the spectrum 
auctions to provide public safety and open access.
    Thank you very much.
    [The prepared statement of Mrs. Obuchowski appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mrs. Obuchowski, very much.
    And now, our final witness, Mr. Gallagher. Please begin 
when you feel ready.

    STATEMENT OF MICHAEL D. GALLAGHER, PARTNER, PERKINS COIE

    Mr. Gallagher. Thank you, Chairman Markey, Ranking Member 
Upton, and the other members of this great committee.
    It is an honor to be testifying before the committee where 
I started my policy career 12 years ago working on wireless, 
Internet, and technology issues for Congressman White.
    I also had the privilege of working closely with this 
committee during my 4 years at NTIA, where we collaborated on a 
number of spectrum policy successes, including the 
authorization of ultra wideband technology; finding the 
spectrum for 3G that was recently auctioned at the AWS auction; 
passing the Commercial Spectrum Enhancement Act, which is the 
foundation for the relocation of a billion dollars of Federal 
systems; and the successful auction that was just concluded, 
doubling the amount of spectrum for Wi-Fi at 5 gigahertz, 
opening up the 70, 80, and 90 gigahertz bands for commercial 
use, and standing firm on behalf of innovation and private-
sector leadership as the guidepost for the future of the 
Internet, rather than turning it over to an international 
bureaucracy.
    Today, I am pleased to share my views on the importance of 
spectrum policy and wireless technologies in our economy today 
and the fabulous devices and services that lie ahead.
    Spectrum is, indeed, the ``rocket fuel'' of the next wave 
of technological innovation. The rapidly-declining cost of 
computing power and computing memory, coupled with worldwide 
economies of scope and scale and the provision of network 
equipment, fused with the availability of capital and limited 
regulation, have delivered us to a communications renaissance.
    Our Nation's broadband networks are many, growing, 
competitive, and an integral part of our economy and the fabric 
of our daily lives. We enjoy investments in cable, DSL, fiber, 
licensed and unlicensed platforms, and the services offered on 
those platforms are developed, launched, and consumed at 
breathtaking speed. Things like Google, Slingbox, TiVo, iPods, 
YouTube, high-definition DVRs, and now iPhones, Twitter, and 
Second Life are now launched in a period of months and receive 
vast consumer acceptance in a matter of days. And spectrum is 
the resource that gives untethered life to all of them and 
those applications that lie ahead.
    Convergence is truly at hand, whether it is on the high-
definition plasma screens in this room, on the VoIP phone on 
your desk, on your video iPod, and in the broadband-enabled MP3 
player camera television in your hand that we curiously still 
call the ``cell phone.''
    In 1993, this committee gave the FCC auction authority for 
the first time. Those PCS auctions gave rise to much of the 
success of the industry today. The auction rules were clear, 
market-based, and easily understood, and the market responded 
to the benefit of the American consumer and the U.S. Treasury. 
Since that time, the industry has flourished and delivered 
outstanding value to American families and businesses. In 1993, 
the industry had 16 million customers. Today, it enjoys over 
230 million. It employed 30,000 Americans. Today, it employs 
nearly 200,000. Minutes of use in 1993 were measured in the 
tens of millions, and today stand at 2 trillion. The average 
bill, interestingly, in 1993, was $61.50. It has declined now 
to $50.
    The committee built on that success with the recently-
concluded AWS auction. That auction delivered $14 billion to 
the U.S. Treasury and is paying for $1 billion in new radio 
systems for key Federal Government missions. In addition, that 
market-based auction has given rise to yet another potential 
competitor, the cable companies, who purchased licenses 
reaching virtually the entire United States.
    Of course, the committee should keep a watchful eye on the 
Government's process in clearing that spectrum and delivering 
the full use of it to the spectrum winners as soon as possible.
    What lies ahead is also exciting. We have four nationwide, 
well-resourced, well-capitalized competitors. Plus, WiMAX and 
new competitors, like Clearwire, are on the horizon.
    Technology evolution paths are also clear, economical, and 
robust. HSPA to LTE, CDMA Rev A to Rev C, and enhanced WiMAX, 
all promise the potential of 100 megabits per second to your 
hand. What is needed is the availability of spectrum.
    Unfortunately, our policy record is not perfect. The FCC 
strayed from clear, transparent, and market-based principles 
where the entity who valued the spectrum the most paid for it, 
and those detours cost the American public greatly. The C block 
and NextWave experience should not be repeated.
    The issue before the committee today is the leadership to 
provide in the upcoming 700-MHz auction. I believe the country 
will be best served if we move forward with the auction as soon 
as possible, we follow the successful precedent of the PCS and 
AWS auctions, and deliver the historic endowment of 24 MHz for 
public safety, but only for truly modern communications 
systems. My colleague and former Assistant Secretary, Larry 
Irving, and I published a roadmap for accomplishing just that.
    So we should complete the DTV transition. We are committed 
to it, as a country. Let us reap the benefits.
    And again, I thank you and look forward to your questions.
    [The prepared statement of Mr. Gallagher appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Gallagher, very much. And thank 
you for mentioning Larry Irving's name so we can have a 
seamless transition. The first Bush administration all the way 
through the last one at NTIA.
    Now, let us turn to the subcommittee members for questions.
    The Chair will recognize himself and turn to you, Mr. West, 
first.
    I am very enthusiastic about your fourth-generation 
wireless strategy. What impact has wireline consolidation had 
on your plan and your ability to be able to deploy? How has the 
consolidation of the wireline industry affected your ability, 
as a wireless company, to be able to, in an affordable and 
pragmatic way, deploy your technology?
    Mr. West. Thank you for the question you have, Mr. 
Chairman.
    The wireline is an important part of any wireless business, 
because the radio signals go from your handheld device to a 
tower. But from there, to get to the switching centers and the 
points of presence for the Internet, they have to generally 
travel over fixed-line services. So the recent combination of 
some of the larger Bell Operating Companies into the new AT&T, 
the FCC did actually provide a standstill on special access 
pricing. But really, it has done nothing to improve the prices 
of those services. And the net effect of that is that monies 
that would have gone into more aggressively rolling out the 
radio technology is now going to be spent with our competitors 
in providing those services.
    Mr. Markey. OK. Thank you.
    Mrs. Obuchowski, Mr. Muleta, you each have intriguing 
proposals as to how the new spectrum should be used. You are 
proposing a free broadband service that you would provide, Mr. 
Muleta. You, Mrs. Obuchowski, are promising a build-out of a 
national public safety network. You each, however, are using an 
open access wholesale strategy as part of your plan as well. 
Could you talk about that model and what you think, that is 
what that open access wholesale model offers as a new 
competitive strategy in the wireless marketplace?
    Mr. Muleta. I will defer to Mrs. Obuchowski.
    Mrs. Obuchowski. Well, thank you very much.
    We appreciate that wireless is increasingly a nationwide 
gain. When I got going in cellular, you could have a regional 
carrier, and you would know that if you were leaving that 
region, you might not have full coverage, but that was OK, 
because you had a discounted plan. But increasingly, it is a 
nationwide gain.
    So, it is important to new entrants, be they new device 
manufacturers, access manufacturers. And it is also important 
for rural America that they have access on fair and even-handed 
conditions to a nationwide network. So, we see our network 
limited, indeed, in terms of spectrum capacity, because it 
would be 10 MHz, or whoever wins this spectrum----
    Mr. Markey. What happens if your strategy doesn't pan out, 
commercially? What happens to the spectrum then? What do you 
envision happening?
    Mrs. Obuchowski. I want to allude to a red herring from Mr. 
Gallagher. There is no aspect of not panning out, financially. 
There is no longer incentive payments or delayed payment. So in 
terms of the financial commitments, those will be made right up 
front.
    But, second, in terms of the vision, we believe, because 
this is the last and best spectrum coming online, that it is 
critical that the FCC require aggressive build-out criteria. 
And those criteria would be applicable to us, or anyone else, 
and the FCC has the same enforcement authority over any carrier 
that----
    Mr. Markey. OK. So, your argument is now it is cash up 
front, not at the back end.
    Mrs. Obuchowski. Absolutely.
    Mr. Markey. You have paid for it. If it doesn't pan out, 
you have assumed a risk.
    Let us go to you, Mr. Muleta. Could you go through your 
wholesale strategy?
    Mr. Muleta. Our wholesale strategy is really focused on the 
fact that in 2005, the FCC made a seminal decision about 
deregulating broadband services, that is fiber, DSL, and cable 
broadband and not requiring unbundled access. That has created 
a tremendous amount of demand in the marketplace for people 
that already have existing subscriber relationships to partner 
with somebody who can deliver the heart of the broadband 
bundle. And so we believe that our model, which is a pure IP-
platform that is very focused on delivering data services, that 
would be a component of bundles for rural carriers, for 
potentially satellite and other carriers. So, the fundamental 
thing that we are focused on is making sure that our partners 
have a way of integrating our services to deliver a total 
bundle of services into the marketplace. So, that is how our 
model works. It is focused on pricing of the services and on 
the technical details that allow integration of this.
    Mr. Markey. OK. Thank you. My time has expired.
    Let me turn and recognize the gentleman from Michigan, Mr. 
Upton.
    Mr. Upton. Well, thank you, Mr. Chairman.
    I want to come back to this Frontline proposal. And Mr. 
Gallagher, welcome back, first of all. I am glad that you cited 
your friend, our friend, Larry Irving, as well; the two of you 
have written on some public safety spectrum issues, and I 
understand, though I have not read them, I am told, that they 
are quite good, and I look forward to taking it with me on my 
next Northwest flight back to Michigan.
    I have a question. Can't public safety negotiate with the 
winner of the auction? Is there anything to prevent that from 
happening, or with any spectrum holder, for the build-out of a 
public safety network in exchange for the shared use of the 
public safety spectrum? I mean, isn't that one of the 
conditions that we would expect?
    Mr. Gallagher. Thank you, Mr. Upton, and you should be able 
to read the entire thing before the plane takes off. Larry and 
I both have a short attention span, so we were very concise on 
how we wrote the paper.
    My way to respond to the question is that is the best way 
for public safety to get what it wants as opposed to what 
others might dictate to it. We can go forward. We can have this 
auction. Auctions are proven to work. The track record with the 
PCS auctions, with the most recent AWS auction, show that that 
is the best mechanism to transfer the spectrum to where it is 
going to be used immediately. These other things that we do 
that hamper, hinder, or otherwise make the spectrum less 
attractive, are risky. Public safety, then, is in a position to 
say, ``We have our own resources,'' this 24 MHz that is from 
Congress. And they are in the position to come together and 
then to negotiate with whoever might want to provide them 
capacity on an overflow basis or a pre-empted basis.
    Mr. Upton. Because if we somehow rig the auction and it 
goes wrong, who is to say that the public safety folks would be 
able to negotiate with someone or be in support of what is 
ultimately there. Is that not right?
    Mr. Gallagher. Well, you raise a very good point, because 
there are at least two impacts if something goes wrong. One is 
certainly the impact to public safety. Encumbering their 
resource in this way and then not delivering on the promise 
would be a failure of a national level that we cannot afford. 
And so, allowing a risky venture to take this and experiment to 
go forward is not the right path, as has been proposed, and in 
addition, you would be encumbering the other 10 MHz of the 
commercial spectrum that then would be tied up in the same 
problem or set of issues. And as we know, it takes us a long 
time, as a country, to unwind those.
    Mr. Upton. Now, how is Frontline's proposal consistent with 
section 337 of the statute?
    Mr. Gallagher. I think that there are questions that you 
can raise. It is a legality under 337. And the concern that 
that raises in my mind is that could lead to a delay in the 
auction or a delay in receipt of the spectrum in the 
marketplace that could sidetrack our march forward and the 
conversion to digital television.
    Mr. Upton. That has been one of my points as I have sat 
down with the FCC folks, and it is very important that this 
timeline stay consistent with what we ask, because, in fact, it 
would delay the transition to digital, delay the receipts, 
delay the NTIA being able to process the applications for first 
responders for the billion-dollar fund and also impact the 
converter box, something I know all of us here are very 
concerned about, particularly with the hearing that we had a 
couple weeks ago.
    I asked, in my opening statement, for you all to think 
about, in light of the Virginia Tech tragedy earlier this week, 
how we might be able to use the wireless technology more 
efficiently to communicate with large groups of folks, whether 
they be students or employees, whatever the situation might be. 
And in talking to a couple of our former House staff people, 
Billy Pitts, who I think many of you know, and some of the 
different proposals that are out there, it seems as though we 
are capable of having a system that, in fact, could warn 
students or large groups of folks of the pending disaster and 
take some caution. And I know many of us who have college 
students. It is kids and others, we hear this news, and we just 
wonder how we could prevent it from ever happening again. And I 
just wonder if any of you want to comment on something like 
that, Mr. Muleta, and maybe go down.
    Mr. Muleta. Congressman Upton, I think that is a very 
important question. And I think I harken back to, actually, 
Katrina, where we learned the lesson of having vast communities 
that are dislocated from the communications systems, and not 
just students, but other folks, who can't afford to get that. 
And when you asked the question originally, you mentioned that 
we had three models of how we can communicate: free over the 
air television and radio, the cellular system, and the 
traditional public telephone switched system. And I think one 
of the things that when the M2Z team got together, one of our 
goals has been, actually, to make sure that there are lots of 
affordable devices and free services available, similar to 
television, but on two-way interactive so you can send a 
message and get the message back and by making cheap devices, 
IP platforms available, and having a free nonrecurring service. 
You mentioned that there would be a $2 message per user.
    Mr. Upton. Per year as well.
    Mr. Muleta. Per year. And I think, based on my experience, 
that is actually a very important point, and those services are 
overlay services on top. But what we have to remember is that 
even if you assume the great success of wireless, there are 
still about 70 million people today that are not connected to 
the cellular system that would not benefit from that.
    Mr. Upton. And I know my time is expiring, but just to get 
to Mr. West and Mr. Meena, a response.
    Mr. Markey. That is all right.
    Mr. Upton. It was the BlackBerries that we were able to get 
after 9/11, because we could not communicate with our old-
fashioned beepers.
    Mr. Meena. One technology that should not be overlooked is 
text messaging. Text messaging is a low-bandwidth product that 
allows us to communicate with multiple users in a matter of 
seconds. We are already in talks at the University of 
Mississippi and Mississippi State University about such a 
warning system. And we feel like that is a great technology for 
those types of applications.
    Mr. Markey. OK. The gentleman's time has expired.
    The Chair recognizes the gentlelady from California, Ms. 
Eshoo.
    Ms. Eshoo. OK. Thank you, Mr. Chairman.
    First off, I want to compliment you and the work that you 
did with the minority to put this panel together. This has 
really been, I think, one of the most effective panels of 
witnesses since I have been on this subcommittee. I mean, and 
the way you presented your testimony, I think, has been helpful 
to all of us, so thank you, Mr. Chairman, and thank you to all 
the witnesses.
    I would like to start out with Ms. Spencer and Mr. Meena 
first. I pointed out in my opening statement that I was able to 
add an amendment to the committee bill that reiterated the 
FCC's responsibility to promote spectrum policies that 
encourage the deployment of new technologies, economic 
opportunity, and competition. And I think that it was mentioned 
during the course of the testimony this morning that recent 
auctions have been less than successful in this regard. The 
recent AWS auction resulted in only 4 percent of the licenses 
being awarded to small businesses. This is troubling to me. I 
don't have anything against the big guys. I am glad that they 
have grown and have been successful. But they didn't start out 
big. They started out small. Somehow there were the 
atmospherics that were there so that they could compete and 
grow. And we have to keep assuring that.
    So my broad question to the two of you is how can we 
actually ensure that the results of the 700-MHz auction produce 
better results and really fulfill the Commission's statutory 
mandate? And if you could be succinct in the recommendations 
that you make to us. If you were going to list the top three 
things or four things or two things, what would they be?
    Mr. West. OK. One thing, to speak to the AWS auction, one 
of the reasons that they may not have had as great a success is 
that that particular spectrum is an upper-band frequency that 
works better in metropolitan areas.
    Ms. Eshoo. I see.
    Mr. Meena Most smaller companies, and we have actually 
grown from a tier three company to a tier two, so we're a 
small- to mid-sized company, but most companies that focus on 
rural areas are highly interested in and have utilized spectrum 
in the lower band to deliver services to rural areas. That is 
what is so important about the 700-MHz auction is that that is 
the perfect spectrum for us to deliver advanced services to 
wireless areas, so----
    Ms. Eshoo. Thank you. Can we go to Ms. Spencer, because I 
have a limited amount of time, and I have three questions.
    Ms. Spencer. Thank you. I think I have a less optimistic 
view of that auction. And I think what happened is we had rule 
changes very shortly before that auction that specifically 
restricted a lot of the business plans you hear here. Small 
businesses are no longer allowed to be wholesale providers.
    Ms. Eshoo. And you spoke to that about the lead-time that 
you need.
    Ms. Spencer. Yes, you can't be a wholesale provider and 
qualify as a small business today, so the companies on this 
panel would not be eligible for that program and their new 
entrants. So, I think we saw real changes before that auction. 
They weren't good for small businesses, and they were too late, 
so people couldn't raise the money.
    Ms. Eshoo. To Mr. Muleta, and again, Ms. Spencer and Mr. 
Meena, but we will start with John.
    I am just going to go to the question without giving much 
of the background, because I think that you understand the 
background better than most. Do you think it is time to 
reconsider the imposition of a cap on total spectrum holdings 
so that we do end up with diversity and competition and the 
dissemination of spectrum licenses? Because really, what we are 
talking about here is what belongs to the public. If you buy 
spectrum and hold it and not use it, I mean, it could be argued 
that if you buy it, I mean, you paid for it. On the other hand, 
is that in the public's interest?
    Mr. Muleta. I think that is a very spot-on question. I 
think most people don't remember that between 1993 and 2003, 
there was actually a spectrum cap in place that prevented. For 
example, the PCS auction was 120 MHz of spectrum of which two-
thirds of that was actually designated. In each market, however 
you want to size up the market, two-thirds of that was for a 
new entrant. So what happened between 1993 to 2003 was you 
basically had two incumbents and then four new entrants. The 
market is consolidated. There are good reasons for that and 
good benefits that are coming from it, but it is very important 
for new entrants. So the choice, I think, policymakers have is 
do you want to apply rules on mergers and conditions or do you 
want to just force the market by allowing new entrants, like 
ourselves and other folks at the table, to come into the market 
and sort of jazz it up.
    Ms. Eshoo. How long has your application been before the 
FCC?
    Mr. Muleta. Our application has been with the FCC for 11 
months and a number of days. Almost a year.
    Ms. Eshoo. There you go.
    Thank you, Mr. Chairman.
    Mr. Doyle [presiding]. Thank you.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Shimkus, for 8 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman.
    First question. Is the 24-MHz allocated for public safety 
enough for them to do the job of interoperable communication to 
address the concern highlighted on September 11 and Katrina? 
And as close to a yes or no response. Maybe you want to add a 
little bit, but if you would start, Mr. Muleta.
    Mr. Muleta. Unfortunately, I am going to have to say maybe. 
It really depends on a set of parameters that have to develop 
on what the real specific demands are for public safety and 
that----
    Mr. Shimkus. And who will do that?
    Mr. Muleta. I think there are 40,000 public safety 
agencies, and there are a number of groups that represent them, 
but it also requires input from the Federal resources of DHS, 
so it is hard to say how we can come to one set of 
requirements.
    Mr. Shimkus. OK. Let me go to Ms. Spencer.
    Ms. Spencer. Public safety is a very unique issue, and I 
don't think, unfortunately, we are in the position to comment 
on it, because it does vary, as John points out from----
    Mr. Shimkus. OK. Mr. Meena, that is fine.
    Mr. Meena. Yes. Yes, public safety could most certainly 
benefit from 24 MHz of spectrum. That is an ample amount, but 
the right rules have to be in place so that the spectrum can be 
used properly to address the interoperability issues.
    Mr. Shimkus. OK. Thank you.
    Mr. West.
    Mr. West. I believe 24 MHz is sufficient, but the real 
issue is the public safety networks are built for a steady-
state demand. What happened at 9/11 and the other instances, a 
very heavy load comes on those networks, and so solutions have 
to be built that allow for those high demands. So a public/
private partnership has some merit.
    Mr. Shimkus. Public/private as in needing to add to the 24 
MHz in time of national need. Is that what you are referring 
to? Or public/private in ensuring that the technology within 
the 24 MHz is sufficient and effectively used?
    Mr. West. Well, much more the form of it. It is almost 
impossible to build for that kind of demand, and so having 
access to a public network in those times can provide for----
    Mr. Shimkus. Some of these proposals here, and I agree with 
my colleague, Anna Eshoo. I have been listening. I have been 
reading, because we do numerous things. I think it has been a 
very good hearing, but the basic premise, I think, is 24 is 
enough. There are proposals out there saying it is 24-plus, so 
then people want special conditions at the auction, because 
they are willing to give up some, and I think there are going 
to be some different views as I go down, but that is kind of 
what I am getting from this hearing.
    Mr. West. Congressman, to my point and my submission, these 
are very complex things, and they really need to be thought 
through before a decision is made. We have heard over and over 
this is a unique opportunity. I really believe that, and it is 
a time where we can actually do something very positive.
    Mr. Shimkus. Mrs. Obuchowski?
    Mrs. Obuchowski. The answer to your question is no, in a 
crisis situation; yes, in all others. And to the further point 
you raised about interoperability, that is also addressed by 
several of these proposals. It is 5 years after September 11, 
and we are still talking about individual groups, statewide 
grants programs. That is part of the proposal Verizon put 
forward to the National Governors Association. That is not 
working. And that is why the public safety community has turned 
to these public/private partnerships. It is interesting. You 
have got a group of experts here, all with corporate 
approaches. But the public safety community has concluded that 
going through an individualized grants program isn't going to 
get us the interoperable solution that we need. And it is they 
who are now leading the charge. It can be Cyren Call. It can be 
Frontline. It is probably somebody entirely different who wins 
at the auction, because we are proposing an auction, but 
overflow capacity and a set of rules that promote 
interoperability is key. I mean, I repeat, we are clearing this 
spectrum nationwide, forcing people to a dislocation. And if we 
are so shy about putting some kind of condition on 10 MHz of 
this to ensure interoperability, we have failed those people.
    Mr. Shimkus. It is interesting in your proposal, because 
you pull out 10 that you are willing to release in a major 
public crisis. But I would think that that would mean, as a 
consumer, that I would get a discounted price, because it is 
not 100-percent coverage 100 percent of the time. So I would 
assume there is a discount, because they are agreeing not to 
really have full access if you, then, through the national 
emergency, say, free it up. So I mean, again, that is kind of 
the question. And I would like to go to Mr. Gallagher and have 
him respond, and then I have got a follow-up one for you.
    Mr. Gallagher. Very good. Yes, I will give you an answer in 
20 seconds or less. Yes, 24 MHz is a huge amount of spectrum 
with today's technologies. Today's technologies, especially 
when you look at the forward path for HSPA and for CDMA Rev-A 
through Rev-C, very robust amount of spectrum that can handle a 
huge amount of communications capacity.
    And the final point is, remember, we view adequacy of this 
amount in the context of the spectrum that public safety 
already has. They are not giving that up. They get to keep that 
as well. When you look at it all together, it should be enough 
to accomplish their mission.
    Mr. Shimkus. And the NTIA is not here, but the couple years 
I have sat in that position, you are the stewards of that, is 
that correct? I mean, in your former position, the NTIA is a 
steward of that MHz spectrum.
    Mr. Gallagher. Technically, it is the FCC that is in charge 
of the public safety spectrum.
    Mr. Shimkus. So they will set the standards on how people 
are actually going to communicate. I keep thinking of the Fire 
Act. It is one of the greatest programs that we have done, and 
it has helped our rural firefighters, volunteer fire 
departments, I have tons, to upgrade equipment and its turnout 
gear, its air packs, its radios, primarily. Great program. I 
keep thinking about the fire chief on vacation from Illinois, a 
volunteer fire department, and he has got his radio with him. 
Something goes down bad in San Francisco, and that is where he 
is at. And he is going to volunteer. He is a volunteer. He is a 
great American Midwesterner, who is going to run to the call. 
Will his radio work?
    Mr. Gallagher. More than likely not.
    Mr. Shimkus. I mean now. Will it work later?
    Mr. Gallagher. Well, in the future, that is the expectation 
is that we would have----
    Mr. Shimkus. Well, I know now it doesn't.
    Mr. Gallagher. In the future, and hopefully it is a near 
future, you have a ubiquitous system where it is more like 
laptop PCs work on----
    Mr. Shimkus. And that is the 24-MHz question.
    Mrs. Obuchowski. Well, and that is precisely why we cannot 
walk away from this decision now, because when this spectrum is 
gone, you will certainly hear the carriers telling you, ``We 
cannot impose these requirements retroactively. We will take 
you to court, because we have bought and paid for this 
spectrum.''
    Mr. Shimkus. OK. I want to make two quick points, and I 
appreciate it, and I am sorry to cut you off. I have 20 seconds 
left. One is I just wanted to talk to Mr. Muleta and just the 
appealing aspect of his proposal is a free access that has 
decency standards. A lot of us are involved with that, and that 
is free over the air. And I wanted to throw that on the table.
    And Mr. West, if you could give us some information on some 
of this, and you don't have to do it now, but there are two FCC 
outstanding dockets on special access. If you could follow up 
with our office, from your perspective, how that is going, I 
would like to get that information.
    Thank you, Mr. Chairman. I yield back.
    Mr. Doyle. Thank you.
    The Chair now recognizes my friend from Michigan, Mr. 
Stupak, for 5 minutes.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Chairman, respectfully, but forcefully, I would like to 
say to my colleagues, I have heard a lot of heartfelt 
statements over Virginia Tech today, and I think we all agree 
on that. But please, in light of the lack of action by this 
committee and this Congress, for the past several years, I 
think some of the statements ring hollow.
    As smart as Members of Congress think we are, we do not 
know when the next senseless act of violence will occur or a 
natural disaster, or, heaven forbid, another terrorist attack 
on our country. We have done very little over the last 12 years 
to address this issue. I will wait and see from all of the 
reports on Virginia Tech what happened there, but did first 
responders, law enforcement, really have interoperability 
available to them to talk to each other to try to isolate the 
shooter? We all watched them running on TV clips with their 
guns out, but could they communicate? Were they interoperable? 
Wireless communications did save a lot of lives up in Virginia, 
because cell phones of the wounded students could call people 
who then called the hospital so they were prepared. But could 
every law enforcement officer who responded from many different 
jurisdictions talk to each other on their wireless cell phone? 
Maybe their jurisdiction, or maybe their partners and 
departments, but no one else.
    So I hope we would sort of cut the rhetoric and do the 
right thing. Mrs. Obuchowski said in her statement, right at 
the end, the best case scenario is that patches of public 
safety broadband networks without uniform interoperability 
might be constructed in communities with the resources and the 
political will to do so. So I would challenge Members of 
Congress that is us who must have the leadership, not the 
speeches. It is up to Congress to provide the resources and 
permanent funding source, and not a billion dollars, when 
experts tell us it will take at least $18 billion. We beat this 
so much over the last 10 years I have been on the committee. I 
would hope we take some action.
    So with that, Mr. Gallagher, if I may ask this question. As 
former head of NTIA and someone who studied this issue, we talk 
about the billion dollars we have set aside. I am encouraging 
NTIA to think outside the box. I also plan on reintroducing our 
legislation to make the grant program permanent and fund it 
through the proceeds of this auction. I would like to hear your 
thoughts on what should be done with the money now and in the 
future.
    Mr. Gallagher. Thank you, Mr. Stupak.
    And with respect to the billion dollars that NTIA has 
today, it is a significant challenge that NTIA has. It is a 
policy organization that has now been called upon to distribute 
at least $2 billion of the proceeds between those funds as well 
as the converter box program. And the intent, I am sure, I am 
not running NTIA right now, and I am sure that John, who is the 
Assistant Secretary, is working closely with the Secretary to 
make sure that they are using their resources adequately, they 
are leveraging DHS capabilities that are in place to be the 
arms and legs on the grant program. It is critical that this 
billion dollars be a catalyst for the 21st century 
communications systems that public safety should be using and 
not simply enabling----
    Mr. Stupak. Where are the rest of the resources going to 
come from? That is a billion-dollar catalyst. How do we get the 
other $17 billion that we need?
    Mr. Gallagher. Yes, looking to the future. I believe, once 
Congress and the States, who, by the way, spend a lot more 
money on this than Congress does, it, up until recently, was a 
completely State responsibility. Now, we Federalized the 
mission somewhat. The funding sources are going to have to be 
Federalized as well. But Congress will be more willing to fund 
those activities when they see they work, when there is actual 
demonstrations.
    Mr. Stupak. Why not make the proceeds from this spectrum 
auction, which will more than cover the cost of 
interoperability, if we are really serious about it?
    Mr. Gallagher. Larry Irving and I have had good discussions 
about funding ideas, and we will be submitting those shortly.
    Mr. Stupak. Because interoperability, we can't leave to the 
whims of congressional appropriation, with all due respect to 
appropriators. It shouldn't be left to the whims of it. We have 
to do this. I mean, 9/11, Hurricane Rita, Katrina, now this.
    So Mrs. Obuchowski is raising her hand to go ahead.
    Mrs. Obuchowski. I was just going to comment that, again, 5 
years into this process, we can't be hoping for further 
appropriations, hoping. Even Verizon and its proposal to the 
Governors Association, was giving the numbers for purely the 
local part of the deployment at $13 to $19 billion, total 
deployment costs of $35 billion to $61 billion and suggesting, 
if public safety used its infrastructure, that might be 
somewhat discounted. That was that approach. But those are the 
appropriated funds, if it is going to be subject to 
appropriations. That is a hope that I don't really believe is 
realistic in the relevant timeframe.
    Mr. Stupak. Well, let me cut you off.
    Mrs. Obuchowski. And that is why public safety has turned 
to these partnerships.
    Mr. Stupak. Mr. Muleta, in your plan, you mentioned 95 
percent of the country will be covered. I am the 5 percent that 
never gets covered, plus I am a border community, I mentioned 
in my opening statement. How do we do the 5 percent, and when 
will you do the last 5 percent?
    Mr. Muleta. We believe the 5 percent, as Mr. West 
explained, problem comes from the fact that the telephone 
network only reaches 94.6 percent of the population, and so the 
minimum threshold for us is to reach 95 percent. We plan to be 
there by working with rural carriers who need a data-roaming 
partner nationwide. So one of the appeals of our plan to rural 
carriers is the fact that they have, as Congressman Shimkus 
noted, when you go to San Francisco from a rural town, you 
still need connectivity and you need a national partner. So we 
hope, by working with them and getting the telephone 
infrastructure going out there, that is another important 
reason why we don't want to take from the Universal Service 
Fund, because those monies could be used to build to that last 
5 percent. That is really what Congress wants to happen.
    Mr. Doyle. The gentleman's time has expired.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Doyle. The Chair now recognizes the gentleman from 
Mississippi, Mr. Pickering, for 5 minutes.
    Mr. Pickering. Thank you, Mr. Chairman.
    And I also want to join Chairman Markey in welcoming Hu 
Meena here on behalf of CellularSouth. They provide great 
service to my home State of Mississippi, building out advanced 
networks, serving rural areas. In Katrina, they provided heroic 
action to resume communication during that critical time. And 
so we welcome you to the committee and your insight.
    Real quickly, I am glad that Mr. Gallagher and Mr. Meena 
both agreed that the AWS auction is the successful model. And 
the reason that it was successful, it had small, medium, and 
large blocks of spectrum in which there was full competition in 
each of those blocks.
    My concern is that, in the reported proposed auction blocks 
and rules that the FCC is currently considering, it is going 
away from that model, and it will be heavily weighted to large 
blocks and one small block but no medium blocks. And that 
would, I think, devalue the spectrum if we do it in that way 
without full competition in each of the blocks. And for those 
of us on our side, who want to avoid regulation or inclusion 
into the market, the best place to do that is through the new 
entrants. And the best way to do that, to have a healthy 
market, is to have wholesale. Not only retail, but wholesale. 
And so I am encouraged by Mr. Muleta and Mrs. Obuchowski's 
proposals to give innovative new entrants a chance in the 
marketplace and bring health into a market that could evolve 
into something with too high of a concentration.
    Mr. Meena, in that context, tell me, what would be the 
recommendations that you would have based on the current draft 
recommendations or proposals on the 700 MHz? How can we make 
sure that it is balanced and maximizes the benefit to rural and 
urban areas in the 700 MHz? What would you propose on the size 
of the blocks of the spectrum?
    Mr. Meena. Thank you, Congressman Pickering, for those kind 
words. We appreciate what you do for our State and also for the 
communications industry, in general, and your understanding of 
that.
    We see that the threat, as has been purported in the recent 
proposal, is that too many licenses are being potentially 
auctioned on a REAG basis. REAG basis includes multiple-stage 
regions of States. We would like to see more blocks include 
CMAs, which there are 734 CMAs within the United States, or 
EAs, which is a number that is a medium-sized block. EAs or 
CMAs give more people the opportunity to bid for this very 
valuable spectrum. And as you said, the AWS auction was a good 
model where you had more than half of the markets were 
auctioned on a CMA basis or the EA basis. So we would like to 
see that occur not only in the lower band of the 700-MHz 
auction but also the upper band.
    Mr. Pickering. You also, in your testimony, raised 
questions on the buildout, making sure that we have got the 
build-out language right. Currently, the proposal is to do it 
based on population. Tell me what the flaws are as that relates 
to rural build-out areas, and what would you propose to rectify 
that?
    Mr. Meena. Well, we have seen it in the PCS A and B block, 
for example, that when you do that, the carriers who are 
awarded those licenses only build the population centers. Well, 
that precludes those who are serving the rural areas from 
providing advanced wireless services, because the spectrum goes 
unused. The 700-MHz spectrum is too valuable to not be used, so 
therefore, we are calling for geographic build-out requirements 
where those who win in these auctions are required to build X 
amount of geography. And we have specific proposals that I will 
be glad to provide to the subcommittee, and it is based on a 3-
, 5-, and 8-year period, but the geographic areas must be built 
out for 700, because 700 is the beachfront property that allows 
rural carriers the opportunity to provide advanced wireless 
services to their constituents.
    Mr. Pickering. And Mr. Meena, there are some that have 
raised questions that they will be in western States, in States 
like Alaska or States where you have large tracts of public 
lands, there might be a problem with geographic buildouts. 
Could you and your language address those concerns so that 
there could be a nice balance between areas where geographic 
buildout makes sense and exemptions where it may not make 
sense?
    Mr. Meena. We could see rulemaking that might have one set 
of rules for States east of the Mississippi and another set of 
rules, or maybe some options, for those States west of the 
Mississippi.
    Mr. Pickering. Mr. Chairman, if I could, just one last 
question to Mr. West.
    A second ago, you mentioned, as you buildout your 4G, the 
impediments that you face. Could you quantify how much you 
invest in your networks and how much you pay in special access?
    Mr. West. Yes, sir. This year, we will invest over $7 
billion in our network, $7.2 billion, of which $800 million is 
in our new WiMAX network. We spend, on special access, over a 
billion dollars a year, nearly $2 billion, actually. And at 
those rates, that is taking money from where we would like to 
invest it to pay our competitors.
    Mr. Pickering. Thank you, Mr. Chairman.
    Mr. Doyle. The gentleman's time is expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Gonzalez, for 8 minutes.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    First of all, we have entitled today's hearing spectrum 
opportunities and the future of wireless. And I am going to 
agree with Mrs. Obuchowski that the future is now. Whatever we 
establish, however we go through with this auction, and the 
parameters and any conditions pretty well sets the pattern and 
the parameters, of course, of what we are going to be able to 
do within the context of that sale. So it is very important.
    This committee has been primarily concerned with, of 
course, the Internet, its expansion in a global marketplace, 
and the fact that we aren't where we are supposed to be when it 
comes to broadband. Wireless is the alternative to cable and 
DSL, when all is said and done. And that is what we are talking 
about here.
    The beauty of wireless, if you start looking at Wi-Fi, 
WiMAX, are all the players that are involved in this 
technology. I was looking over it, and just a few of the 
articles I was recently reading, we have got Sprint, Intel, 
AT&T, Google, QUALCOMM, Samsung, EarthLink. You don't know you 
are an ISP anymore or a network or a content provider. And that 
is the beauty of the marketplace. And I think, first and 
foremost, that should be our guiding star.
    Now, if it is not a level playing field, if it doesn't 
promote the public interest, then we do move then. And I think 
Congress, then, should act. At this point, we are having that 
discussion. We are having a dialogue, and we are having that 
debate.
    The first question I have really will go to Mr. West, 
because I am very interested in some of your remarks that were 
kind of separate more than anybody else's testimony and really 
centered on special access fees. And I think that is the 
legitimate concern. Your WiMAX partners, it is my 
understanding, are Intel, Motorola, and Samsung, right?
    Mr. West. And Nokia, sir.
    Mr. Gonzalez. OK. Those are business relationships. And you 
can appreciate business relationships, right?
    Mr. West. Yes, sir.
    Mr. Gonzalez. I would assume that you are going to be 
utilizing their technology. But you also will be promoting 
products and services that your partners have out there in the 
marketplace. That is the first observation I want to make.
    Second, utilization of assets by any business, and I know 
this is going to be a real simplification, but I really do want 
to make it, and full disclosure, AT&T is in my district, all 
right. But it is always one direction. I understand that last 
mile and the utilization of assets by, let us say, someone like 
AT&T, Verizon, and so on. I would like to take it the other 
direction. If we have a network, if we have an AT&T or Verizon 
that would like to access Sprint's wireless network by going 
back the other direction, I think some people might have some 
real concerns about that, and they would say, ``I am not sure 
if that is fair. Let us make sure that there is going to be an 
access fee and such.'' And we try to promote something of that 
nature. The next thing is the advantages of ownership and the 
considerations of ownership. I am going to read from a story 
back in August when you were announcing WiMAX. ``The economics 
of Wi-Fi were unattractive to large carriers, because the 
service relies on unlicensed radio spectrum, allowing even tiny 
Internet service providers that own no radio spectrum to 
compete. A service using spectrum owned by the providers would 
be more exclusive.'' I think what they meant there are business 
advantages and benefits if you are the owner of the spectrum.
    My understanding is that WiMAX does utilize spectrum that 
is owned by the provider. And there is nothing wrong with that. 
I am just saying that if we start looking at business models 
and such, the point I am leading up to is simply a question 
that there has to be some addressing your concern, which may be 
legitimate and may not be. However, it is looking, as far as 
the source of the answer to your concerns, is it possible that 
your access needs could be addressed through the wireless 
wholesale providers?
    Mr. West. That is a lump question, and if I may----
    Mr. Gonzalez. I will tell you right now, can your access 
needs be addressed through wireless wholesale providers?
    Mr. West. Certain parts of it can. It is not possible to 
reach all of our cell sites by alternative access technologies. 
We are looking very aggressively at using those technologies, 
but we are, for a significant part of that field, dependent on 
the local exchange carriers.
    And, sir, if I may answer the licensed versus unlicensed. 
Wi-Fi, for me, is a great technology. It has been very 
successful, and we don't mind the competition. Actually, we are 
very big supporters of competition. The issue around unlicensed 
becomes an interference model. As more and more people use it, 
you cannot manage that. It is also unsecure, whereas the WiMAX 
technology offers a managed service that is secure.
    Mr. Gonzalez. No, and I understand, Mr. West, and I am 
going to have to cut you short, because I have got 2 minutes, 
and I have one question that I wanted to pose, I guess, to Ms. 
Spencer and Mr. Meena. This is from today's Communication 
Daily, April 19: ``The Martin band plan would have no cellular 
marketing areas, CMAs,'' and I am not sure if Mr. Pickering 
covered it, I excused myself at that moment, ``in the upper 
700-MHz bands and only one 12-MHz, two 6-MHz paired slice of 
CMA block in the lower band.'' Your comments regarding that 
particular proposal, which I think will be voted on, more or 
less, on April 25, and its impact, as you see it?
    Ms. Spencer. Well, certainly, for small businesses, we have 
found that smaller markets are better, because if you have to 
buy the REAGs that Mr. Meena talked about, it is in the 
hundreds of millions of dollars, but they need to be sizeable 
enough so you could start the business from scratch if you 
don't have a rural telephone company. So we would actually 
advocate, like, the economic theory is a little larger than the 
CMAs, so you can get enough of an aggregation of spectrum 
geographically.
    Mr. Gonzalez. Mr. Meena.
    Mr. Meena. And we do have concerns, because in the report 
that has been circulated, there is only one block that has been 
divided up into smaller CMAs, and we think that is not what is 
going to best serve those who want to provide services to those 
throughout our country, especially in rural areas. We need more 
smaller blocks, more medium-sized blocks.
    Mr. Gonzalez. And lastly, another, just, observation, and I 
am not saying these things clash or whatever when we go into 
the auction, but Mrs. Obuchowski, I think, in your testimony, 
you said, finally, although maximizing auction revenues is not 
a relevant consideration of the Communications Act, we have 
already put a price tag. We put a bottom price tag on this 
thing a long time ago, and I think when we voted on the budget 
reduction act, whatever we called it back then, when the 
Republicans were in the majority, I think we got a floor, and 
it is so tempting to maximize that. Yet, I understand that 
maybe that may be inconsistent with maybe the best efforts that 
we should be making.
    Mrs. Obuchowski. Well, let me redirect. We can accommodate 
that floor and put the limited conditions that we are 
suggesting into the regulations. It is not necessarily revenue-
maximizing to do what the gains theorists have recommended, for 
example Verizon, very large chunks of spectrum going on the 
block. It is the equivalent of saying, ``The revenue-maximizing 
market is all $6 million homes.'' No. You are not bringing into 
the auction people such as Mr. Meena who have plenty of money 
to spend to cover geographic areas that they really think they 
can cover.
    Mr. Gonzalez. Thank you very much.
    Mr. Markey [presiding]. The gentleman's time has expired.
    There are two roll calls on the floor. And so what we will 
do right now is recognize the gentleman from Texas, Mr. Barton, 
for 5 minutes.
    Mr. Barton. Mr. Chairman, thank you.
    Since we have got a vote on, and I just arrived, I will 
submit my questions for the record.
    Mr. Markey. I don't think that is necessary at all. I think 
there is plenty of time for you to ask your questions, Mr. 
Barton.
    Mr. Barton. OK. I just was trying to expedite the process, 
but that is fine.
    My basic question is to the entire panel, and it goes to 
the proposal by Frontline to basically buildout a public safety 
network in return for getting some of the spectrum that would 
have been given to the public safety providers. Is that, 
generically, a good idea or a bad idea? Anybody that wants to 
take a pop at it, except the gentlelady who is actually in 
favor of it, because it is her idea.
    Mr. Muleta. Well, if I could address the question, all of 
these proposals are actually trying to solve a major problem, 
so I think they are all good. I think if you look at the M2Z 
plan, what we have committed to do is to build a consumer-scale 
network on fallow spectrum that will provide actual, day-to-
day, free network access on a secondary basis to public safety. 
So we believe that giving public safety more networks of 
networks, more options to use networks with very low-cost 
devices and no recurring cost, actually addresses a significant 
amount of their needs. Now, without going into specific 
proposals, which would be best covered by Mrs. Obuchowski, I 
think what we are actually looking for is a network of 
networks, all kinds of networks, to actually be purposed for 
public safety.
    Mr. Barton. But I am not enunciating the question as 
clearly as I should. My generic question is, as it is currently 
configured, we are going to give 24 MHz of spectrum to public 
safety and that is going to be allocated by the FCC, and there 
is no auction, as I understand it. But then we are auctioning 
off this other spectrum, and whoever wins the auction can use 
it for whatever they want to. So you have a public purpose use 
that is not auctioned, and you have an auctioned use that can 
be used for any viable commercial opportunity that meets the 
general standards of the FCC and the Federal statutes. And as I 
understand the Frontline proposal, it is trying to have a 
little bit of both, but it is sweetening it by putting a carrot 
out: ``If you let me have this, I will do that for free.'' And 
that is my question. Is it a good idea to blur the line between 
non-auctioned public spectrum that has been set aside for 
public safety uses and auctioning spectrum that is for 
commercial opportunities, whatever they may be?
    Ms. Spencer. It has been our experience that auctions 
should be objective and not pick particular business plans, and 
I think the business plan decision is made with your investors 
and shouldn't be made in the auction context.
    Mr. Meena. And we think the Frontline proposal addresses 
two critical issues: one, the public safety needs and the 
interoperability related to that, as well as providing regional 
carriers opportunity to have access to a broadband, national 
network, which will be wholesaling to carriers like ourselves.
    Mr. Barton. You think it is a good idea?
    Mr. Meena. Yes, sir.
    Mr. Barton. She didn't think it was a good idea. I am not 
sure what the first one told me, because I didn't ask him. I 
think you said it was sort of a good idea.
    Mr. Muleta. To be specific, as Chief of the Wireless Bureau 
at the FCC, the complexity of the public safety problem as such 
it is really a federalism question, because the threats that we 
face today are significantly different than traditionally what 
we faced in the United States. So whether it is Katrina or 9/11 
or even something like what happened at Virginia Tech, the 
problem is that at any one point in time, the solutions that we 
can envision don't really envision the problems that might be 
coming up, and so my answer is to actually give more options of 
different kinds of networks for public safety, whether it is 
our network or it is the network that is being contemplated by 
any of the folks that are sitting at the table, or other 
networks. So what we have to find is can we get it to the price 
point where public safety officials, the chief information 
officer can actually say, ``This is actually a good solution 
that I can integrate and provide the kind of interoperability 
that we need for some future threat that we can't predict 
today.''
    So it sounds a bit complex, and I apologize for that.
    Mr. Barton. That is a great answer. I am not sure it is to 
my question, but it is a great answer.
    Mr. West. Public safety has had spectrum for a long time, 
but we still don't have the interoperability or the capacity in 
an event like 9/11 to deal with it, and again, this is a very 
complex subject, and it is a one-time opportunity. I do believe 
that we should take the time to examine all the potential 
proposals to make sure we have a holistic solution to this 
problem. Our first responders are terrific people, and they do 
a great job. We must make sure they have the means and the 
ability to do that job at the least risk to themselves. So a 
little time, I think, is more than merited on looking at these 
different solutions.
    Mr. Barton. I know you think it is a good idea.
    Mrs. Obuchowski. Could I say something?
    Mr. Barton. It is your idea.
    Mrs. Obuchowski. Mr. Barton, you said recently something 
wonderful, that it is too late for further excuses.
    We have a few months, even, to get this auction off on time 
and give people, legitimately, the time they need to build 
capital to get this right. We build upon what the FCC has 
proposed. Indeed, they have proposed a public/private 
partnership to address this broadband in the public safety 
space. And one thing we are very directive of, and I want to 
clarify this, is we will never hold that license over that 12 
MHz. That is public safety's held in trust. The commitment of 
whoever wins the commercial/public safety license is to 
buildout a network capable of accommodating them, capable of 
solving public safety's needs. But they will govern that 
license and can govern access to it.
    Thank you.
    Mr. Inslee. And I thank you, ma'am.
    Speaking of time, we need to adjourn for votes. We will 
recess until 12:30. Thank you.
    [Recess.]
    Mr. Markey. The subcommittee will reconvene.
    And the Chair will recognize the gentlelady from 
California, Mrs. Capps. The early bird gets the recognition of 
the Chair.
    Mrs. Capps. I was kind of hoping that it might turn out 
this way.
    We have a wonderful panel of witnesses with very 
interesting stories to tell. I only have 5 minutes, so I have 
selected two of you----
    Mr. Markey. The gentlelady actually has 8 minutes, because 
she waived her statement.
    Mrs. Capps. Oh, that is even better.
    But there is still not enough time to get into all that I 
would like to ask about, so I have chosen to ask a couple of 
you a set of questions, brief ones, and I will start with you, 
Mrs. Obuchowski.
    I appreciate your testimony and your long record of service 
here, and I find Frontline's proposal to be very interesting 
and encouraging, for me, to hear of a plan that could buildout 
a nationwide interoperable network for public safety. I am a 
public health nurse, so I am very interested in that aspect of 
it. Your proposal suggests an open-access model for the 
network, meaning that customers could connect devices of their 
own choosing to that network. And this seems to be different 
from the way most wireless networks currently in use operate. 
But are there some technical issues, just briefly, that you 
could mention to this type of open-access network? That is the 
first of three questions I will ask you.
    Mrs. Obuchowski. Sure. Well, clearly, when you are 
proposing a nationwide interoperable broadband network, there 
are technical issues, but they are soluble and issues that have 
been solved.
    Mrs. Capps. OK.
    Mrs. Obuchowski. FourG technology is now making its way 
into both the commercial and the public safety space, clearly, 
because you have got the wonders of the Internet associated and 
the ability of the underlying technology to make devices 
compatible, and also to develop hierarchies to say what traffic 
is higher priority or lower. You can solve a great number of 
these problems. That is why, I would say, some people say our 
company is high-tech needs public safety. We have two wonderful 
California investors, John Doerr and Ron Shriram, investing in 
us as angels, and I think that is in part because they see the 
same problem and opportunity of taking this 4G technology and 
putting it to work in a different way.
    Mrs. Capps. So whatever technical problems there might be 
can be----
    Mrs. Obuchowski. Yes. I would assume that all the 
panelists----
    Mrs. Capps. Just because some of us aren't very 
sophisticated about this maybe even also for the record, are 
there some advantages to consumers in an open-access network? 
Spell that out, just a little bit, as to how that would be of 
benefit.
    Mrs. Obuchowski. We can debate the numbers. Is this a 
fully-competitive market? Is this a market that is competitive 
but is becoming more concentrated? But in any event, you see a 
great deal of concern associated with two or three points, one 
being the ability of folks to roam, to access a network on fair 
and equal conditions, not to be essentially seeking to roam and 
compete with their own competitor. So that is one issue where 
open access is desirable, particularly to rural companies.
    A second issue is the issue of open access to devices. 
There is a proposal out there put in by Skype that seeks open 
access across the board. We would not support that, in that it 
is retroactively applied, but when you look at the future and 
you say now if you have a device and you are seeking to bring 
it to market, you need, typically, to negotiate with one of the 
large carriers. And it really depends on their business model 
whether they are accepting of that or not.
    Mrs. Capps. I see.
    Mrs. Obuchowski. I would say there are absolute innovation 
advantages, and again, that is why I think we have a great deal 
of support, particularly from the people that are concerned 
about innovation.
    Mrs. Capps. All right. A final question for you in a 
different tack.
    One of the most common arguments against Frontline, that I 
have heard, has been that it isn't really a true auction, 
because under your plan, several conditions are placed on the 
spectrum, including network neutrality, open access, 
wholesaling, and roaming, as you have mentioned. Do you agree 
with this assessment that is a little bit more negative and/or 
do you believe auctions are the best way for a government to 
allocate spectrum?
    Mrs. Obuchowski. Yes, I absolutely believe that auctions, 
and we absolutely believe that auctions are the best way to 
allocate. I think that is, again, an utter red herring going 
all the way back to over 1993. This committee and then the 
Congress and then the President decided that spectrum auctions 
are a good way to assign spectrum. They don't define all the 
rules of the road. That is flatly not the case. And I need to 
make one more point, which is that I would not assume this 
auction is going to be competitive. I mean, one of the Holy 
Grails has been why isn't Silicon Valley involved in spectrum 
auctions. And I think you see, both with Mr. Muleta's proposal 
and ours and others, that increasingly, people from other 
sectors, not the cable and the telephones, which are great, are 
looking. They understand that cellular and wireless undergirds 
vastly more than that, and they have become interested. I think 
they will be in this auction, and I don't see that they will be 
stepping away, because some public safety conditions are----
    Mrs. Capps. All right. Thank you.
    Now I just have 2 minutes, Mr. Muleta, but I appreciated 
hearing about your company's creativity as well in developing a 
proposal to roll out free wireless broadband access to most of 
America. It sounds like a good idea. Your company wants the FCC 
to grant you spectrum without an auction.
    So I will pose the same question to you. Do you believe 
that auctions are the best way, and why aren't you choosing 
that model?
    Mr. Muleta. It really, fundamentally, comes down to the 
spectrum that we would like to use. The spectrum has been in 
the marketplace for 7 years, has had zero demand for its use, 
until we came around. Now there are some claim-jumpers that 
have stepped into the frame. But the bottom line is the FCC has 
been given a panoply of tools to assign spectrum in the public 
interest. What we believe is that we would like to get it to 
the marketplace as quickly as possible. We would like to make 
sure that the rules of the road for an auction are not 
encumbered in such a way that it prevents new entrants from 
coming in and will be done and be very transparent and explicit 
about what the direct consumer benefits are. I just ask you, 
when you go back to California and you land on the plane, when 
the plane lands, today, you can take out your cell phone, and 
you can connect. But if you take out your laptop, you hope 
maybe there is broadband connectivity. And I think that is 
really our vision is to have the kind of model, free, over the 
air type of television model with very low-cost equipment to 
get it out in the marketplace.
    The issue about auctions really has to do with is this 
spectrum fallow, and will other people have an incentive to 
prevent entry? How can it be designed in that way?
    Mrs. Capps. Thank you. I see there is time for one more 
quick question.
    If the 700-MHz band is beachfront property in terms of its 
quality and desirability, what is the area you are looking at? 
Is it going to be technically feasible to build a nationwide 
broadband network, including high-speed, in the 2.15-GHz band?
    Mr. Muleta. Yes, it is. Absolutely. The reason that the 
demand for the spectrum has been so low in the marketplace, and 
again, 7 years of lying fallow, has been because it is unpaired 
spectrum, which means if you want to try and develop voice 
types of services that are voice that maybe do data, it is very 
unattractive for a lot of the existing players. And so what we 
have focused on is providing an IP-only, a data-only service, 
and we think, at that level, the 2155 to 2175 spectrum can be 
very much used to deploy that. The other thing is, when you are 
thinking about computing services, our company's investors are 
Charles River Ventures, Red Point Ventures, who has backed TiVo 
and MySpace, as well as a client of Perkins when Mr. Doerr was 
on our board, have also invested in a lot of these interesting 
applications. What they need are data applications, a data open 
platform to provide these services.
    Mrs. Capps. Thank you, Mr. Chairman.
    Mr. Markey. The gentlelady's time has expired.
    You can take this beachfront property analogy too far 
because in the same way there is climate change affecting 
beachfront properties all across the planet, well, we have 
learned that there can be economic climate changes, too, that 
affect this beachfront property. We learned that with a lot of 
wireless licenses in the 1990s.
    The Chair recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. West, in most areas, consumers have only two choices 
for broadband, the telephone company, the DSL, or the cable 
company. Several wireless carriers are now offering wireless 
broadband service over their cell networks as well. Sprint is 
notable in that, unlike Verizon Wireless and Cingular, it is 
not affiliated with a DSL provider. Would you say that Sprint 
is offering a third source of broadband, which many of us are 
seeking for many years in becoming closer to a fully 
competitive market in broadband?
    Mr. West. Thank you for the question, sir. Yes, I do. I 
think that the move to mobile broadband increases competition. 
But more importantly, like with mobile voice, it creates a 
larger market, and that larger market leads to economic growth, 
and that is what I think is the big prize here: great economic 
growth.
    Mr. Green. Well, the third choice for consumers in 
broadband on issues like speed, price, and access or 
restrictions on content, what is the impact of a third choice 
for both the speed, the price, and the access or restrictions 
on content?
    Mr. West. Well, in terms of speed, it is not possible for a 
wireless network, economically, to match the speeds of a 
wireline-based network, particularly a fiber optic-based 
network. But then again, I like to use the example, I have a 
service from one of the cable operators that has 400 video 
channels, 200 audio channels. I have five TVs, and there is 
Julie and me. So there are only two of us that can consume it 
at any one time, and I do believe that wireless broadband can 
actually serve the public.
    Mr. Green. I think Congressman Markey might want us to have 
those TV stations on all those TVs that we all have in our 
home, we might turn them off more often.
    On the WiMAX service, is that WiMAX service going to 
improve the current offering, more over more traditional 
cellular networks?
    Mr. West. Yes, sir, because the tonnage, the amount of 
megabytes that will be consumed in this wireless broadband 
market, it is very difficult to support that from an economic 
viewpoint and reach the price points that the public expects. 
The price points are really set by DSL and cable access. And to 
deliver that kind of connectivity with current technology, 
because of the nature of the narrow band, is very difficult.
    Mr. Green. And are you planning to not only market it to 
business consumers but also individuals?
    Mr. West. Yes, sir. I mean, it is a completely new model. 
It is an open model. People will buy devices with WiMAX chips 
and those will automatically connect to the WiMAX network, so 
this is not the closed models that we have seen so far in the 
cellular world necessary to support the subsidies. This is a 
world with no subsidy.
    Mr. Green. And our goal, obviously, from the 1996 Act, was 
to have competition in services, and I would hope that 
customers would know that there is a third way or another way 
that you can have a service provider.
    So Mrs. Obuchowski, is Frontline's proposal a final 
proposal, or is your group interested in considering other 
options to provide a public safety broadband network?
    Mrs. Obuchowski. Well, it is certainly our best proposal. 
We are committed to it. I am hesitating a bit, because I am not 
sure what that means, ``Is it your final proposal?'' We have 
submitted our business case and our regulatory proposal, and we 
think this is the best approach to bring interoperability to 
the country.
    Mr. Green. But again, we know also negotiations take place 
to make sure it can work. There will probably be lots of other 
folks, I think, that will probably contact you. What are the 
obstacles to getting public safety broadband access into the 
traditional wireless networks, especially providers bidding in 
that upcoming auction? What are your obstacles to getting 
public safety broadband access?
    Mrs. Obuchowski. Well, clearly, No. 1 is, in terms of 
spectrum policy, to make sure that there is adequate spectrum, 
not just for the regular load, but for the emergency load. And 
that is where, I think, public safety has been supportive of 
approaches such as our, not solely ours but such as ours.
    Second, obviously, it is an issue of interoperability and 
funding. And while this Congress has been very generous giving 
resources, talking about a billion dollars for one fund and 
$1.5 billion for another, to build a nationwide, interoperable, 
broadband network is just a matter of $20 billion, $30 billion, 
$40 billion, and not just that, but it is the constant renewal. 
It is the renewal that happens in commercial networks. You know 
better than I how the appropriations cycle doesn't really 
support that type of approach.
    We have seen public/private partnerships developing 
networks for the military. The Government uses it for its own 
internal needs. And it is, frankly, almost mind-boggling that 
we are in 2007 and there are questions raised about whether 
commercial entities could now serve this purpose. People use 
the word risk associated with our business case. I would say, 
as with any business case, it has risks, but a far riskier 
approach would be to hope that, at some point, 50 States will 
come together with a proposal and that will be funded.
    Mr. Green. Mr. Chairman, could I just see if Mr. West had a 
response to that on public/private partnerships, because----
    Mr. West. Well, I do believe that the capacity issues are 
best addressed through public/private solutions. It is almost 
impossible to design a cellular network that can handle the 
sorts of loads that we saw at 9/11 or like at the Virginia Tech 
incident. So the more you can share the capacity, the better.
    Mr. Green. And we experienced that on 9/11, too, here in 
Washington.
    Mr. West. Yes.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired.
    I am just going to ask a couple of questions and then wrap 
up the hearing, at the committee's approval.
    Mr. Gallagher, could you tell us, who paid for the report 
that you were referring to here, that you completed?
    Mr. Gallagher. Yes, well, Larry Irving and I co-wrote the 
document, so I can't speak for Larry, but my law firm 
represents a wide range of communications clients, hardware/
software companies, networks, wired and wireless----
    Mr. Markey. They paid for it?
    Mr. Gallagher. They didn't directly write a check for the 
report, no.
    Mr. Markey. OK. Can you give us a couple of the companies' 
names?
    Mr. Gallagher. You bet, yes. On the wired side, the firm 
represents Verizon and Qwest. On the wireless side, we 
represent all of the major wireless providers for different 
things.
    Mr. Markey. I just think, for the record, it is important 
to have that out here for the permanent record.
    Quickly, I mean very, very, very briefly, Mr. Muleta, what 
happens if you don't get this spectrum that you are looking 
for? What will happen with that spectrum?
    Mr. Muleta. We don't know. There are no plans for the 
spectrum. There is no assignment process, and it will remain 
fallow. What we are hoping for is that this sorry state of 
affairs is not extended. There are two economic studies that we 
submitted into the record today that show that consumers would 
benefit, over the license period of 15 years, $18 to $32.4 
billion of net consumer benefits. And that has not been 
contested, so we hope that there is swift action on our 
proposal.
    Mr. Markey. Thank you.
    Mrs. Obuchowski, who will build the public safety network 
if you don't build it? Can you give us your view of that?
    Mrs. Obuchowski. I don't think that this public safety 
network will be built in an interoperable fashion in the 
relevant timetable if you do not go to a commercial public/
private partnership. It is not going to happen. I mean, it 
hasn't happened. The funding isn't there, despite your best 
efforts, and that is exactly why you see public safety having, 
over the last year or so, really very much changing their 
mindset about a public/private approach. They want to hold the 
license. They will hold that license. They want to control the 
negotiation. But in terms of a public/private partnership, I 
think that mindset has completely changed.
    Mr. Markey. OK. Well, we thank you.
    And we thank you, Ms. Spencer, for bringing the woman 
entrepreneurial perspective to this committee. It is very, very 
important.
    And you, Mr. Meena, for focusing upon the rural aspect of 
this issue. It has to be an indispensable part of the formula.
    You, Mr. West, for pointing out how important it is for 
reasonable interconnection to be available along with this 
wireline network is the indispensable part of our ability to 
provide real competition on an affordable basis.
    And to you, Mr. Gallagher, for bringing your expertise 
along with Mrs. Obuchowski and Mr. Muleta.
    I really wanted to go off on a whole Carterphone issue 
here, and for those who are watching us, that just means that 
when you buy your device and you want to move to another 
service, is it going to cost you another fortune to buy the 
device? And we kind of established back in 1968 that you 
wouldn't have to do that if it was your phone back at home. But 
if I had one complaint, I have had 1,000 complaints of people 
just coming up to me who were very upset about that issue, and 
it is just something that we have to focus on in another 
hearing at another time, but it is moving up there as a big 
consumer complaint.
    With that, we thank all the witnesses. This hearing is 
adjourned. Thank you.
    [Whereupon, at 12:55 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
                THE DIGITAL FUTURE OF THE UNITED STATES

                     BROADBAND LESSONS FROM ABROAD

                              ----------                              


                        TUESDAY, APRIL 24, 2007

                House of Representatives,  
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Edward J. 
Markey (chairman of the subcommittee) presiding.
    Members present: Representatives Doyle, Harman, Gonzalez, 
Inslee, Hill, Boucher, Eshoo, Green, Capps, Solis, Upton, 
Hastert, Stearns, Shimkus, Pickering, Walden, Terry and Barton.
    Staff present: Johanna Shelton, Tim Powderly, Mark Seifert, 
Colin Crowell, David Vogel, Neil Fried, and Courtney Reinhard.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Good morning. We welcome you. Today's hearing 
adds to the series of educational oversight hearings which 
began with the inventor of the World Wide Web, Sir Timothy 
Berners-Lee, and which is designed to illuminate 
telecommunications policy issues for the subcommittee this 
year.
    This morning we have several distinguished witnesses to 
assist us in learning about international broadband deployment, 
competition and consumer adoption. I want to particularly thank 
the witnesses this morning who have traveled great distances 
from New Zealand, the United Kingdom and Japan to testify.
    It is clearly time for us to look beyond our borders in 
developing our Nation's broadband strategy. While U.S. 
broadband adoption is certainly increasing and deployment 
continues, in international broadband rankings, a nation must 
essentially run in order to stand still. Relative to other 
countries, however, it appears as if America's broadband 
penetration is stalling at dial-up speeds while other nations 
have developed national plans and are moving ahead.
    When the Organization for Economic Cooperation and 
Development first ranked its 30 member nations on broadband 
penetration in 2000, just 4 years after initial implementation 
of the Telecommunications Act of 1996, the United States was 
ranked fourth. By 2004, the United States had dropped to 12th, 
and as of yesterday, newly released data show the United States 
has dropped three more places to the No. 15 spot on the list, 
down to 15th out of 30. Thank goodness, there are only 30 
members of the OECD so that we can never drop below No. 30.
    Now, some will argue that rankings on broadband penetration 
don't tell the whole story. That is true. Because merely 
looking at broadband penetration does not highlight that 
broadband elsewhere also tends to be both significantly faster 
and far cheaper. Others may say that our panelists' experiences 
cannot be replicated here in the United States based on 
differences in factors such as geography, population density 
and telecommunications infrastructure. Certainly no two 
countries are exactly alike. Yet despite the fact that most of 
the American population lives in urban or suburban areas, which 
are less costly to serve, we still don't enjoy the same 
broadband speeds or prices or the sheer number of consumer 
choices for broadband that are found in Japan or the U.K. In 
other words, our dilemma is that it is not simply that fast, 
affordable broadband is not available in Wyoming, it is also 
not available in Boston, where a 30-megabit-per-second fiber 
connection from Verizon costs about $180 per month, assuming 
you can even get one. In contrast, in Japan a consumer can get 
even faster service, 50-megabit service, for the equivalent of 
$30 a month.
    Advanced high-speed broadband service is the indispensable 
infrastructure of the 21st century. It will be the vehicle 
through which countless other economic, civic and cultural 
activities occur. As we assess where we stand today, I think 
the way to achieve greater progress is not from more oratory 
rhetoric or excuses for poor rankings. The United States needs 
a plan. In my view, the United States started out on the right 
path. The 1996 Telecommunications Act mandated a robust 
unbundling and interconnection regime designed to jumpstart 
competition both between and among technology platforms. The 
idea was that competition would reduce prices, improve service 
and spur innovation including the deployment of broadband by 
incumbents and competitors. Gradually, however, we lost our way 
as regulators became convinced that competition within a 
platform actually hindered overall broadband and as a result we 
now have a residential broadband duopoly marked by relatively 
slow speeds and high prices.
    Many other nations took one look at our broadband 
situation, learned from our experience and took the opposite 
approach. In Japan and the U.K., for instance, they implemented 
policies such as local loop unbundling and broadband resale 
that facilitate competition using the incumbent's plant 
regardless of technology. As a result, Japan and the U.K. today 
have faster broadband, cheaper broadband and more broadband 
choices.
    I believe this hearing on Broadband: Lessons from Abroad 
will assist the subcommittee greatly in assessing what we 
consider for a broadband plan here at home.
    Again, I thank our witnesses. I look forward to their 
testimony.
    I turn and recognize the ranking member, the gentleman from 
Michigan, Mr. Upton, for his opening statement.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman, for this important 
hearing.
    Today one of the focal points for our review of this issue 
is the benchmark that many cite as the measure of broadband 
deployment in countries throughout the world, the Organization 
for Economic Cooperation and Development, OECD, broadband 
statistics. December 2006 data released yesterday ranks the 
United States as 15th, as you indicated, in broadband 
penetration based on percentage of population. I believe, 
however, that it is important to understand two things: first, 
the methodology that the OECD uses to produce these relative 
rankings and how it understates the actual level of broadband 
connections in the United States, and second, that this ranking 
reflects the fact that we are just now overcoming the anti-
infrastructure, anti-investment, anti-broadband decisions made 
by the FCC in its implementation of the 1996 Act during the 
1996 to 2002 time frame.
    As to the OECD rankings, I have come to learn that the 
methodology used by OECD to measure the extent of broadband 
connections is this. It adds up the business and residential 
broadband connections, then divides the number by the 
population of that particular country. The business broadband 
connections in the United States that are affected by the use 
of special access services are not counted for some unknown 
reason and only those that use DSL, cable modem or other 
technologies such as satellite and wireless are. That has the 
effect of greatly understating our broadband penetration as 
compared to that of Europe, which primarily relies on DSL. Part 
of the problem too is that the FCC until relatively recently 
was making decisions under the guise of implementing the 1996 
Act that were in fact decidedly anti-investment by their very 
nature. What this committee came to realize back in 2001 and 
2002 during the consideration of the Tauzin-Dingell bill was 
that the pace of deployment for broadband services and 
facilities was, as the committee indicated, ``inextricably 
linked with the manner in which such services are regulated.'' 
Consequently, the legislation recognized that the unnecessary 
application of title II common carrier legacy regulation would 
stifle the deployment of broadband services and facilities.
    When the House passed Tauzin-Dingell in February 2002 by a 
vote of 273 to 157, DSL was fully regulated as 
telecommunications services under title II. We didn't know 
whether cable modem was a telecommunications service or an 
information service, and broadband facilities were subject to 
unbundling requirements. After years of reversals, court 
decisions and revised FCC decisions, these matters now have 
been rectified, answered and decided, and we are catching up 
for lost time. Even though Tauzin-Dingell was never enacted, 
its underlying principles of promoting broadband investment and 
deregulatory parity have been the influential guideposts for 
subsequent FCC decisions and some of those decisions have 
established the broadband policy that we have been lacking. 
Consider this: March 14, 2002, less than 3 weeks after House 
passage of Tauzin-Dingell, the FCC determined cable modem 
service to be an information service not subject to title II 
regulations, and that was affirmed by the Supreme Court. In 
February 2003, the FCC determined not to require the unbundling 
of broadband facilities such as fiber to the home, and that 
decision also was affirmed by the Court of Appeals in March of 
2004. In August 2005 the FCC determined that wireline broadband 
access service, in other words, DSL, was an information service 
not subject to title II, and then in November 2006 the FCC 
determined that the broadband over power line was an 
information service not subject to title II regulation, 
heretofore dismissed by anyone as a viable broadband 
alternative. One should note the fact that the OECD report that 
lists Denmark as the leader in broadband penetration observes 
further that Danish power companies are rolling out fiber to 
consumers as they work to bury overhead power lines. In 
December 2006, the FCC adopted its video franchising report 
order, accelerating the process for new entrants. Video will 
be, as we know, a major driver for broadband deployment. In 
March 2007, just last month, the FCC determined that wireless 
broadband was an information service not subject to title II 
regulation. As a result of these FCC and judicial actions, we 
at long last have the semblance of a national broadband policy 
that promotes competition, is pro-investment, not anti-
investment, and that imposes minimal Government regulations 
upon broadband services and facilities. I know that these long-
sought-upon broadband policy decisions will greatly accelerate 
broadband. They are now only taking hold as a regulatory 
uncertainty that has hung over broadband was, as we thought in 
2002, an investment-stifling factor.
    We heard last week at the wireless hearing about the 
spectrum resulting from the DTV transition that will permit 
wireless providers to provide significant broadband services, 
so rather than look for new regulatory solutions, we must 
continue to promote competition, promote new technologies, 
promote and foster broadband network investment and rely on 
competition and deregulatory, not Government regulations.
    I yield back. Thank you.
    Mr. Markey. The Chair recognizes the gentlelady from 
California, Ms. Harman.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman. I am glad to see you 
are fully recovered. We were all quite worried a few weeks ago.
    Mr. Chairman, your statement and that of Ranking Member 
Upton are very depressing. America is clearly lagging in 
broadband development despite clear legislative intent by the 
U.S. Congress. I remember 1996, but we all had hoped that we 
would have a robust broadband build-out by now.
    To summarize what you said, broadband deployment in the 
United States is slower, more expensive and less extensive than 
in many other countries, and I say shame on us. The advantages 
of broadband for the e-economy are obvious and so are the 
disadvantages of leaving 200 million Americans in the Stone 
Age. I come from a part of the country where movies and music 
pay salaries and mortgages, CD sales are declining, media 
outlets are consolidating and piracy is rampant. Expanding 
broadband will bring new markets to the entertainment industry 
and other industries, and I think that those markets will 
benefit, not just my constituents but constituents of members 
of this committee around the country.
    There is still some dispute about how we stack up against 
other nations, but I think there is no dispute that the news is 
basically bad, and I am glad we are having this hearing to see 
if we can chart a way forward.
    Thank you, Mr. Chairman.
    Mr. Markey. The gentlelady's time has expired.
    Speaker Hastert, the gentleman from Illinois.
    Mr. Hastert. I will pass.
    Mr. Markey. The Chair recognizes the gentleman from Texas, 
Mr. Gonzalez.
    Mr. Gonzalez. I will waive.
    Mr. Markey. The gentleman's time will be reserved.
    The gentleman from Virginia, Mr. Boucher.
    Mr. Boucher. I will waive.
    Mr. Markey. The gentleman from southwestern Virginia waives 
his time.
    The gentlelady from California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, and thank you for now 
the eighth telecom hearing of this year. I think that there 
were eight held in the entirety of last year, so we are on a 
move here, and we need to be.
    I want to welcome the witnesses to our country, to the 
Congress and to the House of Representatives to this hearing. 
It is an important one.
    What brings us here today is reflected is one simple 
statistic. The United States now ranks 12th in broadband 
penetration, I think it is 15th as of yesterday, among all 
industrialized countries according to the OECD. The 
International Telecommunications Union has us rated even lower 
at 15th. Whatever No. 1 goes by, and whoever's ranking one 
chooses, one thing is absolutely clear: we are a long way from 
first, and we are not doing the things we need to do to get 
there. Yesterday, Mr. Chairman, PC Magazine came out with an 
article that is not complimentary of the United States and 
where we are, and I would like to, with unanimous consent, 
place it in the record because I think it should be part of 
this hearing.
    Mr. Markey. Without objection.
    Ms. Eshoo. Later this morning I am going to join the 
Speaker and several of my House colleagues including Chairman 
Markey to announce the Innovation Agenda, a legislative package 
to promote American competitiveness and ensure that we continue 
to lead the world in critical innovation and technology. 
Central to this agenda is a commitment to provide universal 
broadband access for all Americans within 5 years. I think it 
can be done in a shorter period of time but certainly within 
that time. Universal broadband isn't just something we should 
do; it is something we must do if we are to remain competitive 
in the 21st century. Unfortunately, our country, and our 
Government have not been committed to this difficult task, and 
in the last several years we have lost significant ground to 
the rest of the world. No longer is the country that created 
the Internet and the most connected nation in a leadership 
position, and Americans shouldn't settle for 12th or 15th or 
20th. That is not who and what we are. We need to rethink our 
broadband policies and look at what has worked in other 
countries, and that is why this hearing is such an important 
one and the witnesses that are here to be instructive to us.
    We also have to provide what has been most lacking in this 
area, and simply put, it is leadership or the lack thereof. 
Broadband access has not been the focal point in our country 
because no one has made it a priority. Chairman Markey has made 
it clear that he intends to make this a priority, commencing 
his chairmanship with a series of hearings on the digital 
future of our country and certainly the Speaker has made this 
her commitment as well. I look forward to working with everyone 
on the committee. We have a lot of work to do, and I look 
forward to getting it done.
    Thank you, Mr. Chairman, for your leadership, and I yield 
back the balance of my time, if there is any.
    Mr. Markey. The gentlelady's time has expired.
    The Chair recognizes the ranking member of the full 
committee, the gentleman from Texas, Mr. Barton.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman.
    I would like to clarify a few misconceptions about 
broadband deployment in this country that are giving us an 
inferiority complex. While it is true that the current rankings 
in the OECD list Denmark as No. 1 and United States as No. 15 
in overall broadband penetration, it is a little bit 
misleading. For example, the OECD doesn't count the special 
access lines that any U.S. businesses use for broadband. As a 
result, the OECD rankings greatly underrepresent U.S. 
businesses as compared to those in other countries which use 
DSL.
     Focusing on penetration can also be misleading sometimes. 
Other OECD data rank the United States first with the most 
subscribers--we had over 58 million as of December 2006. In 
fact, of all the broadband connections in all of the OECD's 30 
members, nearly a third are in the United States by itself. The 
OECD rankings do not account for the widely varying geographies 
and population densities. As Chairman Markey has pointed out, 
comparisons are questionable when most people in Iceland live 
in one community, Reykjavik, and most people in South Korea 
live in Seoul, the capital.
    If we break U.S. residential broadband penetration down by 
State based on a May 2006 Pew study, the size comparisons 
become more realistic. Doing so, we find that the top three 
States have higher penetration than Denmark's 49 percent: New 
Jersey has 53 percent, California has 53, Connecticut has 51. 
In fact, the United States takes eight of the top 10 spots in 
terms of residential broadband penetration if ranked with the 
European Union countries. Even the bottom three states would be 
above the EU average of 23 percent. Vermont, for example, has 
31 percent, Mississippi has 29 percent and West Virginia has 27 
percent.
    U.S. broadband penetration is also continuing to grow 
rapidly, thanks to our deregulatory policies. Recent FCC data 
show that since DSL was classified as an information service, 
the number of DSL lines has increased by 38 percent and the 
total number of high-speed lines has increased by 52 percent. 
Even better numbers are expected this year.
     The United States also benefits from robust competition 
between cable and phone companies that other countries lack. In 
the United States, 51 percent of broadband penetration is 
attributable to cable modem, 42 percent coming from DSL and 7 
percent from other sources, according to an HSBC report. By 
comparison, about 79 percent of the market in Europe is DSL. It 
is this lack of platform alternatives that has led the EU to 
rely on regulatory approaches, such as unbundling.
    Their lack of platform alternatives and their reliance on 
network sharing is also the reason why the EU countries will 
soon be slowed by the speed and capacity limitations presented 
by technology. Companies in Europe generally are not deploying 
cable or fiber-optic facilities to the same extent as we are in 
the United States, and it is those types of facilities that 
will be necessary for the next generation of services.
    We also have a flourishing wireless industry that is adding 
yet another broadband alternative. If we get the rules right 
for the upcoming 700 MHz auction made possible by our DTV 
legislation, we will have even more spectrum available that is 
ideal for next generation broadband services.
    Mr. Chairman, I appreciate you doing this hearing, and I 
yield back my time.
    Mr. Markey. The gentleman's time has expired.
    The gentlelady from California, Ms. Solis.

 OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Solis. Thank you, Mr. Chairman, and thank you, Ranking 
Member Upton, and also welcome to our visitors from abroad who 
are here to testify.
    Today, as you know, we have an opportunity to examine the 
best practices of other nations around the world in deploying 
high-speed communication technology. We know that this is going 
to require a significant investment to upgrade our 
infrastructure. Some of the questions I have are: what we will 
do here in the United States as we currently rank 15 among 30 
industrialized nations as members of the Organization for 
Economic Cooperation and Development. I represent a very 
diverse district in Los Angeles. In fact, in some portions of 
the district we are known as Little Taiwan. We have a very 
large Asian Pacific Islander community, about 22 percent and 
growing, and I notice on this chart that we will probably be 
reviewing that China and Taiwan are not listed on our chart.
    So we need to increase our communication and obviously 
deploy this very valuable tool, but more importantly, there are 
also some socioeconomic factors that need to be addressed, and 
that is the other part of the community I represent, which is 
East Los Angeles, heavily Latino, a lot of socioeconomic 
challenges there, and the digital divide exists in our 
classrooms and in many of our homes. So I am looking forward to 
hearing how we can lower the cost, spread broadband out in 
communities that are currently underserved, and also figure out 
how we can do a better job of reaching out to our 
underrepresented communities both economically and culturally.
    Thank you.
    Mr. Markey. The gentlelady's time has expired.
    The gentleman from Nebraska, Mr. Terry.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Thank you, Mr. Chairman. I appreciate this 
hearing in particular as I think one of the issues that we need 
to work through to better shape this argument, broadband 
deployment, is really to look at how deep the deployment is.
    There is no doubt in my mind from my experience on this 
committee that we have been saddled with the baggage of the 
past, legacy-type technologies and the regulatory schemes that 
are equally as ancient. While other countries may not have had 
that type of issue to deal with, we have also had a telecom 
recession that slowed down the dollars flowing into the market 
where other countries that were using Government dollars 
perhaps had a speedier time of outlaying a system. But I really 
believe that we are on track to have the best system in a 
matter of time. It is just a matter of how we conduct the 
inventory because even in my State of Nebraska, we claim almost 
universal deployment of broadband, but when you go into certain 
communities, they are saying where is it. So one of the things 
I think we need to do a better job is a real or actual 
inventory because what I see in my travels around the country 
is that we have got great assets, infrastructure and 
competition within larger, denser populated areas and then once 
you get outside of that, it is like falling off a cliff.
     I want to tell a story about when I spent last August 
traveling around several small communities in the State of 
Nebraska, even though I only represent the city of Omaha, and 
talked to areas that wanted broadband and others that didn't. I 
want to tell you a story. Diller, NE, 298 people, it is the 
Diller telephone exchange. There are 800 people in the entire 
area, 800 lines, but they are very progressive, especially in 
broadband deployment. They have gone wireless. They put out 
fiber. So what has that meant to the community? Well, let me 
tell you a story of a little butcher ship in Diller, just about 
ready to go out of business, third generation running it, 
decided that they were going to start selling boxed beef over 
the Internet. So it went from three family members employed 
there to now 50 in a matter of 4 years. They buy all of their 
cattle locally near Beatrice, NE. They have sold to every State 
in the country and Canada, and they now employ 50 people using 
a broadband business plan. That is what it means for America 
and that is why this hearing is so important, so we can make 
sure that everyone has access to this type of technology and 
can compete in a 21st century global economy no matter where 
they reside.
    I yield back.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Pennsylvania, the 
vice chair of the subcommittee, Mr. Doyle.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman, and welcome to our 
panelists.
    Mr. Chairman, it seems like only a few weeks ago I was 
bemoaning our OECD broadband subscriber ranking at number 12. I 
want to congratulate Chairman Markey for holding a hearing 
about our standing in the international broadband rankings the 
day after we fall from 12th to 15th. Mr. Chairman, your timing 
is certainly better than Rich Little's was at the White House 
correspondents' dinner this weekend.
     I appreciate getting letters from companies and industries 
who want to tell me that we shouldn't worry about our place in 
the broadband world. It doesn't matter, they tell me, that tens 
of millions of Americans don't have a fast connection to the 
Internet. An open and free Internet could be considered the 
first truly accessible tool to make the spirit of the First 
Amendment come alive for everyone in this country, but without 
an Internet available to all that guarantees fast speeds to 
anyone's content, that potential is just a promise.
    I am hesitant to believe those who would tell us that the 
rankings aren't meaningful and that we should instead find a 
new way to look at the data. Frankly, I believe those views are 
what is holding us back. To say that we can't learn from other 
countries whose policies are clearly working better than ours 
seems to come from the same mindset that hinders our foreign 
policy and other matters. Each different way I looked at the 
rankings, and I have turned them upside down and looked at them 
sideways, it still shows we are in the middle, and when you 
look at the data over time, we are falling. We are falling 
behind to countries that are doing what we tried first, lost 
patience with and gave up on. That is right: Other nations are 
seeing success with what should have been our policy from the 
start, a policy that unbundled services from the wire those 
services travel on, a policy that recognized our infrastructure 
should be ripe for competition, new services, faster speeds and 
lower prices.
    Chairman Markey, to paraphrase something Archie and Edith 
Bunker could have sung in 1996, hair was short and skirts were 
long, Celine Dion really sold a song, I don't know just what 
went wrong, those should have been the days.
    Mr. Chairman, the lesson it seems from U.S. telecom policy 
is, do what we said in 1996, not as we actually did in 2003, 
and with that, Mr. Chairman, I will yield back.
    Mr. Markey. Excellent. They should have had you, not Rich 
Little, on Saturday night.
    The Chair recognizes the gentleman from Illinois, Mr. 
Shimkus.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Shimkus. Thank you, Mr. Chairman. I am wondering if 
Colin is moonlighting for Doyle in the script and songwriting 
area, so better check his compensation schedule there.
    A couple quick things. First of all, I think we ought to be 
going to some of these countries that are represented here 
talking about our successes because we all know we can do 
better, but I think my colleague, Mr. Doyle, is wrong. I think 
we have a great story of success to tell, and I think we can go 
to some of the countries that are represented here and make the 
case why what we have done in some aspects has been very 
successful. I am a competitive-market guy, and I want more 
pipes, more competition and really not dictated by a large 
Federal bureaucracy.
    Let me give you a couple points here. In absolute figures, 
even the OECD statistics indicate that the United States has 
the largest number of broadband subscribers with 58.1 million 
as of December 2006. That is roughly 30 percent of the 
broadband connections in all the OECD countries combined. By 
aggregating business and residential data, the OECD report also 
fails to show that residential broadband penetration is higher 
in the United States than most other countries at 42 percent, 
according to a May 2006 Pew study. That is less than Denmark's, 
the Netherlands' or Sweden's but more than each of the other EU 
member states. The rankings do not account for geography and 
population density. If we make the size comparisons more apt by 
breaking residential broadband penetration down by State to the 
top three, New Jersey, California and Connecticut, we beat 
number one-ranked Denmark. Even the bottom three States would 
beat the average penetration in the EU countries.
    As many of you know, I am involved with the Baltic 
countries, Estonia, Latvia, Lithuania, very closely. Estonia 
has a great success story of penetration through cellular high-
speed. Why did they get there? Because of a free, unfettered 
market and the fact that they could bypass the incumbents and 
bring competition to the world. It is truly a great story. 
Competition, competitive markets always beat government. That 
is where I stand, and I think we have got a good story to tell.
    I yield back my time, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired.
    The gentlelady from California, Mrs. Capps.
    Mrs. Capps. Thank you, Mr. Chairman. I welcome our 
witnesses today and I will submit my statement for the record.
    Mr. Markey. The gentlelady's time will be reserved.
    The gentleman from Indiana, Mr. Hill.
    Mr. Hill. I would waive an opening statement.
    Mr. Markey. The gentleman's time will be reserved as well.
    I see Mr. Stearns has just arrived. Would the gentleman 
like to be recognized to make an opening statement?
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman from Florida is recognized.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Let me compliment you for having these series 
of hearings. I think this is a diverse panel of witnesses that 
have broad experience.
    I caution my colleagues not to go overboard in comparing 
the experience of other nations to the United States. In many 
cases, it would be comparing apples to oranges. The recent 
broadband ranking by the Organization for Economic Cooperation 
and Development puts the United States right in the middle of 
broadband subscribers. These rankings provide an interesting 
snapshot but are in many ways flawed and misleading. The OECD 
underrepresents U.S. broadband penetration, in part because 
they do not count business lines in the United States. 
Furthermore, the rankings do not take into account the varying 
geographics and population densities of each country. The 
United States, as we know, is very geographically diverse, 
especially compared to other countries on the OECD list. In an 
apples-to-apples comparison of broadband penetration by 
household, the U.S. outranks Europe. A more appropriate measure 
would be to break U.S. residential broadband penetration down 
by State to make the size comparisons. The top three U.S. 
States have broadband penetration rates greater than all 
European Union member states except the Netherlands. The 
average U.S. broadband penetration rate for all States is 
greater than the EU average.
    As flawed as these rankings may be, we still have a lot of 
room for improvement, but we need to have better data than is 
currently available to make the best-informed policy decisions. 
I believe the United States is on the right track, but there is 
more that Congress can do by promoting wireless broadband, by 
identifying more spectrum and focusing on cooperative programs 
to stimulate rural broadband deployment. The last thing 
Congress should do is impose anticipatory regulation.
    One area of improvement is on download speeds and prices. 
Other countries certainly have higher average download speeds 
and lower average prices than the United States. However, it is 
important to see whether prices are sustainable. Download 
speeds can be increased in the future and where upload speeds 
are adequate or capable of increasing. France, for example, 
does have lower prices for 20-megabits-per-second broadband 
service but France telecom is selling that service at half the 
real cost. How sustainable is that? DSL download speed in 
Europe varies from 8 to 50 megabits per second because EU loop 
lengths are very short in comparison to the United States loop 
length. Even so, U.S. speeds on average are higher than 
Europeans' to a significant degree because the United States 
has platform competition.
    So Mr. Chairman, I thank you for holding this hearing. I 
look forward to hearing the witnesses and working with my 
colleagues to increase broadband subscribership and penetration 
in the United States.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for holding this 
hearing on broadband deployment around the globe, and I know 
this is our continuing series and I look forward to our 
witnesses today.
    We have been looking at the digital future of the United 
States for several weeks now, and last week we heard from 
several witnesses on plans to deliver wireless broadband. 
Consumers here in the United States are paying double, triple 
or more per megabits per second of bandwidth than consumers in 
other countries. The lack of affordable broadband access with 
comparable speeds could eventually hurt U.S. businesses 
struggling to grow and create jobs. Accelerating broadband 
deployment is critical to the long-term health of the U.S. 
technology sector that provides the building blocks for our new 
networks. The U.S. does differ greatly from many foreign 
countries, however, because we have multiple platforms building 
networks competing for customers. Cable, DSL and soon WiMAX 
will each offer broadband service to the home and to business, 
and this competition could benefit consumers by driving down 
prices and forcing companies to invest in their networks and 
increase these speeds and stay competitive. Unbundling worked 
overseas because there was primarily only one platform to 
deliver broadband. It is unclear if that approach could work in 
the United States because of slow investment in networks that 
impede competition between the different platforms. In fact, 
many members of this committee supported the Tauzin-Dingell 
legislation to help push the FCC to roll back most of the 
unbundling regime from the 1996 Act. Congress did not 
accurately see the future in 1996 because the future of phone 
competition was not unbundling but instead with voice-over 
Internet. Cable companies and other voice-over Internet 
companies have successfully taken millions of former telephone 
subscribers and that competition has reduced the rates.
    I look forward to hearing from our witnesses and working 
with the subcommittee on the future of broadband deployment and 
access and yield back my time.
    Mr. Markey. The gentleman's time has expired.
    All time for opening statements by members of the 
subcommittee has expired. Statements will be accepted for the 
record.
    [The prepared statements of Mrs. Capps and Mr. Engel 
follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    We will now turn to our panel. We have an incredibly 
distinguished group of witnesses before us today. The Honorable 
Paul Swain has been a Labour member of the New Zealand 
Parliament for nearly 17 years. During his tenure, he has held 
a number of ministerial positions, including the minister of 
communications and information technologies. Mr. Ed Richards is 
the chief executive officer of the Office of Communications, 
the regulatory authority of the telecommunications and media 
sectors in the United Kingdom. Mr. Richards is the Kevin 
Martin, he is the equivalent of the Chair of the Federal 
Communications Commission for Great Britain.
     Mr. Shin Hashimoto is executive vice president of Nippon 
Telephone and Telegraph Corporation, the parent corporation of 
Japan's two incumbent telephone companies, NTT East and NTT 
West, and its dominant mobile wireless provider, Dokomo. Mr. 
Greg Wyler is cofounder and director of Rwandatel and Terracom 
Communications, providers of broadband Internet access in 
Rwanda, and Dr. George Ford is the chief economist for the 
Phoenix Center for Advanced Legal and Economic Public Policy 
Studies, a think tank that studies issues related to the law 
and economics of the telecommunications and high-tech 
industries.
    So we will turn to you, Mr. Swain, and each witness will 
have 5 minutes to make their opening statement, but you can see 
there is plenty of pent-up interest in questioning the 
witnesses.
    We will begin with you. Welcome.

 STATEMENT OF HON. PAUL SWAIN, MP, PARLIAMENT OF NEW ZEALAND, 
                    WELLINGTON, NEW ZEALAND

    Mr. Swain. Thank you, Mr. Chairman and members. It is a 
great honor for me to be here in your country and be invited to 
participate in this hearing related to international 
perspectives on the provision of broadband. I will firstly say, 
Mr. Chairman, I hope I am not asked to sing, because I think 
that would lead to the clearing of the room.
    As has been said, I am Paul Swain. I have been a member of 
Parliament for 17 years and the minister of communications and 
information technology from 1999 to 2004. New Zealand is a 
small country and like all countries is dependent on high 
broadband penetration rates for economic growth and social 
development. Like many countries, yourself included, looking at 
our penetration rates relative to the OECD, and I have to 
acknowledge, Mr. Chairman, that our ranking is 21 out of 30, 
and that is during a period probably of the last decade of one 
of the most light-handed regulatory regimes in the world, and 
we have just recently introduced some new measures to boost our 
country's performance.
    Just a little background. Telecommunications in New Zealand 
was originally owned by the Government. In the late 1980s, the 
telecommunication market was deregulated and Telecom New 
Zealand was privatized in 1990. No specific teleco regulations 
were introduced at that time. The industry relied on general 
antitrust law to resolve disputes and issues. It was arguably 
the most deregulated market in the world. While there was some 
investment in competitive infrastructure in the 1990s, this 
stalled alongside a growing dissatisfaction with the growing 
regulatory regime and the levels of competition in New Zealand. 
In 2001, I was responsible for a new telco regulatory regime 
which promoted the interests of consumers, established a telco 
regulator and introduced regulation of interconnection and 
wholesaling, national roaming and cell-site co-location and 
number portability. Local loop unbundling was not introduced at 
this time. In 2002, the government provided $45 million New 
Zealand to the private sector to lift broadband penetration 
rates in sparsely populated areas of New Zealand centered and 
focused around the nation's schools. In 2003, following a 
mandate, the telco recommended against local loop unbundling 
once again, and the government reluctantly agreed on the basis 
of voluntary commitments from the incumbent to increase 
investment of penetration rates in its Next Generation Network, 
NGN. Many of the investment and penetration targets were simply 
not met.
    So in 2006, following a stocktake of New Zealand's 
broadband performance relative to the OECD and wide 
dissatisfaction with the competitive environment, particularly 
facilities-based competition, the government introduced local 
loop unbundling and required functional separation of the 
incumbent Telecom New Zealand into three business units, an 
access network, wholesale and retail business unit. Strong 
equivalents of inputs requirements whereby the incumbent is 
required to provide access to its network on the same terms and 
conditions as it provides access to its own was also introduced 
similar to the model adopted in the U.K. by OFCOM and British 
Telecom. Details are currently being worked through, with 
agreements expected to be reached by the end of the year. We 
anticipate better broadband penetration rates as a result.
    In conclusion, Mr. Chairman, New Zealand is determined to 
improve the provision of broadband services given their 
critical impact on economic growth, and given that we are 
primarily an agricultural nation, the broadband penetration 
rates are as important to us as the introduction of the freezer 
ship was in the 1880s, which allowed our agricultural products 
to be taken from New Zealand to British markets. Our experience 
over two decades is that it is extremely difficult to achieve 
greater competition and investment in broadband services under 
a light-handed regulatory regime, given that incumbents do what 
incumbents always do. We believe that full unbundling of the 
local loop with functional separation of the incumbent will 
deliver better results for all consumers.
    Thank you once again, Mr. Chairman and members, for this 
opportunity, and I wish you well for your deliberations.
    [The prepared statement of Mr. Swain appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, sir. Thank you for being here today.
    Mr. Richards, again, we are honored to have you here today. 
Whenever you feel comfortable, please begin.

   STATEMENT OF ED RICHARDS, CHIEF EXECUTIVE OFFICER, OFCOM, 
                     LONDON, UNITED KINGDOM

    Mr. Richards. Thank you very much. Good morning, Chairman 
Markey, Ranking Member Upton and all members of the committee.
    As you have heard, my name is Ed Richards. I am the chief 
executive of OFCOM, the Office of Communications, with the 
regulatory authority for telecommunications and the media in 
the United Kingdom. It is a great honor to be asked to appear 
here today.
    Now, I know that the committee has been considering the 
future trajectory of communications regulation here in the 
United States, and as you can imagine, that is a subject of 
great interest in the U.K. as well. I very much hope that 
insights from our experience can be of some value to work with 
your committee. We were created very much as a response to 
convergence so we have responsibilities that set across 
broadcasting, across telecom and indeed we are the spectrum 
management agency for the United Kingdom as well. We are also 
the antitrust authority for the sectors within our remit. We 
work very closely with the U.K. Government but we also are very 
clearly independent from the U.K. Government.
    The U.K. telecoms market is similar to the United States in 
many ways and our operators are facing very similar challenges 
to your own. Revenues are shifting from traditional fixed voice 
services to both wireless and to broadband. Given this shift, I 
think in our view broadband is the key strategic product from 
industry, from consumer and from a regulatory perspective.
    The British broadband market is now I believe making very 
rapid advances. We have seen market penetration increase from 
39 households in every 100 to over 50 households in every 100 
during the course of the last year. The total number of 
connections has risen by some 31 percent in that time. Now, 
part of that change can be attributed to a reinvigorated market 
environment as a result of significant change in our regulatory 
policy. In our written evidence we have explained how the U.S. 
and U.K. telecoms regulatory policy, despite a very strong 
shared commitment to promoting competition, investment and open 
markets, have often pursued different trajectories over the 
last 25 years. That I believe to a large extent simply reflects 
different market realities.
    When we were formed in 2003, we found that the U.K. was 
very much underperforming other nations in telecoms. In 
particular, we were very concerned about our approach to the 
rollout of mass-market broadband. When we examined that 
situation, we saw that the overall volume and activity of 
regulation had steadily increased over the years but that had 
not led to the conditions which would support sustainable 
competition. In fact, competitors to BT, our incumbent, were 
fragmented and weak, and they were overly reliant upon 
regulation themselves. That didn't suit anyone. It didn't suit 
the competitors and nor in fact did it suit the incumbent, who 
faced an ever-expanding regulatory burden and a significant 
overhead of regulatory risk and uncertainty. In our strategic 
review which followed, we looked all around the world for ways 
to address the problems. We looked very closely at U.S. policy 
and in particular the conclusions of the 2003 Triennial Review. 
We considered the option of regulatory forbearance, but our 
market conditions differed from yours in a number of respects, 
perhaps more crucially, the fact that cable is not as 
extensively rolled out in the U.K. as it is here in the United 
States. We also considered a model of your Bell breakup, which 
would have meant the forced legal separation of BT's access 
business from its other activities, but we judged that that 
would have been complex, time-consuming and would have created, 
rather than eliminated, regulatory uncertainty.
    So we sought a different solution. That solution is now 
being called functional separation, with the natural monopoly 
infrastructure parts of our incumbent separated into a 
different business unit, a new business unit called Openreach 
with its own offices, its own management, its own remuneration 
schemes and indeed company identity but still owned by BT Group 
PLC on an arm's-length basis. We coupled that change with the 
introduction of tough rules on discriminatory treatment, which 
we termed equivalence of input. The equivalence of input means 
that BT's own downstream business and those of its rivals 
receive exactly the same products at the same price for the 
same quality of service and on the same terms and conditions at 
all times. The results so far have been significant. We have 
certainly seen a surge of new investment in broadband 
infrastructure and indeed a price wall. New operators are 
coming to market with higher bandwidth services offered at 
lower prices and services are being packaged in more innovative 
ways. This approach has prompted interest from elsewhere as 
well. We expect functional separation to become a part of the 
armory available to all European regulators. As Mr. Swain has 
explained, the New Zealand Government has begun to look closely 
at our approach. Its communications minister is proposing a new 
law that will grant its national regulator similar powers and a 
similar approach to U.K. policy, and many other countries are 
expressing interest as well.
    One question we are often asked in this context is, what is 
in it for the incumbent, what was in it for BT? Well, on the 
downside, we made very clear that the only alternative was a 
multi-year inquiry, which could have led to forced legal 
separation. On the other hand, the voluntary agreement to 
separate its business and introduce equivalence of input has 
allowed us to grant more freedom to the incumbent to compete in 
downstream retail markets. So as a consequence, we actually 
have been able to deregulate as well. We have also been able to 
offer BT greater certainty on the regulatory treatment of its 
Next Generation Network. Within the framework of a guaranteed 
regime of fair access, we were able to make clear that BT will 
be compensated appropriately for the risks that it takes today 
in terms of the regulatory pricing associated with wholesale 
prices.
    I believe the committee is also closely tracking the 
evolution of spectrum policy as well, which we believe is 
increasingly related to an effective communications policy and 
an effective broadband policy. The U.K. and the U.S. I think 
share a similar vision of the importance of spectrum as an 
economic resort. We share a belief in the need for flexibility 
in a complex and fast-moving environment. In the U.K., where 
historically 95 percent of our spectrum has been subject to a 
command and control model, our vision is to move by 2010 to a 
predominantly market-led approach, with 70 percent of spectrum 
available for use for any purpose and with any technology 
subject only to a minimum set of restrictions to prevent 
interference. We have a major program of spectrum release to be 
conducted over the next 4 years, which will put some 350-MHz of 
spectrum into the market, in each case allowing flexible use 
and freedom over the choice of technology. Our European Union 
partners are of course extremely important in our development 
in this area as are other countries, so we look forward to 
close cooperation with many countries ahead of the World Radio 
Conference later this year.
    Mr. Chairman, we can see many points of similarity between 
our two nations in relation to these challenges. I think we are 
both deeply committed to market-based policies which promote 
innovation, investment and competition. I very much hope that 
we can maintain a strong and fruitful dialog over the coming 
months.
    [The prepared statement of Mr. Richards appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Richards, very much.
    Now, Mr. Hashimoto, we know that you have taken 
extraordinary efforts to be here today, which we very much 
appreciate. Whenever you feel comfortable, please begin.

 STATEMENT OF SHIN HASHIMOTO, EXECUTIVE VICE PRESIDNT, NIPPON 
       TELEGRAPH AND TELEPHONE CORPORATION, TOKYO, JAPAN

    Mr. Hashimoto. Thank you. Well, Chairman Markey, Ranking 
Member Upton and members of the subcommittee, it is an honor 
and a privilege for me to appear before you today. As a summary 
of my statement, I would like to share with you some 
information about the current status and the future of 
broadband and next generation networks in Japan.
    As indicated in the chart in the supplementary material on 
page 5, in Japan more than 7 million people are enjoying fiber 
to the homes subsidies and there has been some loss for FTTH 
subsidy. FTTH subsidies are already widely available throughout 
Japan and the typical monthly charge for a 100-megabit 
connection is around 5,300 yen, or $46 U.S. NTT is now engaged 
in building a next generation network named NGN. In recent 
years, there has been increasingly momentum of utilizing fiber-
based broadband services, much higher speed and more stable 
connectivity. NTT still owns large legacy public networks that 
need to be upgraded in the near future. In view of these 
circumstances, NTT has decided to build its own next generation 
network in conjunction with fiber-based broadband access and 
the new network infrastructure through which a wide variety of 
broadband services can be very good. Our next generation 
network will be able to meet various needs of our customers by 
providing a wide range of services and reverse security 
functionalities of NGN comprised of standards adopted by 
international organizations. It is our belief that our NGN as 
new communication infrastructure should have interconnectivity 
with other service providers inside and outside of Japan. NTT 
wishes to develop new business models that best utilize the NGN 
for correlation with partners in a relationship of mutual trust 
to create rich diversity of new businesses and services. 
Specifications of connectivity interface have been made 
available to the public.
    The first step of our next generation network 
implementation began a few trials in December 2006. This was 
intended to verify the technological and operational issues of 
our NGN commercial deployment. A number of companies have been 
participating in our field trials conducting interoperability 
testing interfaces. They have been developing new business 
models and discovering numerous opportunities by using various 
applications over NGN platforms.
    I am very pleased to have this opportunity to share NTT's 
plans with you today. Since the introduction of the Bell system 
to our country, Japanese telecommunication industry was viewed 
upon generous collaboration growth by the United States. Now it 
is our time to share energy and experience and fiber optic 
technology as much as possible with various U.S. industries to 
fuse new next generation networks together. I hope it 
strengthens our two countries' relationship even more.
    Once again, I appreciate the opportunity to speak to the 
committee today.
    [The prepared statement of Mr. Hashimoto appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Hashimoto, very much.
    And now we turn to Mr. Wyler. The subcommittee thought it 
would be interesting to hear a story from the developing world, 
and Mr. Wyler is intimately involved in what has happened in 
Rwanda. Welcome, Mr. Wyler. Whenever you feel comfortable, 
please begin.

    STATEMENT OF GREGORY WYLER, DIRECTOR, RWANDATEL, S.A., 
                         MANCHESTER, MA

    Mr. Wyler. Thank you, Chairman Markey, Ranking Member Upton 
and members of the committee. I am honored by your request for 
my attendance at this hearing. More so, I am appreciative that 
the positive impact of broadband on developing nations is given 
an opportunity to take the stage in your decision making. I 
have but one of many small success stories in the developing 
world where broadband has helped bring economic empowerment, 
equality, democracy and change to a developing area. I am also 
here as an American to testify that it is in America's interest 
both economically and socially to help bring broadband 
infrastructure to developing worlds.
    In the early 1990s I had left graduate school to found a 
company, and we developed semiconductor cooling technologies. I 
was able to do that because I had an infrastructure around me. 
I had entrepreneurs, financial expertise and help. I had the 
ability to buy goods and services very easily. Later after 
that, I took a turn to look at the developing world to try to 
see what we could do to change things for them.
    In Rwanda, we have developed world-class infrastructure 
including the first African deployments of both fiber to the 
premise and EVDO mobile broadband. I personally witnessed the 
positive impact of broadband on many parts of this rural, 
growing economy including successful poverty reduction and 
medical treatment strategies. Two examples: The efficient 
distribution of AIDS requires electronic infrastructure to 
determine patterns, dosage and effect. Software from Voxiva in 
Maryland creates Web sites to visually map these items and 
electronically collect the data from the various health 
centers. The broadband implementation allows this to happen. 
Because of a desperate need in 2004 when I went to Rwanda, we 
formed a small ISP to connect Internet to schools. Hiring an 
entirely local staff, we climbed roofs, laid fiber and brought 
the latest technologies to Rwanda. We now have almost 400 
Rwandan employees and provide Internet access to approximately 
50,000 end users. The fiber network designed, installed and 
maintained entirely by Rwandans covers almost 400 kilometers, 
interconnecting approximately 150 buildings including six of 
the seven public colleges and all the government ministries. 
Our EVDO broadband deployment brings high-speed mobile 
networking throughout the country, including every city and 
many rural areas.
    What I have seen and had the opportunity to experience is a 
growth of a country that had very little broadband, there was 
only about 22 connections when I got there, to now something 
which is one of the leaders in Africa, and what I have seen is 
the economic growth and the interdependent web of businesses 
that have grown, and I will give you an example. When I got 
there, a deposit in one branch of a bank couldn't be in another 
branch. That created a tremendous friction in commerce. So 
after we put in the broadband to connect the branches, some 
people left our company and left another bank and developed 
another software company to create the financial software to 
create those interconnections. That reduced the friction on 
commerce, and of course we have seen the growth that has 
happened in Rwanda. There are many examples of this that are 
going where you have a multi-tiered, independent web of 
business-to-business commerce that is happening inside Rwanda.
    With all these positives, there is still a long way to go. 
Internet backhaul costs and quality hamper development of 
nations. As will be detailed, even if geo-satellite costs were 
reduced, the quality of Internet over geo-satellite is so poor 
it prevents participation of the developing world in the new 
high-bandwidth Internet. Solving this problem requires a 
significant investment in geo-satellite technology and fiber 
networks. The entirety of Africa and most of the developing 
world is not on fiber, so we get all of our access over 
satellites. The incredible latency of satellite of 700 
milliseconds, over half a second between the time when you type 
something and it reaches a server or your Google or Yahoo 
server slows down the access tremendously. When you go to CNN, 
it takes 24 seconds. It populates very slowly. This really 
prevents people from accessing and being part of the community.
    Often overlooked besides the economics is the significant 
and crucial role the Internet plays in fostering democracy. 
Internet access eliminates a one-way channel of communication, 
enhancing participatory government through both authored and 
anonymous critique. Furthermore, wide accessibility creates an 
open looking glass for peer review for the goings-on in any 
particular country. In extreme instances, significant 
deprivations of human rights can quickly be seen by the world. 
The recent history of Rwanda would have been far different had 
access been available. In part, the belief that communications 
can free people drove this project.
    Beyond the sale of equipment and cost to create 
infrastructure from America, the United States exports a 
significant amount of Web-based services. For example, almost 
half of eBay and Google sales are international, Yahoo's profit 
growth is entirely from international sales, and all the 20 
most popular Web sites are American. Because American companies 
continue to lead the world in monetizing Web users, it is also 
in our economic interest to help develop the other three 
billion people onto the Web.
    Slow access speeds in the 1990s hindered the growth of the 
``World Wide Wait.'' New Internet applications such as video, 
Web 2.0 and Ajax require higher bandwidth. Unfortunately, most 
of the developing world is stuck with extremely slow Internet 
access speeds.
    It is my hope this testimony will offer guidance on the 
importance of broadband for development. Broadband creates 
significant efficiencies for every other initiative whether for 
health, education, economy or democracy and its need is often 
overlooked because it plays only a supporting role. Broadband 
does not cure disease but it can make the cure affordable.
    [The prepared statement of Mr. Wyler appears at the 
conclusion of the hearing.]
    Mr. Markey. We very much appreciate your testimony, Mr. 
Wyler.
    Mr. Ford, we welcome you and we look forward to your 
testimony.

 STATEMENT OF GEORGE FORD, CHIEF ECONOMIST, PHOENIX CENTER FOR 
ADVANCED LEGAL AND ECONOMIC PUBLIC POLICY STUDIES, WASHINGTON, 
                               DC

    Mr. Ford. Thank you, Mr. Chairman, Ranking Member Upton and 
members of the subcommittee. Good morning and thank you for 
inviting me to testify today among these distinguished guests. 
I haven't traveled as far as they have, but some of you may 
think Birmingham, AL is farther away than Tokyo from 
Washington, DC.
    I am the chief economist of the Phoenix Center for Advanced 
Legal and Economic Public Policy Studies. The economics of the 
communications industry has been the focus of my career 
starting with my Ph.D. dissertation on competition in the cable 
television industry. The Phoenix Center is a nonprofit 
501(c)(3) organization with a particular emphasis on the law 
and economics of telecommunications and high-tech industries. 
The Phoenix Center does not endorse or support any particular 
piece of Federal or State legislation or proposed regulation. 
Our mission is not to tell policymakers what to think about an 
issue but how to think about it. All of our research is 
available for free on our Web site, www.Phoenix-Center.org, and 
unlike any other organization such as ours of which I am aware, 
you will also find posted critiques of our research with 
rebuttal. Much of our work is published so receives independent 
review as well.
    The topic today is broadband communications and lessons 
from abroad. As a result of this hearing and those like it, we 
are laying the groundwork for the development of a national 
broadband strategy for the United States. In my view, 
developing and implementing a national broadband strategy is 
perhaps the key issue for modern communications policy, 
particularly as Internet usage explodes exponentially, and 
massive additional infrastructure investment is required to 
keep pace. From what I have heard today, there appears to be a 
general consensus on this point, though some differences about 
how to accomplish this.
    On this issue I wish to make three points today. First, I 
believe that the rankings across countries of broadband 
subscriptions frequently used in the debate over broadband 
policy are exceedingly crude measures of relative performance 
and I encourage you to think more deeply about broadband policy 
than what the rankings tell us, not necessarily to ignore them 
but to respect their limitations. Integrating broadband into 
our economy is not a collegiate sport and there is no prize for 
who has the most subscriptions per capita to some 
inconsistently and vaguely defined service. Rather, broadband 
is an essential component of our Nation's infrastructure and we 
should seek to develop the best communications opportunities 
and service possible. The problems with the rankings are not 
the fault of the OECD or ITU. These organizations provide a 
summary of the data collected by the individual countries. The 
problem lies with those who do not temper their advocacy to 
reflect the considerable defects with the data such as how 
connections are defined and counted. One serious defect in the 
rankings data is easily demonstrated by ranking countries in 
the hypothetical broadband nirvana where every home and 
business in the OECD countries has a broadband connection. You 
might think we would all be tied for first in this world but in 
fact the United States ranks 20th among OECD countries in this 
nirvana and it is further from first place than it is today.
    The rankings in subscription rates in this nirvana are 
provided in table 1 of my written testimony. This thought 
experiment reveals the important role that expressing 
connections in per capita terms has on rankings. Dividing by 
population seems innocuous but it actually adds to differences 
in broadband connections such economic and demographic factors 
such as household size and average business size. The 
experiment also suggests that the subscription numbers are not 
on the same scale and thus ranking them is illegitimate. 
Comparing rankings is a bit like concluding that a student with 
a 3.9 GPA on a 4-point scale is a worse student than one with a 
4.0 GPA on a 5-point scale.
    An alternative to per capita calculations is to divide 
connections by household. Table 2 of my written testimony shows 
that this seemingly trivial adjustment is not so trivial since 
Sweden falls from 8th to 16th and Australia rises from 17th to 
4th. I doubt the economic significance of their broadband 
infrastructure is so sensitive to definitions and neither is 
ours. None of these simple calculations get close to measuring 
what is important, which is whether or not our broadband 
infrastructure is capable of supporting economic growth in the 
global economy. Further, I believe that increasing the 
subscription rate in this country to a 200-kilobit service is 
not a legitimate goal of a national broadband strategy but that 
is all a focus on the ranking data gets you. In fact, we could 
magically convert every broadband connection in this country to 
at least 100-megabit fiber-optic circuit offered by ten 
different facilities-based providers and we would still rank 
15th in the OECD rankings. Rather than focus on rank, our 
intellectual resources should be devoted to figuring out 
effective and efficient ways to augment the geographic 
coverage, increase productive use and expand network capacity 
and enhance network capabilities of our broadband 
infrastructure.
    Second, I encourage you to recognize the limitations of 
public policy in determining broadband subscription. Variations 
across countries and subscription rates are in large part a 
product of factors outside the realm of communications policy. 
Much of the variation in broadband subscription rates is driven 
by non-policy factors including age, household size, education, 
income and so forth. My written testimony provides a list of 
factors that drive broadband subscription rates and some 
estimates of their relative influence. A healthy respect for 
what policy can and cannot do is important, but I would mention 
that price can cover up a variety of ills.
    Finally, I propose that what is most needed is for this 
country to state plainly and with reasonable detail the desired 
outcome for broadband services and then establish a framework 
to evaluate policy proposals in reference to obtaining that 
explicit goal. My written testimony provides a more detailed 
framework for evaluating policy. I believe the desired outcome 
is augmented geographic coverage, more productive use of 
services and expanded network capacity and enhanced network 
capabilities of broadband infrastructure.
    Thank you.
    [The prepared statement of Mr. Ford appears at the 
conclusion of the hearing.]
    Mr. Markey. I thank the gentleman, and now we will turn to 
questions from the subcommittee.
     Mr. Richards, in the U.K., you forced BT to unbundle loops 
for its competitors so they could use these facilities to offer 
their own broadband services. As a result of this competition, 
BT now has less than 25 percent of the retail broadband market. 
So I have three questions for you. Did competition created by 
mandatory loop unbundling drive down the price of broadband? 
Second, did competition increase broadband speeds? And third, 
did competition increase consumer demand for broadband?
    Mr. Richards. I think the headline answer to those 
questions is undoubtedly yes. Did competition drive down price 
and has it increased broadband speeds? Yes, it has. Our story 
is one of very significant change in the last few years, and if 
we went back to 2001, we were in a perilous state in relation 
to broadband. We were at the bottom of whatever rankings you 
wanted to take. You could have five different rankings and we 
would be at the bottom of them. And there is no question that 
over that period the policy framework changes have made a 
difference. We certainly changed as a result of regulation the 
attractiveness for investment, attractiveness for competitive 
provision of broadband through the local loop unbundling 
policy. That has certainly affected the overall levels of 
speed, and it certainly affected the retail price. Consumer 
demand, I think where we have seen benefits there is what you 
see is very aggressive competitive marketing, and that has 
stimulated our consumer interest. You have also seen very 
aggressive competitive innovation around speeds on the kinds of 
services offered. So I would answer that in the U.K. at least 
that has been part of the story which has seen us improve our 
position over the last 3 years.
    Mr. Markey. Thank you, Mr. Richards.
    Mr. Hashimoto, did unbundling remove NTT's incentive to 
invest in fiber or did it compel NTT to accelerate its fiber 
deployment?
    Ms. Gale. Please allow him to use an interpreter.
    Mr. Markey. OK, please.
    Mr. Hashimoto. I believe that your question is whether or 
not unbundling caused any change in NTT's investment, and as a 
result of unbundling, it is very clear that we had more new 
entrants, those who provide service on DSL. However, the 
situation in Japan is somewhat different than in the United 
States. Ever since NTT was privatized, NTT has been very 
steadily preparing itself for deployment of broadband. It 
started with 64 Kbps, which was called ISDN. And then from 
early on, NTT had had a plan to use fiber optics as a successor 
for ISDN. And the turning point for us that happened in 1995 
when Microsoft introduced Windows. So the introduction of 
Windows in 1995 opened up the access to Internet, and I became 
keenly aware that there will be a strong demand for Internet 
access in Japan and also the requirements for high-speed 
connection. The DSL technology was not commercialized prior to 
1995 or prior to the 1996 telecommunications act. One of the 
unique competitive situations in Japan is the competition 
against utilities which provide the broadband access. Backed by 
very good financial situation, the utilities were very 
ambitious about deployment of fiber optics network. And so 
against that backdrop, the NTT started investment in fiber 
optics in 1995. However, at that point the coverage by fiber 
optics was extremely low in Japan, so as a transition we 
started to provide ADSL.
    Mr. Markey. Mr. Hashimoto, I apologize to you but I only 
have 5 minutes allotted for my questions, and I do apologize to 
you, sir.
    The Chair recognizes the gentleman from Michigan, Mr. 
Upton.
    Mr. Upton. Thank you, Mr. Chairman. Before I start my 
questions, I just want to put in a letter from the NCTA, Kyle 
McSlarrow, into the record and just note a particular paragraph 
that he writes, and that is, ``Based on company data collected 
by the FCC as of June 30, 2006, cable high-speed Internet 
service was available to 93 percent of households that could 
access cable TV service. We think that number is even higher. A 
recent report by Kagan Research shows that cable broadband 
service is available to more than 94 percent of all U.S. 
homes,'' and I will just share that for the record.
    Mr. Markey. Without objection, we will include that in the 
record.
    Mr. Upton. I am going to ask sort of a long question and I 
would like Messrs. Swain, Richards and Ford to answer this, and 
that is, as I look through the data, and this goes back I think 
to Mr. Ford's comments, that it really is sort of apples and 
oranges in terms of where we are, and I look forward to having 
a hearing 2 or 3 years from now to see how this data might 
change as we sort of pry it apart like an onion to look at DSL, 
cable and fiber to the land, and I would just like to say too, 
and starting my question, Mr. Swain, to Mr. Richards, about 51 
percent of our broadband comes from cable, 51 percent; 42 
percent from phone companies and 7 percent from other sources 
such as wireless. Such figures platform competition tends to 
drive broadband deployment. How much of broadband service in 
your two nations comes from the phone company and how much from 
other sources like cable or wireless, and where do you expect 
broadband provided by DSL to go 3 to 5 years from now, and in 
particular, where do you think, particularly Mr. Richards, as 
you look at the functional separation, where do you see as a 
percentage per hundred inhabitants fiber itself, and then I 
want Mr. Ford to conclude. Mr. Swain.
    Mr. Swain. Thank you.
    Mr. Upton. We look forward, by the way, to having a 
subcommittee trip to both of your nations.
    Mr. Swain. You would be very welcome.
    Mr. Markey. Not on the same trip though.
    Mr. Swain. Having sat on similar committees in New Zealand, 
we are always looking for opportunities to come north as well, 
so you would be most welcome in New Zealand.
    The first point is recognizing the difference between the 
United States and, for example, New Zealand, with your cable 
infrastructure. About 93 percent of particularly our DSL 
service comes via the telecommunications, primarily the 
telecommunications incumbent, and about 7 percent comes from 
wireless----
    Mr. Upton. According to this these factors were 0.0 for 
fiber per hundred.
    Mr. Swain. Yes. So we have primarily two sources, if you 
like. One is the incumbent telecommunications company over 
copper, and 93 percent of that comes from there and the rest 
comes from satellite and wireless. And so therefore the issues 
of the difference between cable layout here and New Zealand are 
marked and significant. However, I will make two quick points 
if I may. The first one, looking at the future of wireless, as 
a minister I put a lot of store and faith in the development of 
wireless. Because of the geographic nature of New Zealand, I 
thought this would be a great solution. Lots of the promises 
and pledges around wireless had not materialized, and I have 
come to the view that wireless--I may of course be wrong but 
this is my personal view, that in the end wireless will always 
complement other infrastructures. My view is that it will still 
be cable and copper that will be the main driver of the 
processes here.
    Mr. Upton. I am running out of time, and since I don't have 
the gavel I am not able to give myself an extra 4 minutes.
    So you would say just briefly here that your 0.7, which is 
in essence wireless, is going to stay about the same and your 
0.0 for fiber will go up pretty small?
    Mr. Swain. Yes, it will go up small.
    Mr. Upton. Mr. Richards.
    Mr. Richards. Cable is very, very different here. In the 
U.K. it is about 54 percent coverage, about 98 percent here. 
That is a very significant difference and why you have to----
    Mr. Upton. And you are also at 0.0 for fiber?
    Mr. Richards. Well, let me tell you about that in the 30 
seconds I have. Broadband is about 75 percent DSL, so there is 
a significant cable portion, but it is smaller than it is here. 
We don't count 3G or wireless services at the moment. We will 
in due course. I do expect those to play a very significant 
part for lower bandwidth broadband. I do not expect them to 
compete in the long term against high-bandwidth ADSL, cable or 
indeed fiber optic cable. The answer to your question on fiber 
is that we have scarcely any at the moment and that is, we do 
not regard that as a problem at the moment. Fiber optic cable 
should be invested in when it is an efficient investment, and 
it is not yet an efficient investment in the U.K., and one of 
the reasons for that is because we expect because of the 
shorter copper loops in the U.K. to stretch to 24 megabits per 
second. So in the U.K. copper has got a long way further to go, 
and we expect, we want the incentives to be very clearly in 
place such that when fiber is an efficient investment to make, 
it is made.
    Mr. Upton. So to conclude, do you think your number of 0.0 
on fiber is going to dramatically increase? Because I expect 
that to happen here in the United States too.
    Mr. Richards. It will increase over time. I expect fiber to 
be further ahead in the United States because of the different 
geographic nature of the country. I don't think that is a 
surprise or a shock. There are always differences between 
countries, and we can get a lot more out of copper because of 
the shorter loops than you can in the United States and 
therefore you would expect fiber to roll out more quickly here. 
You expect fiber to roll out more quickly in places like South 
Korea, which it has, because the economics of density are very, 
very different in South Korea than they are in the U.K. So none 
of these things are surprises. The question for us, and I think 
the question for every country is, do you have the incentives 
in place which make efficient investments logical for 
competitive provisions of the telecommunications 
infrastructure.
    Mr. Upton. And Mr. Ford, if you could just answer briefly, 
that would be great.
    Mr. Ford. I will be very short. The diversity of platforms 
is very important in terms of penetration for a variety of 
reasons that cover different areas. EVDO adds to these numbers 
so will increase our ranking as people subscribe to that 
service. Of these numbers here, we are one of eight countries, 
I believe, that have any fiber deployed, and I think there is 
no question that fiber is the platform of the future. So that 
is certainly encouraging for this country, and that number will 
be rising sharply I think over time.
    Mr. Upton. Mr. Chairman, thank you for the indulgence.
    Mr. Markey. There is no problem, and we had to have time 
for the translation from Japanese and time for the translation 
from Alabama, so we were kind of each allocated more time.
    Let me turn and recognize the gentleman from Texas, Mr. 
Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman, and 
welcome one and all to the panel.
    Some observations that have already been made, and I think 
the backdrop is so important, and that is, we were making these 
comparisons to take into account something that may not be 
taken into account when we say where does the United States 
rank. Special access lines, I think we have had some discussion 
about that that we don't count and we don't have reflected. The 
other thing of course is the robust competition between our 
telecom, our telephone companies in essence, and the cable 
providers, which is really I don't believe duplicated anywhere 
else in large measure the way we have it here. The fact that we 
do have different platforms for the delivery of broadband that 
is available and is of course developing and we need to 
encourage of course the build-out.
    My first question will be to Mr. Swain, and I do appreciate 
your testimony and I am going to read from it, that the New 
Zealand Government introduced a major initiative, Project 
Probe. The first aspect of it was a pretty substantial 
investment in the way of New Zealand dollars and that regional 
tenders were sought. The objectives of the project were to 
increase deployment, to lower prices, to promote greater 
competition. While four of the 15 tenders were awarded to non-
incumbent providers, new facilities-based competition, 
particularly wireless, did not emerge. These are some lessons 
that the United States probably can learn from your experience 
and that of the other witnesses. There was a review by the New 
Zealand Government. At the conclusion of this investigation, 
the telecommunications commissioner advised against 
implementing full local loop unbundling and instead recommended 
the introduction of a limited-speed unbundled bitstream 
service. The government reluctantly agreed with this 
recommendation so as not to delay the process further, on the 
basis that the decision would lead to the development of a 
competitive broadband wholesale market and would provide 
incentives for Telecom, the New Zealand incumbent, to deliver 
greater penetration rates and to quickly deploy its next 
generation network. I guess what I gleaned from your testimony 
is that sometimes what might be an incentive to a reseller may 
be a disincentive to an incumbent, and somewhere you have got 
to draw the line and figure what works and what doesn't work. 
Again, reviewing the regime that you had and any particular 
situation in New Zealand, what was your experience in trying to 
balance when you have an incentive that may act as an incentive 
of a certain player but not necessarily to another party?
    Mr. Swain. Well, thank you. It is right, and for 
policymakers and for legislators, the difficulty always is that 
balance between providing pro-investment, pro-competition 
policies on the one hand but on the other hand, trying to 
ensure that potential monopoly or duopoly of incumbency is 
overcome to provide greater opportunities for people to compete 
for the consumer. In our own experience in New Zealand, we did 
try that particular program. It was an up-front subsidy working 
as a private-public partnership with the private sector to 
increase deployment rates. I had hoped that as a result of that 
there a number of new technologies would emerge and 
particularly around the wireless space, but because of 
arguments about protocol and because of the fact that it was an 
immature market at that time, it didn't emerge. So we then went 
to the position of saying well, if we gave the incumbent more 
time, would they reinvest, would they attack the deployment of 
penetration rates, would they move on their NGN, and the 
ultimate answer to that is no, and I think finally I should say 
that if we look at the next 10 years out, it is still my view 
that the greatest service to the consumer is going to come from 
the existing infrastructure that we have at the moment, and the 
problem for policymakers is, how are we going to deal, whether 
it is a monopoly or a duopoly, with incumbency, and I have come 
to the position reluctantly to a certain extent myself after 
having spent many, many years on this, unless you can deal with 
the problems of incumbency and unless you can actually deal 
with the issues such as local loop unbundling and ultimately 
functional separation, it is going to be very, very difficult 
to get a proper good deal in terms of price and coverage and 
services for the consumer, which ultimately as a member of 
Parliament is my ultimate concern.
    Mr. Gonzalez. Thank you very much.
    Mr. Richards, how do you see the United States' position, 
again who we have as providers, competing platforms, the fact 
that our percentages as far as how the inhabitants per thousand 
receive broadband almost evenly if you look at DSL and cable, 
how does that play--in other words, I know your experience in 
the United Kingdom, but what considerations, what do we take 
into account as we attempt to find some sort of not necessarily 
regulatory scheme but again the economic incentives that play 
to all of the participants in trying to extend broadband in the 
United States?
    Mr. Richards. Well, I would be cautious about making 
observations about the U.S. market because my own experience 
is, you have to understand your own markets in real detail to 
understand what the appropriate policy response is. So in a 
sense I think it up to others to interpret the lessons that I 
can offer from our own experience and apply them to your 
country. The difference is very significant between the 
presence you have of a very, very well-built-out competitive 
cable industry alongside the DSL proposition. There is no 
question about that. We have only a part of that. We still have 
only a part of that. I think the geographic diversity and the 
rural nature of some parts of the U.S. is also a more 
significant challenge than it is in the U.K. With that said, 
one of the key things that we have learned so far, I think it 
is that if you get to a situation where there is a real, there 
is an accommodation between the existing players, which is what 
I would describe as the situation we were in in 2001-02, where 
really no one was taking initiative of any kind, I would 
describe that for any country to be a very, very dangerous 
place to be in. That is where we found ourselves, and therefore 
we felt that we had to act fairly quickly to tackle the level 
of competition in the market and make judgments about 
incentives and the regulatory approach in particular to the DSL 
incumbent. That has been reasonably successful but others have 
pointed out our next challenge will be next generation access, 
fiber to the curb, fiber to the home, and that is a very 
significant issue for us looking forward where clearly in the 
United States there is progress already being made. My key 
observation I think would be not enormously different to Mr. 
Swain's. I don't believe, we don't believe that in the long-
term wireless platform certainly in the next 5 years or so will 
provide really profound competition or really significant 
competition at the high-bandwidth end. I think you absolutely 
will at the lower bandwidth end of services. I think we should 
expect that and that will provide effective competition in a 
number of countries around the world. And if you take that as 
your starting point, you have to think very, very carefully 
about the level of competitive intensity for the fixed line 
services.
    Mr. Gonzalez. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired. Speaker 
Hastert is recognized for 8 minutes.
    Mr. Hastert. I thank the chairman. I also want to say to 
the chairman I am glad I didn't give an opening statement 
because my staff would have had a little ditty in there for me 
to sing and I just thought it would benefit the whole committee 
that I didn't sing anything.
    Mr. Markey. The committee thanks the Speaker.
    Mr. Hastert. As I listened to each testimony, I think of my 
own situation. I live out in the country. Now, we don't have 
natural gas piped out to us out in the country, and we don't 
really have cable out in the country so anything we have to do, 
it either comes from space or comes from hard wire. But there 
is a company down the street that happens to be a nursery, 
which is a fairly large entity and they have a special access 
line and their high-capacity connection is pretty common with 
business.
    Mr. Ford, I understand the OECD statistics underestimates 
United States broadband penetration because they didn't count 
high-capacity connections, is that correct, that most 
businesses or many, many businesses use?
    Mr. Ford. I think the OECD uses what we report or the FCC 
reports and it doesn't include special access so that is 
probably the case.
    Mr. Hastert. So when you talk about a half a percentage 
point or 1\1/2\ percentage points, it moves us up and down the 
scale maybe 5 or 10 points and would that be significant?
    Mr. Ford. It could be.
    Mr. Hastert. Just to clear that up.
    I was interested in listening especially to the testimony 
of the gentleman from New Zealand, Mr. Swain, and the gentleman 
from Japan, Mr. Hashimoto. I think I heard that you said that 
when you unbundled, competition really went to different 
entities but real competition didn't increase. In other words, 
when we talk about competition, there are two things that we 
think should happen from competition: No. 1, prices should 
decrease, and No. 2, you should get a better menu of services.
    Very briefly, Mr. Swain, I think you said that, but I 
wanted to have you clarify that, and Mr. Hashimoto, if you 
would clarify that as well.
    Mr. Swain. Well, that is the expectation of competition. 
That is certainly right. We don't have unbundling at the 
moment, but we are introducing it, and our expectation 
absolutely is as a result of that, particularly for the 
consumer and the small business owner, that price and quality 
of service will improve. That is the objective of the process.
    Mr. Hastert. And your unbundling right now is basically a 
copper wire, right?
    Mr. Swain. It is copper wire.
    Mr. Hastert. Let me just follow up on that. The new Telecom 
New Zealand chairman, Mr. Boyd, has threatened to sell off its 
copper line network rather than submit to Government-imposed 
regulation that would split the company three ways. How do 
regulatory proposals affect the way the company operates its 
business, and if the company proceeds with the sale, how will 
New Zealand be able to deploy advanced broadband facilities in 
the future?
    Mr. Swain. You are absolutely right to pick up on that 
issue and it has been in the media now publicly for about a 
month. It is not clear what the intent of the incumbent is. 
That would be a structural separation that it would do to 
itself. It is not clear whether it will proceed with that. I 
think it is probably floating an idea to see what support it 
might get. Of course, any company is entitled to restructure 
itself in any way. The concern I suppose that we would have is 
that if it were to break off whether it would start to compete 
with its formerly existing wholesale and retail services and we 
would back into an issue of trying to make sure that there was 
equivalence of service for those things. But I think that at 
the moment, my expectation is that the model will emerge 
similar to the BT model, the one that was pointed out to you 
where there is common ownership but functional separation below 
the level of the board, and because it is such early days, 
these issues are being discussed, and it is not clearly exactly 
what the outcome will be. I think we will be clearer on that in 
my view in about 6 months' time.
    Mr. Hastert. So it is a little clouded still?
    Mr. Swain. Yes, yes.
    Mr. Hastert. Thank you, Mr. Swain.
    Mr. Hashimoto, the first question about unbundling and 
competitive expectations creating more competition, has that 
lowered costs in Japan, and are there more services for the 
customers?
    Mr. Hashimoto. I didn't have a chance to finish my response 
to the chairman's question earlier, but definitely unbundling 
was useful for the promotion of competition including lowering 
the price, and we talked about ADSL and competition. When 
competition was introduced in ADSL, we tried to increase our 
competitiveness in the ADSL area but at the same time we 
developed the fiber optic technology which could be 
economically competitive. More specifically, the distance to 
the house in Japan, an average distance to a house in Japan is 
much, much shorter than that in the United States. It is about 
200 meters. And then the percentage of the apartments is about 
30 percent nationwide, and in a place like Tokyo, almost 40 
percent. So we are able to provide high-capacity, high-speed, 
the fiber to the apartment complex and costs can be shared by 
all the tenants, or we also introduced a technology called PON, 
and that separates the span of the fiber cable. By doing so, we 
were able to lower the cost for fiber optics deployment.
    Mr. Hastert. Thank you. Arigato.
    Mr. Hashimoto. You are welcome.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentlelady from California, Ms. 
Eshoo.
    Ms. Eshoo. Thank you again, Mr. Chairman, for this 
extraordinary hearing. To all of our witnesses, thank you. I 
wish the C-SPAN cameras were here so that the American people 
could hear what you are saying, because I think that it is so 
noteworthy and so instructive.
    Mr. Richards, my first question to you is, would you like 
to be chairman of the FCC in the United States of America? I 
would love to recruit you. As you know, in the United States 
the FCC essentially has given incumbent exchange carriers a 
regulatory holiday, and I think therein lies the problem for 
the United States. They have exempted their next generation 
network infrastructure from any meaningful competitive 
obligations. Essentially the Bells argue that they need this, 
no competitive obligations, I mean, which is really something 
that takes my breath away and goes to the heart of why we are 
where we are today. Even though Mr. Ford says that the numbers 
are something other than that, I think we should recognize what 
the numbers are and stop digging a hole. It is just incredible 
to me that the United States of America is in the position that 
she is in.
    Mr. Richards, you have obligations. What I would like you 
to tell the committee about is what investments have 
accompanied your policy? We are always looking for investments. 
In fact, people that are on the opposite side of this debate 
say that we have attracted investments, that this has been 
great for us. Well, our position isn't great. I don't think we 
are attracting the kind of investment or the competition that 
we have so can you just kind of briefly tell us about what 
investments have accompanied your policy?
    Mr. Richards. Sure. The critical change has been investment 
by competitive providers who are unbundling, of which there are 
a number. I think it ends up being three, four, five or 
possibly six in the dense urban areas and two or three in 
addition to the incumbent outside of that area, and they have 
made very significant investments to compete, so that has 
definitely happened. I can't give you an exact number.
    Ms. Eshoo. Small companies?
    Mr. Richards. Some small, some very substantial, so 
investments by Orange or by France Telecom, investments by Sky, 
who are owned by News Corporation, investments by Cable and 
Wireless, another big British company, but also some start-up 
companies, one called B Unlimited, which is a very small 
company. It has since been taken over. So you have seen a range 
of different companies coming to the market at this stage. Now, 
they have required sufficient regulatory certainty and 
sufficient predictability to make that investment, and I think 
that was absent in the U.K. in prior years, so that has been a 
very significant change. People are not, as has been observed 
at the moment investing in fiber other than in new builds where 
it is happening, and we would expect that to change over time, 
but as I said, it is a problem at the moment.
    Ms. Eshoo. Great. Thank you very much.
    For Mr. Swain, thank you again for your important 
testimony. Following your country's efforts to impose new 
competitive regulation on the telecommunications sector, how 
has investment in advanced telecommunication infrastructure 
been affected in New Zealand? It follows on I think along the 
lines of my question to Mr. Richards. But I would like to hear 
from you how it is playing out in New Zealand.
    Mr. Swain. Well, briefly there are probably three periods, 
the period of non-regulation up until 2001, where no doubt 
there was some new investment and some intent to try and get 
some facilities-based competition but the incumbent competed so 
hard against the new facilities-based competitor that basically 
they gave up because they couldn't compete. From 2001 to 2006, 
the period that I was involved myself, there was a quite 
significant increase in investment particularly in those people 
wanting to purchase wholesaling arrangements from the 
incumbent. However, our view is that if people are able to get 
access to the local loop, investment will increase quite 
significantly. Not only that, in our view the range of services 
will increase. As a result, prices should fall, and as a result 
the consumer should be better off, and part of the problem for 
me as a legislator is that is the ultimate goal is to try and 
ensure that the consumer gets a better deal, and our view is 
that with the arrangements that we are putting in place, 
ultimately the consumer will get a better deal.
    Ms. Eshoo. Thank you very much.
    Can I just add, Mr. Chairman, my congratulations to Mr. 
Wyler for your work? I read your testimony. It is a 
provocative, wonderful story, and I salute you for what you 
have done, and Mr. Hashimoto, thank you for traveling so far to 
be a teacher to us. Thank you.
    Mr. Markey. The gentlelady's time has expired. By the way, 
Mr. Wyler, the story of fiber to the home in Rwanda, they 
started this 7 months before Verizon did in the United States.
    The Chair recognizes the gentleman from Illinois, Mr. 
Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. I think a couple 
things are important. One is that we have evolved through a 
system of multiple pipes. If I just look at my own use of high-
speed Internet access at home, we have voice over Internet 
protocol through the cable. In the townhouse here I have a 
couple roommates. When one of my roommates goes back to the 
townhouse and he wants to access the World Wide Web, he uses 
cellular Internet cable because we have no landline--we are 
cheap. We have no landline connections to our townhouse because 
we all use our cell phones, and he uses the cellular high-speed 
Internet accessibility. Here, you know, we are connected 
through copper wires and stuff so our system has developed into 
a multiple-pipe system which I think provides us some 
competition and choices of services and ability to move from 
one place to another. The other thing is, this is my first 
question. It is just to make a point. If you drive 4 hours at 
105 kilometers per hour, how far can you get in the respective 
areas that you are representing? In fact, let us start with New 
Zealand. How far can you travel? Probably the width of the 
island except for you have got some mountains there. So how far 
could you go?
    Mr. Swain. Probably from Wellington, the capital city, 
halfway up the north island.
    Mr. Shimkus. OK, halfway up the north island.
    Mr. Swain. Roughly. Very roughly.
    Mr. Shimkus. That is close enough.
    Let us just go down. Mr. Richards, how far could you get in 
the-
    Mr. Richards. Same question?
    Mr. Shimkus. Yes.
    Mr. Richards. You could comfortably go from London to 
Wales.
    Mr. Shimkus. London to Wales. Thank you.
    Mr. Hashimoto?
    Mr. Hashimoto. Well, the size of Japan is almost equivalent 
to California, so it is probably from Tokyo to Osaka, like Los 
Angeles to San Francisco.
    Mr. Shimkus. Thank you.
    Let us see. Can you cover the whole country of Rwanda?
    Mr. Wyler. I don't have a chance of doing 105 kilometers an 
hour in Rwanda but hypothetically----
    Mr. Shimkus. How about 55 miles per hour?
    Mr. Wyler. About 30 on the roads. But we are about the size 
of Maryland.
    Mr. Shimkus. And my point is, it takes from the northern 
part of my district to the southern part of my district, going 
65 miles per hour, it takes me 4 hours to travel. Now, I am one 
of 435 Members of Congress. Many districts are very similar to 
mine. You have to take some acceptance and some acknowledgement 
of size and scope about this great country we have, and we do 
offer incredible services. We do have issues that we have to 
address though and that is what the hearing is, to make us 
better, and we just don't want to go backwards. We want to keep 
moving forward.
    Mr. Ford, you used to work for MCI when the company relied 
on unbundling for its business model. What is your experience 
with that?
    Mr. Ford. I also worked for Ztel Communications, which was 
my last position before the Phoenix Center, which relied 
exclusively on unbundled elements. I think there is a lot to 
learn from that experience. The point for me of unbundling, and 
this is documented in my writings, was to create a non-
incumbent demand for facilities to move customers away from the 
incumbent into the hands of non-incumbent firms and then allow 
those customer bases to be aggregated such that they demand an 
alternative network and that demand for an alternative network 
would lead to platform entry, and we have achieved that to a 
large extent. I mean, we are still trying to get a lot of the 
regulation out of the way to allow our platforms to compete and 
invest. Franchise reform is one case. So, to some extent my 
view of what unbundling was for has been accomplished. My 
greatest fear about doing unbundling again is, would anybody 
show up to the dance. After being in that business for a long 
time, you always knew that it took one decision to put 
everybody out of business, and I think everybody really 
realizes that at this point and I just don't know if people 
would have the courage to step up and play that game again. I 
don't think I would.
    Mr. Shimkus. Thank you. That is a great observation. My 
time up so I will just end with two statements.
    Mr. Richards, our fiber to the home only came about after 
we ruled that unbundling would not apply and so that is when we 
started seeing our fiber to the home. And on a side note, I 
don't think Speaker Hastert has helped his rumors about other 
jobs, I don't think he has helped that based upon his use of 
Japanese in this hearing, and I yield back my time.
    Mr. Markey. I thank the gentleman. The gentleman's time has 
expired.
    The gentleman from Pennsylvania, Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Wyler, I want to say also that it is good that we have 
people like you in the country. I didn't have prepared 
questions for you, but I am going to ask you, you have listened 
to all of this debate and I have seen what you have done over--
I read your story in Rwanda and this discussion we are having 
about unbundling. I would say, Mr. Ford, yes, I don't know how 
many would show up either after what we did to them. We set out 
in 1996 to encourage all these little companies to compete and 
then we pulled the rug from under them. I would be skeptical if 
we redid it too, but I don't think that means that it shouldn't 
have stayed.
    What do you think about this idea of unbundling and 
separation to encourage lower prices? I am just curious of your 
take after you have heard all these panelists speak.
    Mr. Wyler. I think Mr. Ford did hit the nail on the head, 
just from my friends who have been through the process and a 
customer of unbundled service that went away suddenly. A lot of 
the discussion has been on fiber technology and unbundling. I 
am not sure how unbundling and fiber are related because when 
you are using a passive optical network, a PON system like he 
talked about, there is no real incentive to unbundle it because 
it is usually one thing. Or there might be technically. You 
might be able to get there. So if you are looking at fiber, 
unbundling is nothing, but you want to back up a little bit 
because everybody has a central office. That central office, is 
there a way to--if you want to put fiber in the home, you need 
to get access to that fiber in the first place, which means you 
need to have access at the central office at 100 megabits or a 
gigabit or something in order to bring in customers. So I 
haven't heard any discussion of how if I want to stay a fiber 
in the home project in my town, I would get access to the 
backbone in my town first of all.
    Mr. Doyle. Interesting.
    Mr. Ford, I know you don't put much stock in the rankings 
but tell me, do you think if the United States had followed 
policies like those in Japan and in the U.K. and France, do you 
think we would have more or fewer Americans with broadband 
connections at home?
    Mr. Ford. I really don't know if it is possible to tell. I 
mean, for a network that was built at zero percent interest 
rates, I mean, if we could accomplish that, what would our 
ranking be then? I mean, if we gave money away essentially to 
carriers, what would get built? I don't know. The U.K. 
situation is very different. Unbundling in a regime that is 
primarily a single firm and you expect it to be that way for a 
long time is one thing to adopt sort of a perpetual unbundling 
model where we really don't expect things are going to change. 
In this country I think our view was that the unbundling was a 
step to platform-based competition, not a perpetual situation. 
So I don't know how much that helps. I mean, there is one thing 
I have learned about unbundling is the devil is in the details, 
and we always say things like that, but it really was. What was 
the impact, and we have unbundling in this country. Yes, but 
you couldn't get unbundled switching if you needed more than 
four lines of it. And we had all these little rules, you 
couldn't mix local service and long-distance service on the 
same circuit, and all these things that made unbundling not 
unbundling generally but a very specific regime, and to 
understand the impact of regimes, you have to know the very 
specific regime that you are talking about but I think you ask 
yourself the simple question: Is Verizon going to stop if you 
make them unbundle it? I am not going to tell you what the 
answer is, and I don't know what the answer is but I think it 
is a good question to ask yourself.
    Mr. Doyle. I think we all know what the answer is.
    Mr. Swain, when you were developing--by the way, I have 
been to your country. It is a beautiful country and I would 
like to get back. When you were developing your new strategy, 
your new broadband strategy, what countries did you try to 
emulate and why?
    Mr. Swain. Well, we obviously looked around the world. 
Usually our first port of call is Australia, which had been a 
program of unbundling, and also bitstream unbundling, as we had 
done, but I think that we were most tempted by the U.K. model, 
primarily because it seemed to us there were two key elements 
to it, and I think the two key elements go hand in hand. One is 
an unbundling regime and the other is the ability for 
competitors to get equivalent access to the network at the same 
terms and conditions and we see those two things being really 
two sides of the same coin, because you can have an unbundled 
regime but still the incumbent making it extremely difficult to 
get a satisfactory arrangement for them, so the answer to the 
question, sir, is essentially that we did look around the world 
but we were heavily influenced by the work that was being done 
in the U.K. because it had these two elements together.
    Mr. Doyle. Thank you. I see my time is up, Mr. Chairman.
    Mr. Markey. The gentleman's time is expired.
    The Chair recognizes the gentleman from Mississippi, Mr. 
Pickering.
    Mr. Pickering. Thank you, Mr. Chairman, for this hearing. 
As most of you all know, in 1996 the United States started a 
policy to open incumbent networks and move toward competition 
to unbundle to provide for nondiscriminatory access to those 
elements. We followed that policy for roughly 5 years, and over 
the last 5 years we have probably seen a reduction of that 
direction toward more of a multiple-platform-based and less of 
a reduced access to network elements. We are I think making 
progress in multiple-platform competition but this is always, 
as Mr. Ford said, the devil is in the details and the question 
is, what is the right balance and what are the minimum 
guarantees that we need to make sure that we achieve both 
broadband deployment and competition. Mr. Ford asked would 
Verizon continue to deploy if it had unbundling requirements.
    Mr. Richards, British Telecom has unbundling requirements. 
Are they still deploying?
    Mr. Richards. Well, depending on what you mean by 
deploying. I mean, are they still competing in the market, are 
they still investing in new structure? Absolutely. They are 
about to put a very, very substantial amount of money into a 
new core network, which they refer to as their next generation 
network, that will move their entire backbone in the U.K. onto 
IP protocol. They are still very aggressive competitors in the 
U.K. market. They have become more aggressive competitors in 
international markets. So there is no evidence I think from the 
U.K. at least that this suggests that the incumbent somehow 
backs out of the market. I think there is another question you 
were trying to drive at which is, does it affect their 
incentive to deploy fiber, for example, and as I said I think 
once or twice, I don't think the U.K. market is at the right 
point for that yet but we don't believe that there should be 
any incentives contrary to a firm, whether it be the incumbent 
or somebody else, making that investment when the commercial 
logic makes sense, which is when we think it should be made.
    Mr. Pickering. So you would look at it as a market evolves 
or the incentives evolve for fiber deployment as to whether you 
could have any regulatory relief to further incent them. Is 
that what you are saying?
    Mr. Richards. No. We are looking at our regulatory approach 
to fiber deployment at the moment but we would not expect in 
the U.K. context, in the U.K. circumstances, which as I said 
are different than the United States, so I think one has to be 
careful about reading across completely but in our context, we 
would not anticipate a full regulatory holiday because we think 
the key is to make sure that competition is maintained into a 
next generation access world, into a fiber-optic world. We 
think it would be a problem for us if the price we had to pay 
for investment in fiber was the elimination of all competition 
for the next decade or even longer. So we don't necessarily 
see, and I wouldn't accept, that competition and investment in 
further deployment are mutually exclusive. I wouldn't accept 
that proposition.
    Mr. Pickering. I think that is a very important point for 
our policymakers to consider because I think that we sometimes 
are told and there is a misunderstanding that it is mutually 
exclusive, that either you unbundle and have competition or you 
don't unbundle and you do not get deployment, and I really 
think that is a false choice and it is not mutually exclusive, 
and one drives the other. I think competition drives the 
investment, and lack of competition then shifts to a tipping 
point where instead of having an economic incentive to deploy 
and compete, you have an economic incentive to contain cost 
which is the opposite of deployment, I am hopeful that as we go 
forward that we maintain multiple facility-based platforms but 
we have some guarantees of minimal access to loops and a 
guarantee to cross platforms interconnection policy because 
without those core interconnection and minimum access, I think 
we could lose the progress we have made in this country as far 
as competition and then we will lose the incentive to actually 
get the deployment that we seek.
    Would you agree with that, Mr. Ford?
    Mr. Ford. Yes. I mean, I think you are absolutely right. 
Some of our papers address this issue empirically and 
theoretically, that it is not just a one up, you either do this 
and you don't get investment or you don't. There is some 
competitive pressure and there was some evidence of investment 
available, questioned evidence, but there was some evidence 
that unbundling led to investment. But there is an even sort of 
deeper issue. It is not that there is unbundling or not and 
investment or not. The issue comes in the regulation. OK, if 
you are going to force somebody to do something that they 
otherwise wouldn't do, you are going to have to regulate their 
price as well, and that is where the problem comes. It is the 
regulation of the prices that causes the defect. If you say you 
have to unbundle and they say OK, well, I will unbundle and set 
my own price, then it is not an issue. Firms do that all the 
time. I sell things all the time to people. The long-distance 
business has been that way for a long time, people selling 
their network to other people. The incentive to do that and to 
invest heavily in that network is because the firm gets to set 
the price. In that case, it is a competitive price. But in this 
case, it is regulating a monopoly price and that might cause 
sabotage or something like that. That is the issue.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Washington State, 
Mr. Inslee.
    Mr. Inslee. Thank you. I am looking at our chart of 
penetration of broadband in various nations around the world, 
and I just wanted to ask kind of an open-ended question of what 
you all see as the reasons for Denmark, the Netherlands, 
Iceland, Korea, Switzerland, Norway being in the top third, 
Poland, Slovakia, Greece, Turkey, Mexico being in the bottom 
tier. We are I think No. 15 or somewhere along that line. How 
do you all look at the reasons for the variety of success or 
lack of success of those various countries? Did you draw any 
sort of broad conclusions from that? Open-ended question, 
anybody can take a shot.
    Mr. Ford. My testimony dealt with that primarily. There are 
some very interesting things and many of them are contained in 
my testimony. What is the income of the country? I mean, to a 
large extent in this country we have a demand problem as much 
as anything, and you could argue that is the price but you 
could also argue there is just sort of an apathy towards the 
purchase of broadband service. My mother was called by 
BellSouth one day, she has a DSL connection, and they said 
well, we will basically double your speed for $2, and she told 
them no. I said why not. But there is this lack of 
understanding of the service and just a lack of interest. She 
said well, what I have is fine, OK, so that is part of the 
problem.
     Japan has very low prices in fiber yet they rank one spot 
higher than we do on these charts, so what exactly is that 
telling you? There are a number of factors that determine the 
demand for the service absent the supply of the service, OK, 
and my guess is that most of it is determined by factors such 
as that. The other issue is that right now we are 15th. Twelve 
of the people above us should be above us in the broadband 
nirvana where everybody has a connection, so you could explain 
roughly a good part of the people ranking above us just because 
of the relationship of household size across countries and 
business establishments per capita across countries because we 
are dividing by population and there is more to population than 
meets the eye. So there is a lot of reasons. Now, is that to 
say that we are not lagging or that we need to do more? I don't 
think so. We just need to focus more on what the issue is, and 
the issue is that we need better networks, augmented supply, 
which may require subsidization, and we need to have better 
services and higher capacity. That is the issue, not how many 
accounts we have.
    Mr. Inslee. Does anyone else want to take a crack at that?
    Mr. Richards. I think there are probably four main factors. 
One is the economics of density, so the different geographic 
environments of different countries. You will notice a number 
of small countries at the top of the list. That is definitely a 
factor because it affects the cost structure that underlies 
what can be provided. Second is the pattern of consumer demand. 
You will also notice that a number of Scandinavian countries 
that are always at the top of the list. You will see that by 
and large in all areas of ICT adoption. That has to do in some 
ways with the levels of education and the pattern of demand in 
those countries. The third is certainly income. Average income 
is absolutely a relevant factor, and you will see some of the 
poorer countries at the bottom of the list. But the fourth, and 
the U.K. is the exemplar for this, is that the policy framework 
does make a difference. So there are a range of different 
factors but ultimately the policy framework does matter in 
tables and assessments of this kind.
    Mr. Inslee. And could you describe generally the 
subsidization in various countries, to what extent has it 
existed, how would people quantify it and where has it worked 
and not worked?
    Mr. Ford. I think that there is some evidence of Korea's 
extensive subsidization of its deployment, I think $20 billion 
or something like that so, I mean, there is a lot of money 
spent on that, and you can spend money to deploy in New York 
City or you can spend the money to augment in rural areas that 
may not have access, and that is a very important policy 
decision. It would be interesting possibly to see what is the 
extent of government spending on, say, DSL coverage or 
something like that but I haven't seen that study. It may exist 
but that is probably something worthy of looking at from an 
empirical perspective, I think.
    Mr. Swain. I will just make one quick comment on our own is 
that there are general problems with subsidies because you are 
not sure whether you are doing something that the private 
sector would do anyway and so there is always that tension. We 
have only stepped into the subsidy area for one specific 
purpose and that was really to try and help the business case 
for low-density areas, particularly around the education 
sector, so we had a specific purpose to look at increasing and 
improving deployment, and that was because from the private 
sector point of view, the business case is hard to make when 
you have got very small groups of people. But if you want to 
avoid the digital divide, if you want to try and make sure that 
every citizen has the ability to take part in the community, 
then you do need to make an effort. So the subsidy, if you 
would like to try and bundle groups of people together to try 
and provide competitive tenders and to get a service rollout, 
results show some progress in that.
    Mr. Markey. The gentleman's time has expired.
    The Chair recognizes the gentleman from Oregon, Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    I want to go back to something. Mr. Ford, your testimony I 
thought was really enlightening for me because I have heard 
these statistical numbers about where we rank versus other 
countries, and I am concerned about that. My district is a very 
rural one, so we are always trying to figure out how do you get 
broadband into really remote and in some cases even frontier 
areas, and did I hear you correctly that if every person in the 
United States or all the OECD countries had broadband, we would 
rank 20th?
    Mr. Ford. Twentieth, yes.
    Mr. Walden. So if we fully penetrate, we would be 20th. So 
it is a measurement issue we are working on here that really 
can skew how we perceive our progress?
    Mr. Ford. Yes, that is a factor because we are dividing by 
population, and some people have large families and some people 
have none. You need one connection per house, say, which I 
think is a reasonable assumption, and some countries you have 
five people in a house and sometimes you have two and a half 
people in a house.
    Mr. Walden. I remember in my own house, at one point we had 
dial-up, wow, we got up to 14.4 or something, and then we went 
to cable modem, and I have got a router inside my house and 
sometimes there are four or five of us doing business online 
with one connection now, and that is really the point you are 
making?
    Mr. Ford. Well, no, the point is----
    Mr. Walden. Is that there is new technology that allows 
more people to be on so the measurement----
    Mr. Ford. I think at the nirvana, the point is that even in 
the best of all worlds, we are not all tied for first. I mean, 
there is this perception that this number varies from zero to 
one and those guys closest to one are in the best position, and 
that is not necessarily true. Like in our country, and I don't 
remember exactly what the number is, but if everybody had it 
and every business had it, we would be 0.38 or something like 
that, OK? Well, does that mean--and another country might be 
0.5, so for the other country, they should be a little bit 
higher than us even if half the businesses have it and half the 
households have it, they are going to have a higher number than 
we do just because they have smaller families than we do or 
larger families that we do.
    Mr. Walden. It helps because we hear this all the time 
about where we rank, and that is important as we try to figure 
out where to go. We need to know what we are hearing.
    Mr. Swain, welcome, by the way. I come from the State of 
Oregon. The current ambassador to New Zealand is a friend of 
mine, Bill McCormick. He is a terrific gentleman who has great 
restaurants, by the way. That is not a plug but I just know 
that. And Butch Swindell before that, also from Oregon. Some 
have argued that the introduction of greater regulation in New 
Zealand has driven increased broadband deployment. Regulatory 
intervention has been quite recent however, it is my 
understanding with bitstream access available in 2005, local 
loop unbundling in 2006, and the functional separation 
requirement has been adopted but I guess has not yet been 
implemented. Isn't it more likely the steady increase in 
broadband uptake since 2000 has been the result of many factors 
including those in effect prior to the regulatory intervention?
    Mr. Swain. Well, firstly, can I say that yes, I know both 
the current ambassador and the former ambassador, both great 
gentlemen, and I have also been to Oregon. It is a beautiful 
State which reminds us very much of New Zealand actually, and 
so my regards to the people there.
    I think the first point really is that yes, there has been 
an increase in deployment over a period of time and of course 
that was in periods of relatively to what we have got now 
light-handed regulation, but we also look at the tables 
notwithstanding the discussion about how you measure and we are 
in an area where our GDP growth is pretty good but we are at 
the bottom half of the OECD. We look at our distance and we 
also look at our population density, and there are certain 
challenges that we have, geographic challenges because of the 
shape of the country, and in the end it is kind of a line call 
really. If we were to leave the regulatory regime in place, 
would we be better off, worse off or stay the same, and of 
course this is a very difficult problem that legislators have, 
which is why everybody has an opinion on what we should do. But 
we have come to the view after quite a considerable period of 
not just looking at our own performance but comparing it, that 
we think that we can get better penetration rates if we go to 
the step that other countries have taken because of the fact of 
incumbency in New Zealand and because of the fact that we think 
that there is lots of opportunities for new investment and 
greater services available to the consumer if we take that 
step. So the answer to your question is that it is difficult to 
know but on our own experience, what we have decided is that we 
are to move up the rankings, whatever that means or whatever 
they are, and for New Zealand it is most important because for 
us it is next stop Antarctica. We are a long way away from 
anywhere. And so for us, the importance is that we get 
ourselves up those rankings, and the way to do that, we feel, 
is the kind of policies that we have implemented.
    Mr. Walden. Thank you. Thanks for coming to testify to all 
our panelists. I appreciate your input. It is helpful as we 
deliberate these issues as well.
    Thank you, Mr. Chairman.
    Mr. Markey. Thank you.
    I was going to ask Mr. Richards if Boston, Massachusetts, 
reminds you of London the way Oregon reminds Mr. Swain of New 
Zealand, but I won't go there.
    Mr. Hashimoto, does your country allow NTT to rip out the 
copper wires as you deploy fiber-optic cable, or must NTT leave 
the copper wire there for competitors to use?
    Mr. Hashimoto. Well, the government hasn't yet come up with 
specific policy on that. Currently there are about five 
dominion fiber access lines for new generation network 
available. However, we have 50 dominion copper lines.
    Mr. Markey. So is NTT removing the copper wires as they 
deploy fiber optic?
    Mr. Hashimoto. Yes. As we are deploying the new generation 
network, we are considering the possibility of removing the 
current fixed line network as well as copper lines.
    Mr. Markey. Thank you.
    I am going to ask Mr. Richards one final question. Then I 
am going to ask each one of you in reverse order of the opening 
statements to make a 1-minute summation to us to tell us what 
you would like us to remember and highlight from your 
testimony.
    I am going to ask, Mr. Richards, you have made a decision 
to ban all junk food advertising to kids. In the United States, 
obesity has become an epidemic amongst U.S. children, and I 
surmise that there is a similar problem in the U.K. Could you 
talk a little bit about your reasoning on that?
    Mr. Richards. By all means. Obesity is a rising problem in 
the U.K., as it is in most developed countries. We did a 
serious piece of work over the course of 2 years to identify 
what the causes of that were and the role in particular of 
television advertising. We concluded that television 
advertising played a modest but direct effect, so there are all 
sorts of other factors as well, but we concluded it did have a 
modest and direct effect and also an unqualifiable indirect 
effect, and as a result of that we have introduced some 
limitations on the advertising of foods which are high in fat, 
salt and sugar which people often refer to them as junk food, 
and that is now in place. It is not a total ban. It is a 
restriction, in particular around children's airtime and 
programs which are of particular appeal to children. So it is a 
fairly limited restriction but we do think it will reduce the 
exposure that children have to junk food advertising.
    Mr. Markey. I thank you, Mr. Richards.
    Mr. Hashimoto, just to clarify a little bit, as you do 
remove the copper, NTT is required then to unbundle the fiber 
optic for competitors. Is that correct?
    Mr. Hashimoto. Currently we are maintaining the fiber 
optics as well as copper, and in order not to discourage NTT, 
the further investing on fiber optics currently that NTT is 
asking the government not to impose unbundling on the fiber 
optics. Well, our goal or plan is to provide 30 million fixed 
line by fiber optics by year 2010. However, we have some 
geographical issues in Japan as well, and there are a lot of 
challenges with respect to providing fiber optics to rural 
areas so there are a lot of issues we have to overcome in order 
to provide fiber-optic connection to the rural, isolated areas.
    Mr. Markey. Thank you. So it seems that you are maintaining 
both networks right now and unbundling both networks at the 
same time, and that helps us to understand Japan's policy a 
little bit better.
    Mr. Ford, we will begin with you. Thank you for your 
testimony.
    Mr. Ford. I guess my point in 1 minute would be that these 
are very complicated issues and people that tell you they are 
not are lying to you. I think that probably the most important 
thing for policymakers is to establish what your goals are: 
augmented coverage, better networks, lower prices, whatever it 
may be and then require people who come in and tell you what 
they want you to do to explain explicitly and precisely how 
would they propose makes things better rather than just come in 
and say here is what I want, can I have it, please, which is a 
lot of what is going on today.
    Mr. Markey. Thank you.
    Mr. Wyler.
    Mr. Wyler. Just establishing for businesses, establishing 
goals and metrics for businesses to follow them will allow them 
to come up and use their ideas to create what you are looking 
for, and of course having an understanding--you want to know 
what the visibility is of the legislation, how long it will 
last in order to invest, so I would put that together with 
metrics and goals.
    Mr. Markey. Thank you.
    Mr. Hashimoto, you have 1 minute to summarize.
    Mr. Hashimoto. Well, this unbundling, the requirement 
imposed on us is a very, very severe requirement in view of the 
harsh competition. Of course, it is good for promotion of 
competition, but it is a tough requirement on us in view of the 
harsh environment of competition. However, I think that it is 
possible to provide the value added, not relying on unbundling, 
and I would like to emphasize here the fact that we are 
focusing on long-term strategy rather than short-term strategy.
    Mr. Markey. Thank you.
    Mr. Richards.
    Mr. Richards. Four simple points, I think. The first is 
that I absolutely agree that policy in this area is complicated 
and it needs, in our view, constant vigilance and attention. 
Second is that every country does indeed need to be carefully 
assessed on its own merits. Every country is different. Third, 
the lesson I think from the U.K., if there is a clear one, is 
that the policy framework does matter and does make a 
difference. And fourthly, I think we would hold out for the 
proposition that competition and investment are not necessarily 
mutually exclusive.
    Mr. Markey. Thank you, Mr. Richards.
    Mr. Swain.
    Mr. Swain. Well, in addition to those points, I think that 
we all agree that improved broadband service is fundamental for 
economic growth. We have a goal in our policy framework to 
achieve that in the interests of the long-term benefit of the 
consumer. We have had an interesting journey from the most 
deregulated environment to now international orthodoxy. The key 
issue for us is how to promote competition and investment and 
how we deal with the issues of incumbency, and we think that 
our solution will do that for New Zealand, and I thank you, Mr. 
Chairman, for this opportunity to present here today, perhaps 
on behalf of all of us. It has been an honor to be here, and on 
behalf of the New Zealand tourism industry, if you ever want to 
come to New Zealand, you would be most welcome.
    Mr. Markey. I think we might all take you up on that 
invitation so that we can follow your course from the lower 
rankings to the higher rankings which, from my perspective, is 
inevitable if you adopt the U.K.'s policies.
    We thank each of you for testifying today. The challenge 
for the United States is really whether or not in this whole 
broadband area we are going to adopt a Lake Wobegon standard, 
which is that every country can be above average, depending 
upon how you look at the rankings, and actually that is an 
argument I used to make to my mother when I brought home my 
report card that as I got older I decided there were certain 
subjects I just wasn't that interested in, and so I would just 
try to persuade my mother that I was doing very well in the 
areas that I wanted to do well in, and that was not a standard 
my mother accepted easily, and I think that is going to be the 
test for America going forward because even if we actually just 
looked at the areas where the United States or the Bush 
administration says it wants to do well and that is all we 
looked at, we still wouldn't be number one, much less all the 
areas that we are not doing well in in terms of broadband 
deployment. So the witnesses today have really issued a 
challenge to us to respond to this international ranking, and I 
promise you, it is going to be very helpful in the months and 
years ahead.
    With that, this hearing is adjourned.
    [Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                      Testimony of Dr. George Ford

                             Page 31 of 31

    render better results and eliminate the waste of resources 
devoted to quibbling over bad ideas.
    Mr. Chairman, thank you again for the invitation to 
testify. I would welcome any questions the subcommittee might 
have.
                              ----------                              

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                THE DIGITAL FUTURE OF THE UNITED STATES

                          THE FUTURE OF VIDEO

                              ----------                              


                         THURSDAY, MAY 10, 2007

                House of Representatives,  
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:30 a.m., in 
room 2123 of the Rayburn Building, Hon. Edward J. Markey 
(chairman of the subcommittee) presiding.
    Members present: Representatives Doyle, Gonzalez, Inslee, 
Boucher, Eshoo, Stupak, Green, Capps, Solis, Dingell, Upton, 
Stearns, Deal, Shimkus, Radanovich, Bono, Walden, Terry, and 
Ferguson.
    Staff present: Johanna Shelton, Colin Crowell, Maureen 
Flood, Tim Powderly, Mark Seifert, David Vogel, Kyle Chapman, 
Neil Fried, and Courtney Reinhard.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Thank you, ladies and gentlemen. Good morning. 
Today we have an all-star lineup to help this subcommittee 
learn about the next part in our series of oversight hearings 
on the Digital Future of the United States. Today's focus is on 
the future of video.
    We have already had a few hearings that address the topic 
of the transition of free over the air broadcast television to 
digital technology. Twenty years ago I chaired the first 
hearing on high definition television in this subcommittee in 
this room, so this transition has been a long time in coming. 
But now we can see a light at the end of the tunnel or rather 
at the end of the tuner. And our hope is that if we plan 
comprehensively and the relevant agencies work diligently the 
broadcasting industry can switch over in February of 2009 to 
full digital service.
    Today the subcommittee will explore the future of video 
more broadly. This inquiry will run the gamut from high 
resolution, high definition digital on big screens to digital 
wireless video services on mobile gadgets and finally to the 
video services and technologies enhanced by a high speed open 
architecture Internet. It is a future characterized by services 
that may compete with the movies or traditional television as 
well as by services and technologies that will compliment the 
video experience consumers have been using for years.
    New technology such as TiVo and the Slingbox are 
fascinating technologies that help to make consumers the 
masters of their video universe, no longer tethered to the 
networks' time schedules or the physical space of the living 
room. Moreover, broadband wireless technologies will give 
consumers even greater chances to have video on the go as they 
roam.
    These technologies often supplement efforts by existing TV 
networks and content creators themselves to find other 
apertures and distribution mechanisms for their video content.
    In our inquiry today we will examine how the explosion of 
video services and technologies affect consumers, as well as 
existing businesses, practices, rules and regulations. All of 
this is happening at a breathtaking pace.
    For instance, 2 years ago in January 2005, YouTube didn't 
even exist. Today there are 100,000,000 downloads per day on 
the site. The openness of the broadband Internet helps to 
ensure that innovation can continue to drive opportunity, 
entrepreneurial investment and economic growth in this area.
    The fact that today any consumer can be a programmer and 
get their video content up on the Internet is changing the way 
consumers view the Web, their creative opportunities and even 
how politicians run for President of the United States.
    Last December Time magazine named you as the Person of the 
Year in a salute to consumer-generated media. In that spirit, 
today we are going to film a brief clip that we will put up on 
YouTube because we have all become programmers. And I thought 
that perhaps we could have the first ever YouTube video of a 
committee hearing from the chairman's perspective. Could the 
witnesses waive for a second just so that everyone will know 
that we are--and how about the audience? The audience is 
looking great today.
    So what we will do is we will file this. We will put it up 
on YouTube later on, and it will show that congressional expert 
is an oxymoron, like jumbo shrimp or Salt Lake City nightlife. 
There really is no such thing. But anyone can put their video 
up on YouTube, and we are going to prove that later on today or 
in a few more days. So we thank all of you. We look forward to 
your testimony.
     I am going to the gentleman from Illinois, Mr. Shimkus, 
for his opening statement.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Shimkus. Thank you, Mr. Chairman. I see you have your 
makeup on, but I did not quite get there, that is the 
disadvantage of being a minority. You do not get advice about 
all these great plans coming up here. But we do thank you for 
holding this hearing. And the Ranking Member is going to be a 
few minutes late. Hopefully he will get here to share his 
opening comments. But this is a very exciting and important 
hearing as we continue to follow-up on these series of 
hearings.
    The video industry truly has flourished over the last 
several years. And one of the big reasons for this has been 
minimal regulation. Just think back about 10 years or so when 
TiVo came out. That is coincidently when I got elected into 
Congress. Just think about those periods of time and all the 
changes. TiVo has allowed viewers to watch what they want when 
they want. Back then TiVo was a novelty. Now it and other DVRs 
are on many cable boxes and satellite receivers.
    TVs certainly have changed as well. Remember back to TVs 
that weighed a ton and were the size of a small refrigerator. 
In fact, if I were to ask the audience to raise their hand and 
see how many still have those big TVs that are the size of 
small refrigerators they would probably raise their hand. But 
that debate is really for another hearing and how we deal with 
those leftover analog TVs. Now we have the flat panels that 
hang on the wall, various sizes and various cost prices. And we 
can find these TVs in all sizes and price ranges. It has really 
been remarkable to watch and very, very exciting.
    As the video industry continues to develop and we move into 
an increasingly digital world we need to continue investment 
into the network and bring quality and competition to 
consumers. We must revisit old rules and make sure they apply 
to a new playing field. What we do not need is heavy regulation 
that stifles growth, access and competition.
    The future of video is very bright and I look forward to 
working with the industry and my colleagues to make sure that 
it continues to make great strides. Thanks again, Mr. Chairman, 
for holding this hearing and thanks to the witnesses for 
sharing their testimony. I yield back my time.
    Mr. Markey. The gentleman's time is expired. The gentlelady 
from California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. It is always exciting, Mr. Chairman, to come to 
the subcommittee meetings that you chair. Thank you.
    I would particularly like to welcome Mr. Hurley and Mr. 
Krikorian from YouTube and Slingbox and congratulate, again, 
the Chairman on continuing to attract the best and the 
brightest from my district to these excellent hearings.
    We are witnessing an upheaval in the evolution of video 
programming, and this hearing, I think, is yet another exciting 
opportunity to explore many of the implications of this 
creative disruption of the video marketplace.
    Until recently, video has been transmitted to the public in 
a push fashion, delivered to consumers at certain times and 
limited instances and in restricted formats. The broadcast 
media, motion picture producers determine the content they 
would develop. They would present it when they chose. And 
viewers could decide to watch it or not. Digital technology and 
the Internet have changed all of that. Now Internet users pull 
the information they want to use, they want to see, whenever 
they choose in whatever format they decide to watch it in. When 
a TV show is broadcast at 8 o'clock tonight I could watch it 
live. I can watch it next week on my TiVo. I can download it 
onto my iPod, and I can watch it when I fly home tomorrow.
    Disintermediation of the delivery of video is also 
transforming the diversity and the types of content available. 
User-generated content is exploding on YouTube and other Web 
sites. And we no longer have to be attached to a global media 
conglomerate to broadcast interesting video to the masses.
    I am concerned that the almost limitless diversity of 
voices on the Internet is threatened and that the power to 
control access to information and content is becoming 
increasingly concentrated in a handful of large media and 
telecommunications companies. It is this issue, the development 
of gatekeepers to content and information on the Internet that 
I think is at the heart of an issue that has been intensely 
debated in this subcommittee and the Congress, net neutrality.
    I think the future of video will depend in large part on 
how we resolve this issue, and I think Congress has to ensure 
that the voices of the many can continue to speak to the many. 
Consumers have to be able to access the content of their 
choice, and they must also be able to access that content in 
the manner in which they choose. Internet access providers and 
video providers should not be able to dictate to consumers how 
they will view content and programming and they should not be 
able to force them to buy equipment from them to view it if 
other equipment is available.
    I have worked hard during this committee's consideration of 
the 1996 Telecom Act, that seems like almost a century ago 
today, to secure the inclusion of a provision in the Act, 
section 629, to enable cable customers to buy set-top cable 
boxes from someone other than their local cable companies. 
While there have been repeated delays in the implementation of 
this law, cable operators are required to comply with the 
standard set forth by that section by supplying interoperable 
cable cards by July 1 of this year.
    I am concerned that despite the implementation of this 
mandate many cable operators will either hobble or render 
competitive set-top boxes unusable by deploying new channel 
switching technology that will not work with other boxes. This 
is but one example of how content providers can limit the use 
of technology by creating artificial barriers to access that 
impede competition and innovation. So I look forward to the 
testimony. I welcome all the witnesses and also the response to 
our questions. Thank you again, Mr. Chairman, for these 
terrific hearings.
    Mr. Markey. Thank you. The gentlelady's time has expired. 
The gentleman from Oregon, Mr. Walden.
    Mr. Walden. Mr. Chairman, thank you for holding the 
hearing. I am going to waive my opening in lieu of additional 
time for questions.
    Mr. Markey. Thank you. The gentleman from New Jersey, Mr. 
Ferguson.

 OPENING STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Ferguson. Thank you. Mr. Chairman, thanks for holding 
this hearing and for putting together a really distinguished 
panel. Thank you all to all of our witnesses for being here 
today.
    This subcommittee can serve an important and constructive 
role in examining the area of digital video content, ensuring 
that a playing field exists that fosters competition in the 
marketplace and encourages creativity and innovation. These are 
exciting times for consumers, from IP video to digital cable, 
from webcasting to wireless. There are more video options in 
the digital marketplace than ever before on multiple platforms.
    But the American consumer has a wealth of video content to 
enjoy, and it is in this committee's interest to ensure that 
options for the consumer continue to grow. How do we achieve 
the most options? Avoiding burdensome regulatory policy is 
naturally one route to take. However, of equal importance is 
encouraging creativity and innovation by ensuring that 
intellectual property rights are not only protected by law but 
respected by those who deliver content to our constituents.
    The consumer enjoyment and ultimate success of digital 
video content was not born out of unauthorized uploading nor 
was it achieved by circumventing copy protection technology 
under the banner of fair use. Thankfully, the majority of U.S. 
companies have done the right thing and ensured that the video 
content that they carry is indeed legal. I am sure the video 
you are creating today, Mr. Chairman, will be a completely 
legal upload. A great example is Verizon Wireless's VCAST 
technology, a company I am pleased to say is headquartered in 
my district in New Jersey. But unfortunately not everybody in 
our country has followed suit.
    With all of the exciting options for consumers that the 
consumers have to access video on the Web, it is all too easy 
to overlook the fact that much of this content is being 
transmitted illegally. The plain fact is this: If we want to 
continue to see a flow of new and exciting technology to our 
constituents, if we want to ensure that the most options are 
available, if we want to encourage creativity and innovation, 
if we want to have truly a pro-consumer digital marketplace, 
then creative content must be respected.
    I thank you again, Mr. Chairman. I thank you for putting 
together this very distinguished panel of witnesses. I look 
forward to their testimony. I look forward to the opportunity 
for questions.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Michigan, the full committee 
chairman, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, I thank you, and good morning. I 
also want to thank you for holding the hearing. And I wish to 
also welcome the distinguished panel of witnesses who will 
appear before us today.
    This is the fifth in a series of important oversight 
hearings that are going to examine the digital future of the 
United States. Each of these hearings is focused on how digital 
technologies are changing the communications marketplace.
    Like many of my colleagues, I have embraced the new digital 
technologies. My iPod holds the kind of music not normally 
heard enough on the airways: Classical music. And I hope 
someday I can find a way to watch the History Channel more than 
I do now. I suspect a number of the witnesses here could help 
me with that.
    Today's hearing focuses on digital video. I have paid 
particular attention to the impact of digital video on local 
media outlets. This committee has worked in the past to see to 
it that local media outlets, including television broadcasters, 
adequately serve the local communities. It is clear that the 
advent of digital video is both an opportunity and a challenge 
for local broadcasters. It is an opportunity to better serve 
local communities with increased coverage and more delivery 
options. It also presents challenges to a business model which 
is centered on advertising.
    The growth of Internet video and the upcoming digital TV 
transition will make more content available to consumers 
through many avenues: over the air, cable, satellite, Internet 
and wireless handsets. I am interested in how this growth could 
affect consumer access to programming no matter how they 
receive it.
    And not only must we examine the consumer access to 
programming, but also what the growth of digital video means to 
those who create it. Broadband is just starting to flex its 
muscles in the marketplace. A successful broadband policy will 
focus on how we are to foster increased investment by both 
network operators and those who provide content over these 
networks.
    I have been witness to more than a few fundamental changes 
in the telecommunications technology. I have had the 
opportunity to see video move from black and white to color to 
HD to fiber optic cables and to cell phones. The core 
principles of localism, diversity and competition in the local 
market have guided our decisions in the past. And I would note 
they must continue to do so now.
    No matter the method or matter of delivery, these people 
and these issues and the way that we provide what we need in 
the way of service through the media is always going to be an 
important responsibility that we have to American citizens.
    Again, Mr. Chairman, I thank you for your courtesy. I 
commend you for the hearing, and I look forward to the 
testimony of our witnesses.
    Mr. Markey. The gentleman's time has expired. The gentleman 
from California, Mr. Radanovich.
    Mr. Radanovich. I will waive.
    Mr. Markey. The gentleman will waive. The gentleman from 
Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for recognizing me and 
for holding the hearing on the future of video. And I would 
like to welcome our witnesses like our other members.
    Just 15 years ago consumers had to set up their VCRs to 
record a program if they wanted to watch it later. Today they 
do not even need television access because of products like 
digital video recorders, Slingboxes and technology like Cable 
on Demand, giving consumers more options to view the 
programming they want, when and how they want to view it. 
Programs like iTunes allow users to download unlimited 
previously broadcast programs for small fees.
    When you look at the future of video, one issue I think is 
uncertain and I plan to ask our witnesses about is the 
viability of delivering full screen broadcast quality video 
over the Internet. It is still unclear how feasible or 
desirable this would be. If demand increases dramatically down 
the road it could strain the network capacity, especially in 
that last mile.
    Applications like Joost are coming online and offer full 
screen broadcast quality programming. Many other sites, like 
Amazon and Netflix are offering downloadable movies to buy or 
rent directly over the Internet and sent to a computer hard 
drive or a TiVo player. Unfortunately, many Internet users are 
also sharing the downloaded video content and other media files 
illegally over peer-to-peer networks.
    Not only are they illegally downloading the content but 
with the price of hard drives and storage dropping 
dramatically, they can store and share large quantities of it 
that clog the network and could degrade service for the 
legitimate Internet users.
    While there are legitimate uses for peer-to-peer, it 
consumes large amounts of bandwidth in an area where it is 
limited, that last mile of the network.
    These are issues the industry and the Congress must work 
through to ensure that illegal uses of the Internet do not 
affect the network as a whole and users that pay to use the 
Internet for legitimate applications.
    Again, Mr. Chairman, thank you for holding these hearings.
    Mr. Markey. The gentleman's time has expired. The gentleman 
from Texas, Mr. Gonzalez.
    Mr. Gonzalez. I waive.
    Mr. Markey. The gentlelady from California, Ms. Capps.
    Ms. Capps. Thank you for having the hearing. I will waive 
my opening statement.
    Mr. Markey. So we will turn to our panel. Mr. Terry?
    Mr. Terry. I will waive.
    Mr. Markey. Who will waive. Thank you. Any other statements 
for the record will be accepted at this time.
    [The prepared statements follow:]

  Prepared Statement of Hon. Lois Capps, a Representative in Congress 
                      from the State of California

    Thank you Chairman Markey for holding what I'm sure will be 
another informative hearing on the digital future of our 
country.
    This is an exciting time to be a consumer of video.
    TV remains vibrant, and new technologies--like those 
represented by TiVo and Slingbox at our hearing today--allow 
consumers to watch video when they want and increasingly where 
they want.
    And video on the Internet has arrived, as all of us saw in 
the last election. Today you can find videos for any taste or 
interest on the Internet.
    The new technologies, however, raise many questions for us 
as policymakers.
    We must balance the rights of copyright holders with the 
principle of fair use, especially on the Internet.
    We must examine the erosion--perceived or real--of network 
television's advertising base and the subsequent rise of 
product placement within programs.
    We should explore if the regulations on broadcast 
television that have been in place for many years are still 
prudent in today's media environment.
    Finally, we must also consider what policies will encourage 
innovation and consumer choice in video services.
    Finally, we must also consider what policies will encourage 
innovation and consumer choice in video services.
    For every consumer of video to benefit from the range of 
offerings, we need to increase broadband access.
    I trust we will explore these questions today.
                              ----------                              


Statement of Hon. J. Dennis Hastert, a Representative in Congress from 
                         the State of Illinois

     Thank you, Mr. Chairman.
     I would like to welcome the panel here today, and I look 
forward to hearing about the future of video.
     Competition in the video marketplace has dramatically 
changed since 1984 when I first got involved in 
telecommunications issues. Video is now available through 
competing platforms such as cable, satellite, wireline and 
wireless. In addition, video is now present on the Internet on 
video sharing Web sites like ABC and JOOST. Innovative 
products, like the ones that will be showcased today, are key 
players in the future of video.
     This diversity requires a robust infrastructure. Cable, 
phone and satellite providers are already making large 
investments in upgrading and deploying broadband. Broadcasters 
and programmers, likewise, are incurring large costs to create 
and transmit their product digitally.
     Congress must continue to promote policies that encourage 
investments in technology and not set policies that will stifle 
competition. Consumers benefit from new innovative products and 
services. Market forces do work. It is critical that we do not 
enact regulatory burdens that hinder investment and delay the 
roll out of video services to consumers.
     Thank you and I look forward to hearing from our witnesses 
today. I yield back my time.
                              ----------                              


  Prepared Statement of Hon. Joe Barton, a Representative in Congress 
                        from the State of Texas

     Thank you, Chairman Markey, for holding this hearing on 
the future of video.
     The video market has never been more competitive. ABC, 
CBS, and NBC are no longer the only networks. From 1992 to 
2005, cable operator share of the multichannel video market has 
dropped from 96 percent to 69 percent while direct broadcast 
satellite share has grown from zero to 28 percent. Add video 
over the Internet, over phone lines, and over cell phones and 
you get even more programming outlets.
     As the video industry moves to a digital environment, what 
we need is investment. Downloading a single, half-hour 
television show uses more bandwidth than receiving 200 e-mail 
messages a day for a year. A high-definition movie requires 
more bandwidth than 35,000 Web pages or 2,300 songs. Without 
significant additional investment, the public Internet will not 
be able to provide streaming, full-length video programming--
let alone high-definition content--to a mass audience in a way 
that will be acceptable to consumers. Even apart from the 
Internet, offering digital programming over existing video 
platforms is requiring broadcasters, cable operators, and 
satellite providers to incur large costs for equipment, 
capacity, and content.
     Last month's international broadband hearing reminded us 
once again, however, that regulation stifles investment, 
especially in markets with multiple, evolving platforms. If new 
and old platforms are going to grow into viable outlets for 
digital video, we must resist the temptation to create new 
regulations.
     We must also question our existing regulations. They were 
built around old business models, and to a certain extent 
protect those business models. They may have been created in 
the name of promoting diversity and competition, but they often 
end up just advantaging one company over another and preventing 
consumers from getting what they really want.
     The must-carry rules, for example, simply set aside shelf 
space for broadcast programming as compared to non-broadcast 
programming, regardless of whether anyone really wants to watch 
it. The program access rules make it easier for cable and 
satellite providers to all carry the same existing content 
produced by others, rather than create their own diverse and 
innovative programming to compete. Should existing regulations 
continue to apply to video services in a competitive, digital 
age? Should YouTube and video on cell phones be regulated like 
cable and satellite service when they offer multiple channels 
of broadcast-quality video? How will geography-based rules that 
were designed around the physical reach of broadcast signals 
work when content can be sent anywhere using Internet-based 
services or devices? What happens to our broadcast model when 
networks and affiliates are putting programming on Web pages?
     In an increasingly competitive market, it is not the role 
of government to level the playing field with regulations. We 
don't want a level playing field; we want a fair playing field. 
That means removing regulations that are hindering competition; 
not adding regulations that give particular participants a leg 
up in the guise of promoting competition and diversity. Market 
forces will promote competition and diversity, and it will do 
so on consumers' terms, not regulators'.
                              ----------                              


 Prepared Statement of Hon. Nathan Deal, a Representative in Congress 
                       from the State of Georgia

    I thank our witnesses for joining us today. The future of 
video certainly is an interesting topic to explore. I find it 
interesting to learn more about new technologies which are 
revolutionizing the way in which consumers receive the video 
content they most desire. I am pleased anytime I learn of 
instances in which the consumers are being provided more choice 
and opportunities. After all, fostering a free video market 
where distributors have the ability to provide consumers with 
the content they demand is the goal we should seek to achieve.
    As these witnesses will attest, rapidly evolving services 
and technologies are creating a whole new forum by which 
viewers can access video content. There now exists a whole host 
of tools by which a viewer can, at the time and place of their 
choosing, watch his or her favorite television show. These 
realities are forcing change and adaptation within the video 
industry.
    The question for members of this committee is how 
Government regulations are affecting the video marketplace. As 
one who has studied these issues, I have come to believe that 
much of the current regulatory regime is designed to prop up 
old, outdated, business models which do not necessarily reflect 
consumer demand.
    In contrast to such old models, we have new technologies 
such as the Slingbox which allow viewers to watch their local 
news when they are away from home. The success of the Slingbox 
indicates to me that consumers enjoy and demand being able to 
watch their local broadcast stations even when they are not 
within the boundaries of the local DMA. I have heard rumors 
that Members on this committee make use of the Slingbox. I am 
even considering it for myself. Yet, oddly enough it is exactly 
this service, the ability to provide consumers with out of 
market broadcast stations, which we specifically deny to other 
distributors of video content. Because of two components of the 
current retransmission consent regulatory regime--the network 
non-duplication rule and the syndicated exclusivity rule--
neither satellite nor cable companies can negotiate to provide 
out of market broadcast signals to their subscribers. It seems 
that if this committee were to be consistent it would find the 
Slingbox in violation of the spirit, if not the letter, of 
these rules. Yet, I don't think any of us here want to do that. 
We want to encourage these new technologies which are pro-
consumer and drive new innovation. Why then, do we continue to 
impose anti-market and anti-consumer rules on other video 
distributors? It is my hope this hearing will serve as a 
catalyst for change in the current regulatory regime toward 
rules which are more market and consumer friendly so that it is 
not simply these new and unique technologies which allow 
consumers to enjoy the services they demand.
                              ----------                              


Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you Mr. Chairman. I must admit that I am in awe of 
the technologies available today in the video marketplace. Not 
speaking for myself, of course--I'm much too young--but many up 
here on the dais well remember when it was a big deal for a 
family to own one television. Before we knew it, two 
televisions and a home personal computer was the height of 
luxury. Now we're talking about television broadcasts from 
satellites, in high definition, that can be saved for later 
viewing and ``slung'' to my laptop. These are truly exciting 
times for consumers of video content.
    But while these new technologies continue to be released at 
breathtaking speeds, the Federal Government moves at its usual 
turtle's pace. Our laws and regulations that govern the video 
market were designed for a bygone era, even though that bygone 
era was only a decade ago in some cases. In an age of mobile, 
digital video, it is high time we look again at these laws and 
regulations to determine if they are best for consumers.
    One of these arcane laws is the current system by which we 
define our local markets for video broadcasts. In a previous 
hearing I discussed the absurdity of Direct Market Areas in 
Wyoming, where the ``local'' markets in some communities 
originate from broadcasts almost 400 miles away. That would be 
like Washington DC's local market originating in Boston. While 
I'm sure the chairman would be just fine with that idea, I 
think we can agree it would be absurd in practice.
    That is why Representative Mike Ross from Arkansas and I 
will be introducing a bill to change the definition of what a 
local market is, in effect, to allow cable and satellite 
companies the option to offer customers broadcasts not from 400 
miles away, but from an adjacent market that offers true local 
programming. The bill is a reasonable approach that still 
protects local broadcasters from national intrusion, but makes 
a heck of a lot more sense in this digital age. Just like most 
folks have the choice of what service and device they use to 
enjoy video broadcasts, they also ought to have the choice of 
viewing content that is truly local.
                              ----------                              


Prepared Statement of Hon. Mary Bono, a Representative in Congress from 
                        the State of California

    Good Morning. I would like thank to Chairman Markey and 
Ranking Member Upton for holding this very important hearing. 
Today we have an extremely diverse panel and I would like to 
welcome each of you to our committee. As a result of this 
panel's diversity, our hearing has the potential to go in a 
variety of directions. This will certainly lead to a lively 
discussion.
    When I look at today's panel one area of particular 
interests and concern comes to mind. The issue surrounds the 
treatment of intellectual property in the digital age--
specifically when that property is online.
     Most people who know me realize that I am a moderate when 
it comes to a lot of issues. However, when it comes to the 
protection of intellectual property rights I have very strong 
and uncompromising beliefs. The copyright industries are a 
significant part of our economy. For instance, according to the 
International Intellectual Property Alliance the United States 
``total'' copyright industries accounted for an estimated $1.38 
trillion or 11.12 percent of GDP in 2005. Protecting this 
industry is directly connected to the overall health of our 
economy.
     This is why I am so concerned with the behavior Google, 
and particularly YouTube, when it comes to its approach and 
apparent arrogant disregard for copyright protections. The idea 
behind YouTube is very innovative. However, its business 
practices leave room for improvement. Let's examine YouTube's 
business and economic models in light of the Digital Millennium 
Copyright Act. First, there is little doubt that YouTube is a 
for profit organization. If it wasn't, I seriously doubt Google 
would have invested $1.6 billion into acquiring YouTube. In 
short, YouTube makes a lot of money by attracting people to its 
Web site and selling ads. The ad revenue increases when traffic 
increases. Thus, the more entertaining the content, the more 
visitors to the site. It's not rocket science.
     Second, with respect to that content, ``Does YouTube have 
knowledge of the material on its site?'' The facts point to 
yes. If YouTube's managers know when hate content is posted or 
when pornography is posted on its site, then it is easy for me 
to believe that they know when copyrighted material such as 
NBC's ``The Office'' or the latest music video from MTV is 
posted.
    Third, ``Does YouTube have the power and ability to remove 
content posted on its Web site?'' Again, the answer is yes. 
When that same hate content or pornography is posted, it gets 
pulled down. All of these facts--financial benefit, actual 
knowledge, and power and ability--in my opinion lead to legal 
liability for YouTube in its failing to provide adequate 
copyright protections on its Web site. Now, YouTube may cry 
foul and claim that it is the responsibility of the content 
owner to patrol its site and request that the content be 
removed. This seems backwards and overly burdensome on the 
individual copyright holders. If large media companies can't 
find all of their content on YouTube then how does an 
independent artist stand a chance?
     As freelance journalist Robert Tur put it: It's past time 
for the Tony Soprano online business model--Where:

     You don't pay for anything;
     You get your content for nothing; and,
     You sell to the highest advertiser

    To come to an end; and for companies who don't comply to 
suffer the legal consequences.
     Thank you, and I yield back my time.
                              ----------                              


   Prepared Statement of Hon. Marsha Blackburn, a Representative in 
                  Congress from the State of Tennessee


     Good morning Mr. Chairman. I thank you and Ranking Member 
Upton for once again allowing me to participate in today's 
proceedings.
    The topic of today's subcommittee hearing on the future of 
video is of paramount importance to Tennessee's seventh 
district and is of great interest to me personally. And while 
our esteemed witnesses will cover a wide variety of important 
subject matters, I want to focus my brief comments on two 
issues that currently face the FCC and Congress: video choice 
and intellectual property protection in the digital age.
    Simply put, constituents in the seventh district do not 
have access to the breadth of competitive choices in the video 
market that they would like.
     In most of my counties consumers typically have three 
choices for video access; cable, satellite, and over the air 
rabbit ear signals. While this is a vast improvement from a 
bygone era where consumers had no choice at all, it is still a 
far cry from what is possible if deregulation and market forces 
are allowed to carry the day. Yet complex, arcane franchise 
agreements at the municipal level are holding that process 
back.
    That is why I introduced H.R. 3146, the Video Choice Act of 
2005, in the 109th Congress along with my good friend Rep. 
Wynn. The legislation sought to promote the deployment of 
competitive video services and eliminate redundant and 
unnecessary regulation that holds back competition.
    While Rep. Wynn and I were unsuccessful in passing the 
legislation last year, our effort has yielded a state-by-state 
effort to deregulate local franchise agreements that is already 
bearing fruit. Eight States adopted centralized franchise 
agreements between 2005 and 2006, and at least 12 bills are 
currently circulating through legislatures around the country. 
These state-based franchise agreements are already promoting a 
competitive landscape and offering consumers more choice, low 
prices and increased service.
     It is a shame that our panel does not include a witness 
prepared to speak to this important issue. However, it is my 
hope the subcommittee will refocus on video franchise in the 
future and include appropriate witnesses who can speak to the 
matter before Members take up any potential legislation 
regarding video service.
    I also want to focus on the intellectual property concerns 
that impact the creative community in the digital era. While 
more and more content is available to consumers on television, 
the Internet, and personal digital recording devices attached 
to computers and TVs, Congress and the FCC must ensure that the 
innovators who create this content are properly compensated and 
protected.
    I share my colleagues' desire to prepare for a not-so-
distant future where consumers will make full use of the 
Internet for their entertainment needs. However, the content 
our constituents download--be it streamed video from the 
Country Music Channel or live music from the Grand Ole Opry--
must remain safe, legal, and subject to the same intellectual 
property laws that we adhere to today.
     I look forward to the testimony of our witnesses and yield 
back the remainder of my time.
                              ----------                              

    Mr. Markey. We will turn to our panel. It is an 
exceptionally distinguished panel. And I am honored to have our 
first witness with us, Mark Cuban.
    Mark Cuban was the founder of Broadcast.com, the co-founder 
of HDNet. He is a revolutionary in this media and for all of us 
who watch big sports, big productions in HD quality, your 
support, your investments in high definition are most welcome 
here. And by consumers across the country, it really is a 
pleasure to have you here, Mr. Cuban. And whenever you feel 
comfortable, please begin.
    Mr. Cuban. Thank you.

STATEMENT OF MARK CUBAN, CHAIRMAN AND PRESIDENT, HDNET, DALLAS, 
                               TX

    Mr. Cuban. Chairman Markey, Ranking Member Upton, other 
members of the subcommittee, my name is Mark Cuban. I 
appreciate the introduction, so I will leave out my bio here.
    New technology can be incredibly exciting. It seems to 
always be improving, getting faster, cheaper, smaller, with 
seemingly no end to that trend in site. While that was always 
the case in the 1980s and 1990s and early 2000, it is no longer 
the case that all technology improves with age.
    What I am about to tell you will sound like heresy to many, 
particularly some of us here at the witness table, but the 
reality is that the consumer Internet as it is constructed 
today has matured and its future, unless there is significant 
investment, will constrain economic development in this 
country.
    First, let me say that there is plenty of bandwidth and 
upside for the backbone of the Internet. Those fibers that 
connect the networks of Internet providers have plenty of room 
to grow. Unfortunately, the quality of the Internet experience 
to consumers and the opportunity to provide products and 
services, particularly using video, over the Internet to the 
consumer are only as good as its weakest link. Right now, with 
limited exceptions, those links are pretty weak.
    The vast majority of broadband users in this country today 
are connected via coaxial cable or copper wiring. Coaxial cable 
was exciting in the 1970s and early 1980s, but was used as the 
foundation of major cable system upgrades in the 1990s. For 
telco broadband users, basic phone wiring is still the primary 
method of access for DSL subscribers. Although Verizon's FiOS 
product and some other companies have installed fiber to or 
close to the home, they are still small in number.
    Both of these technologies are limited not only by their 
intrinsic bandwidth capacity, but also by the networks they can 
be attached to and the distances over which they can deliver 
bits. The bottom line is that the future of broadband and 
consumer connectivity for more than 95 percent of broadband 
users is built upon ancient, I use this word lightly, 
technology. That is a problem for our country.
    This bandwidth limitation for the last mile of consumer 
Internet connectivity means we are severely limited in heavy 
bandwidth consuming applications that exist today, such as 
video, and completely precludes and excludes unique 
applications that could positively impact not only our economy 
but our quality of life.
    The issue of Internet neutrality is the perfect example of 
how constrained bandwidth creates conflicts between the 
interests of consumers and broadband providers. Internet 
consumers are concerned that their favorite Web sites will 
either cost more due to increased hosting costs or will be slow 
or erratic when accessed because they are not given the 
priority of those who pay more. This issue goes away completely 
if bandwidth constraints go away. In an all fiber network as an 
example, bandwidth is gigabits per second to the home and 
throughout the network, making network neutrality a non-issue.
    I will give the analogy--it is not in my testimony--our 
highway system. If you have a highway system with 100 lanes or 
1,000 lanes, there is no need for an HOV. There is plenty of 
room for everybody. Unfortunately right now in our broadband 
environment there is not enough room for everybody.
    In our current bandwidth constrained environment, the 
concept of Internet video replacing standard definition TV is 
laughable. The perspective that it could replace HDTV 
programming is not even on the radar. With the current design 
of the Internet, every single video stream must be delivered 
individually to the consumer. It does not matter if the video 
stream is transported from a centralized host server, from a 
locally hosted server, or from a peer or a P2P network. You may 
have noticed that CBS made a big deal of delivering 300,000 
simultaneous video streams at 350k of bandwidth, less than TV 
quality, of the NCAA final four games this year. They said the 
demand was far greater, but 300,000 was the most they could 
support at a single time. They could have served many, many 
more had they been able to, but the Internet does not have the 
capacity nor are the costs reasonable to be able to deliver 
live TV over the Internet. That is not going to change in our 
current environment.
    Now there are some that will tell you that Internet video 
will replace TV using peer-to-peer technology but it will not 
happen. Peer-to-peer technology does not reduce the amount of 
bandwidth required to deliver video content over the Internet. 
In fact, it moves much of the requirement for bandwidth from 
the backbone, which is built primarily on fiber and has 
basically no bandwidth limits, to the individual consumer where 
the user must not only receive the entire amount of bits 
required for the delivery of the video they have chosen but 
must retransmit it to peers on the network, resulting in 
significant inefficiencies and overconsumption of bandwidth. 
The reason this method of delivery has become so popular is 
that it shifts the cost from the distributor of the video to 
the consumer of the video.
    This is not to say that consumers will not want and will 
not consume video and TV programming over the Internet. They 
will. In particular, Internet video consumption is very high 
during the day. At work, people will watch their favorite shows 
that they missed at lunch or hopefully at lunch or on breaks. 
They can stream it, they can download it, and they may save it 
to their iPods or phones. There is certainly a market for video 
content on PCs, but it is a complementary market, not a primary 
market for content. People of all ages will watch video on 
their PCs, their mobile devices and phones or PDAs, whatever 
devices happen to exist when they do not have access to their 
TVs. It is in essence a convenience.
    Over the last few years the technology industry and the 
media have become fixated on Internet video. The explosive 
success of YouTube has convinced many that it foreshadows a 
future of people sitting in front of their PCs watching user 
generated videos. It does not. The area of consumer video 
consumption that is going through the most significant change 
and upheaval is not Internet video. It is high definition 
television.
    If you look at the PC on your desk at home or at work it 
looks and works pretty much exactly like it did 5, 10 even 20 
years ago except that it is faster. There was a time when 
people felt that upgrading their PC was a rite of passage that 
happened every few years. We all went through that period where 
we said oh, if I just buy it now it is just going to get 
better, cheaper, faster. Why am I doing this? Well, that period 
is gone. It is no longer in existence. There was a time when 
new PC based software was coming out on a regular basis 
impacting our work productivity or creating new entertainment 
options for us. Not anymore. It is stagnant. If you go through 
the list of top-selling personal computer software, it has not 
changed in years, particularly in the office environment.
    The same applies to Internet applications. What we call Web 
2.0 is not a reflection of new and exciting technology. It is a 
reflection of the maturity of the Web from Web 1.0 to 2.0. 
MySpace, Facebook, YouTube, Digg, any Web 2.0 site you can 
think of are certainly not technological breakthroughs. They 
are applications developed with mature programming tools that 
users feel confident to use. They are very excitable. They are 
very innovative. But from a technological basis, there is 
nothing new there.
    Contrast that with what is happening in the high definition 
television market. Like the PCs of yesteryear, HDTVs are 
getting bigger, faster, cheaper, better on almost a monthly 
basis. It was just 3 years ago that if you were in the market 
for a new television you would expect to go to the store and 
pay $800 or more for a 27-inch tube TV that could weigh 300 
pounds or more. It was just 3 years ago that if your friend had 
a big screen TV, which probably was a 40-inch or more 
monstrosity that cost $3,000 or more, you went over to his or 
her house for the big game or the big show.
    Today, those types of TVs cannot even be found on 
retailers' shelves. They are gone. They are no longer even 
being made. They are part of history. Instead, tens of millions 
of homes have purchased LCD and plasma TVs that hang on the 
wall such as we see here. And you might remember when that was 
a Jetsons-like fantasy that we could hang a TV across the wall.
    Mr. Markey. Mr. Cuban, I am feeling a little bit like David 
Stern here and I apologize for that. But you are 8\1/2\ minutes 
into it and it is all fabulous. I have read it and it is great. 
I think you are going to have plenty of interest from the 
Members----
    Mr. Cuban. No problem. I read slower than I practiced.
    Mr. Markey. So if you can summarize.
    Mr. Cuban. I will summarize very quickly here at the bottom 
of the testimony. The reality is that technology improves where 
there is the greatest opportunity. And where the greatest 
opportunity and change is happening is in acquisition devices 
for digital video. You are starting to see 3D movies. You are 
starting to see 4k cameras. You are starting to see 4k cinema. 
That is where we are heading in terms of digital video. If we 
are trying to support that as a community, as a country, and 
broadband buyer to the home we will see medical and security 
and all kinds of unique applications. Then that is what we have 
to look at. The Internet today is not prepared to do that.
    [The prepared statement of Mr. Cuban appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Cuban, very much. Our next 
witness, another revolutionary, Blake Krikorian, who is 
chairman and chief executive officer of Sling Media, 
Incorporated. This new technology is changing the consumer 
experience. It has taken off like wildfire. It is an honor to 
have you here today, Mr. Krikorian. Whenever you are ready, 
please begin.

  STATEMENT OF BLAKE KRIKORIAN, CHAIRMAN AND CHIEF EXECUTIVE 
           OFFICER, SLING MEDIA INC., FOSTER CITY, CA

    Mr. Krikorian. Thank you very much, Chairman Markey and the 
members of the subcommittee. It is a great, great opportunity. 
I never thought I would find myself here, but it is an honor. I 
am just an everyday consumer and really just want to explain to 
you a little bit about what we have been doing and how we even 
came about. It is all based on consumer frustration, this thing 
called a Slingbox, place-shifting.
    In fact, a few years ago in the summer of 2002, my brother 
and I, we were born and raised in the Bay area, big San 
Francisco Giants fans. And it was the year the Giants were 
actually doing quite well and headed to the Series. 
Unfortunately, they choked in the sixth game, which is a 
different story. But it is a 5-month thing, by the way, or four 
outs away, I believe. So we found ourselves though sitting in 
the office quite a bit working day and night in the consulting 
practice we had. But we also found ourselves traveling quite a 
bit.
     I remember vividly one day in the summer they were playing 
the Cubbies and it was a day game, and we wanted to watch this 
game. Got to see it. And we looked around to try to see if 
there was various ways we could do it when we were in the 
office or when we were abroad. At this point we were in the 
office. And we ended up realizing there was no way we could get 
our Giants game.
    We said well, wait a second, here. Here we are as 
consumers. We are spending more and more time outside of our 
living room. We are spending more and more time in front of 
display devices other than that TV. Like, we are more in front 
of PCs and laptops, mobile phones, media players. And 
everything is connected via the Internet. Why the heck can we 
not just watch our home living room television regardless of 
where we are, regardless of what displays we happen to be on. 
And at the same time, of course, I was also a big TiVo user, 
still am. And a lot of the content that I love to watch 
actually, besides sports, a lot of it was time-shifted. And so 
it was actually sitting in my living room on my TiVo hard 
drive. I said I just want access to the stuff. Why the heck 
can't I watch it? And so we came up with this product called 
the Slingbox.
    And really, this is one of the versions of the Slingbox. We 
sell it in over 5,000 stores now, retail: Best Buy, Circuit 
City, CompUSA. And it is a very low-priced product. It is about 
$149 to $249, depending on which model you get. And the way 
that it works is you put this little box in your home and you 
plug your TV signal into it. Now we do not care if that is your 
TiVo or if it is your analog cable for those of you who still 
have it or your DirecTV or cable. It does not matter. Plug your 
TV signal in and connect it to your home network. Now you need 
to have broadband. But as we know, most people do, so we can 
have faster and faster uploading speed. We would have even 
better and better experiences.
    But you plug it into your home network. Once you have done 
that you leave that guy there. And then regardless of location, 
whether you are in China, whether you are in the district 
office--Congressman Dingell could actually watch the History 
Channel when he is here at the office during lunch break. You 
can be really anywhere in the world and you can watch and 
control your living room TV off of your laptop or even on your 
mobile phone. And in fact, right now on my Treo with the Sprint 
Network I am watching live Good Morning America from my home in 
San Mateo right now. And I can change the channels. I can 
pause. I can rewind and so forth.
    So I want to give you a few different recent examples of 
how I have used it and also how we are seeing the product being 
used via the marketplace. I just had this this last Sunday, my 
wife and I went with some friends to the Kentucky Derby, which 
was an amazing experience. The one downside was Saturday night 
we were with a bunch of friends and the de la Hoya/Mayweather 
fight was on. And we were scrambling around downtown trying to 
find out where it might be on. We went back to the hotel room 
and found out there was no Pay Per View in the hotel room 
either for the fight. So I fired up my little laptop. And yes, 
I would have loved it to be a 16-inch plasma. My friends gave 
me grief even though I gave them the game anyway. We fired up 
the laptop. We had 30 people around. I connected that to my 
Comcast back home via my Slingbox, ordered the Pay Per View, 
and we watched the fight.
    Another example that we see used quite a bit is hundreds if 
not thousands of our servicemen and women are using the product 
actually in Iraq where they put the Slingbox in their family's 
home here in the States and they are able to watch their 
television programming when they are over there. That has been 
really fun. We have been doing some pretty cool things with 
some of the troops' mother groups in the Bay area.
    In addition to that, you as Congressmen and women, I think 
the Slingbox is something that would be great for you guys as 
well. In fact, you could stay connected to your district office 
back home. You could put a Slingbox there and you could be 
watching your local news every single day.
    Now last but not least, I know I am just about out of time 
here, the thing that is kind of really interesting is we found 
all sorts of interesting new applications that we had never 
thought of. There was an article in CNet yesterday. It was a 
video article where they gave an example of the CBS local 
affiliate in the Bay area who is actually using Slingboxes 
around the Bay area on ferries, by the Golden Gate Bridge. They 
are plugging cameras into the Slingbox and it created basically 
an ability to have traffic cameras scattered around the Bay 
area at a fraction of the cost of what it cost them before. So 
we are seeing all sorts of interesting applications.
    I would conclude here just by saying as Mr. Munoz from CBS 
had pointed out, the Slingbox is one of these technologies that 
turns local to global. And thank heaven for the notions of fair 
use and for allowing us to basically create this company in the 
beginning and innovate without asking for a whole bunch of 
permission. Thank you very much.
    [The prepared statement of Mr. Krikorian appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Krikorian, very much. And just 
for the Members, there is a roll call on the House floor at 
this time. We cannot, however, use the Slingbox yet to vote 
over in the House floor and be here simultaneously, so we will 
try to make a determination as to what our exact status is over 
there.
    Our next witness is a Hollywood legend, a real creative 
genius, the creator and executive producer of ``Everybody Loves 
Raymond''. He is testifying on behalf of the Writers Guild of 
America and the Screen Actors Guild, Phil Rosenthal. It is an 
honor to have you here today. Whenever you feel comfortable, 
please begin.

 STATEMENT OF PHILIP ROSENTHAL, WRITERS GUILD OF AMERICA WEST 
          AND THE SCREEN ACTORS GUILD, LOS ANGELES, CA

    Mr. Rosenthal. Thank you. Good morning, Chairman Markey and 
members of the subcommittee. Thank you for the opportunity to 
appear today. My name is Philip Rosenthal. I am a writer and an 
actor in the television industry. I did create and was 
executive producer of the comedy ``Everybody Loves Raymond,'' 
which ran on CBS for 9 years. I am here today on behalf of the 
Writers Guild of America, West, that is the Guild that 
represents Hollywood's screen and television writers, and the 
Screen Actors Guild which represents Hollywood's performers. I 
am a member of both guilds and the Directors Guild of America. 
At home I have no say whatsoever.
    My brief testimony discusses our concerns about three 
issues: fair compensation for new platform content; independent 
production; and product integration. But for time's sake today, 
I will just limit my remarks to product integration.
    Now we are all accustomed to seeing an actor in a movie or 
a TV show hold a beverage with its label clear for the entire 
world to see. This is commonly referred to as product 
placement. On an artistic level I am not crazy about this, but 
the story flows regardless of whether the drink is a Pepsi or a 
Yoo-hoo or an unmarked can.
    The new policy now hoisted upon the creative community by 
production companies and studios is product integration. This 
is the practice of not only placing the product in a scene but 
making the product a part of the story line and the character 
is required to talk about the product as well. The studios and 
production companies claim that no one is watching commercials 
anymore because of the DVR. So they have decided to just turn 
the shows that sell into commercials.
    In 2006, product integration occurred more than 4,000 times 
on network prime time television. A recent episode of Desperate 
Housewives, for instance, featured characters discussing the 
cool features of a Nissan Xterra. On Smallville, contact lenses 
helped one crime fighter with her duties, prompting another 
character to say, ``Acuvue to the rescue.'' Oreo cookies were a 
major part of the plot in two separate episodes of the family 
drama Seventh Heaven. We have a clip.
    That is a beautiful story, yes? Maybe if the writers and 
actors were not so worried about covering that engagement ring 
in creamy filling they could have taken a look at the line: 
``Will you marry me on our wedding day?'' surely a nominee for 
``Most Terrible Anything.''
    In addition, reality television programs are chock full of 
integrated props. The poor contestants on American Idol must 
make Ford commercials every week which are then presented on 
the show as hip videos. And the judges cannot say anything 
about it because their mouths are full of Coca-Cola.
    If we are concerned about the effect commercials identified 
as commercials have on our children, how much more insidious is 
this new practice? This is a level of corporate pressure that 
impinges upon free expression over the airwaves and the long-
established protection of viewers against stealth advertising.
    As writers, we believe our creative rights are affected 
when we are told we must incorporate a commercial product into 
the story lines we have written. Actors are subjected to forced 
endorsement when their character must extol the virtues of a 
product within a television program, a practice that can 
seriously impact an actor's ability to get endorsement and 
commercial deals.
    For the public, product integration exploits the emotional 
connection viewers have with shows and their characters in 
order to sell merchandise. It also raises the serious issue of 
adequate disclosure. We believe that writers and actors as 
creators of television should have the opportunity to refuse 
integrations if they believe it will harm the integrity of the 
program.
    To protect viewers, we support disclosure that both 
adequately reveals product integration, is legible, and held on 
the screen long enough for viewers to read. Maybe at the 
beginning of such shows it could say, ``This program contains 
references to `Reynolds Wrap.' The network has been paid for 
this inclusion. The writers and actors have not.'' Maybe this 
would end the problem.
    But right now, individual writers and actors are nearly 
powerless against the companies who require them to perform 
these commercial services and consumers are often 
unsuspectingly deceived in the process.
    The problem of product integration is exacerbated by the 
fact that 20 years ago there were 29 dominant entertainment 
firms and today there are six. Our kids are watching. We are 
watching. Would we have wanted our memories of Casablanca to be 
Bogart saying to Ingrid Bergman as they said goodbye, ``You're 
part of his life, the thing that keeps him going. Now get on 
that plane and enjoy United's non-stop three-class service to 
Paris with seats that recline to a full 180 degrees.''
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Rosenthal appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Rosenthal, very much. Our next 
witness, Gina Lombardi, is the president of MediaFLO USA, which 
is a division of QUALCOMM. This is a world-class innovative 
company which is bringing video to wireless. We welcome you, 
Ms. Lombardi. Whenever you feel comfortable, please begin.

STATEMENT OF GINA LOMBARDI, PRESIDENT, MEDIAFLO, USA, INC., SAN 
                           DIEGO, CA

    Ms. Lombardi. Thank you. Good morning, Chairman Markey, 
Ranking Member Upton, members of the subcommittee. I am Gina 
Lombardi, and I am the president of MediaFLO USA. We are a 
wholly-owned subsidiary of QUALCOMM, Incorporated, which is a 
technology-innovative company.
    And I want to start by thanking members of the subcommittee 
for the DTV hard transition date. February 17, 2009 is quite an 
important date for us. We have acquired spectrum UHF Channel 55 
nationwide, and we are building a multi-cast network to bring 
live television to the mobile phone. So the DTV transition date 
has been very important to us as many more markets will be 
available to consumers to experience our service as that date 
rolls around.
    We are currently launched in 27 markets across the country 
with our launch partner, Verizon Wireless. The service is 
called VCAST Mobile TV. We will be launching with AT&T this 
fall providing that same type of service to consumers.
    So the way our service works is we have come up with the 
technology that is unique to the cell phone. QUALCOMM is a 
company who has prided themselves in coming up with mobile 
technologies and how to bring more and more value to the 
consumer. So in creating this technology, there were several 
attributes we wanted to focus on. Mobility from the ground up. 
We wanted to make sure that consumers had the same TV 
experience they have in their homes. We wanted fast channel-
switching time so they could feel like they were holding their 
remote control in their hand. And we wanted to make sure the 
battery life of the device was equivalent to talk time. So 
there are two devices in the marketplace today. One by LG that 
has a swivel phone. Another one by Samsung, much smaller, and 
has a cute little TV-type antenna.
    So to enable this, we thought the easiest thing for a 
consumer would be to have a button on the phone, a TV button. 
The consumer hits that TV button and very quickly will be able 
to access the many different channels that are available. And 
what we have done is we have launched with Verizon on March 1 
in 27 markets with brand-name content providers. So our 
partners from a content point of view are ESPN, CBS, FOX, the 
VIACOM properties, as well as NBC. And so we have eight 
different channels available today for consumers from live 
sports with ESPN and CBS and FOX, as well as live news with NBC 
who has combined a NBC/CNBC/MSNBC news channel along with the 
Today Show.
    And so many of the shows are simulcast live. And what the 
content providers have done is created unique content made for 
mobile offering. We only have 6 MHz on UHF channel 55, so we 
are limited on how many actual channels and services we can 
have. We have got eight. We can go up to 20 video channels and 
10 audio channels.
    So what I thought I would do is share with the subcommittee 
a video that kind of puts this all in perspective on what we 
are actually doing.
    To give you some additional perspective, QUALCOMM and 
MediaFLO USA is spending over $800 million to bring this type 
of service to consumers and we plan to add more and more 
carriers and content providers as well as consumers to the 
service.
    So thank you very much for the opportunity.
    [The prepared statement of Ms. Lombardi appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Ms. Lombardi, very much. Our next 
witness is Benjamin Pyne. He is here representing the Disney 
Company and ESPN Networks, which is a major content creator and 
embracing new media strategies. And we are very glad to have 
you here with us, Mr. Pyne. Whenever you are ready, please 
begin.

    STATEMENT OF BENJAMIN PYNE, PRESIDENT, DISNEY AND ESPN 
     NETWORKS, AFFILIATE SALES AND MARKETING, NEW YORK, NY

    Mr. Pyne. Thank you, Congressman Markey and Congressman 
Upton and other members of the subcommittee this morning. My 
name is Ben Pyne, and I am president of Disney and ESPN 
Networks Affiliate Sales and Marketing. I appreciate the 
invitation to talk with you today about the future of video.
    At Disney, we recognize that technology has empowered the 
consumer more than ever before, and we create and use 
technology to create and deliver quality content. Consumers 
today want to access content from Disney, ABC, and ESPN in so 
many different ways and we have made responding to that demand 
in new and innovative ways one of the highest priorities in our 
company.
    Now and in the future, getting the balance right between 
convenience and pricing is a challenge facing all of us who 
create and distribute content. Adding to that challenge is the 
problem of piracy. While there is no one answer to the 
challenge of piracy, we believe the best place to start is to 
bring content to market on a well-timed and well-priced basis.
    We are now firmly in the ``Consumer Era,'' where consumers 
want their content to be available anytime, anywhere, on 
devices ranging from TVs to cell phones. Disney led all video 
producers in moving this ``on demand'' digital era from theory 
to reality with our groundbreaking agreement to make television 
content available for video downloading from iTunes 18 months 
ago. That deal allowed consumers not only to download their 
favorite shows but also to make them portable between shared 
devices on a single iTunes account.
    Today, the variety of Disney video content available on 
iTunes continues to expand: movies, TV shows, sports and news. 
Over 20 million episodes of our series have been downloaded on 
iTunes, including many of our most popular shows. Everything 
from ABC's Grey's Anatomy to Lost to Disney Channel's Hannah 
Montana and High School Musical and to ABC News. Here is a 
screen shot from iTunes to give you a sample of some of the 
content available. And also from ESPN.
    On the movie studio side, last year Disney was the first 
movie studio to announce a deal with Apple to enable 
downloading a full-length feature film through iTunes, 
including copies to multiple PCs and portability using iPod 
devices. We have also reached separate digital distribution 
deals with Wal-Mart, Movielink, and CinemaNow here in the 
United States.
    Disney's next innovation was its Emmy award-winning full 
episode broadband player. We have made our most popular 
content, including much of ABC's prime time schedule and 
original programming from the Disney Channel and ABC Family, 
available on the Internet in high quality video streaming 
format. Right now a consumer can go to the Internet to ABC.com 
and watch individual episodes of ABC or Disney Channel programs 
if they want to for free. This is an effort to continue the 
evolution we started with iTunes but is different in a number 
of ways. Specifically, unlike iTunes, content on ABC.com is 
free to viewers but it also includes limited commercial breaks. 
Since the fall of 2006, the ABC.com media player alone has 
served over 87 million episode requests.
    Notably, in support of our local broadcasters, we work with 
our ABC affiliates to design a version of the media player for 
ABC content in which both the network and the affiliate are 
able to participate. Affiliates can brand the player with their 
station's channel number and call letters including local 
advertising and provide links to local news and information 
that broadcasters provide their communities. Here are a few 
screen shots of the ABC broadband player that show the variety 
of programming, the advertising experience, and how the media 
player is accessible from our local stations' Web sites. Here 
is the player. Some pause functionality. And then how you get 
in from your local broadcaster's Web site.
    And finally, just this January Disney announced its latest 
Internet innovation, this time in the Web space, Disney XD. 
Disney XD is broadband entertainment taken to the next level: 
Disney-style content with safety in mind. It is a customizable 
experience with Disney games, music, trivia, and high quality 
engaging videos including kids' favorite Disney Channel shows 
plus movie clips and previews. I think one more slide. There 
you go.
    Video on Demand is yet another way we make Disney, ESPN, 
and ABC content available for viewers to watch whenever they 
want. Just this week we announced an agreement with Cox 
Communications to allow Cox customers to watch our most popular 
ABC television content, including Grey's Anatomy and Lost, on 
demand. Similarly, we are discussing opportunities with our 
local affiliates to help monetize this.
    Disney has moved aggressively to ensure that our content 
travels with our viewers, wherever they are, including on their 
cell phones and mobile devices. ABC News Now is available to 4 
million subscribers. ESPN is also available through MediaFLO 
with Verizon.
    Finally, Disney consistently has been a leader in high 
definition television. ABC was the first network to produce its 
morning news show, Good Morning America in HD. Now virtually 
the entire ABC prime time schedule is broadcast in high 
definition.
    With the launch of ESPN HD and ESPN2 HD, between the two of 
them ESPN will provide 9,000 hours of original HD content. And 
in early 2008, we will add to that with ESPN News HD, Disney 
Channel, ToonDisney HD, and ABC Family HD.
    Disney is also a leading supporter of high definition 
content on next-generation high definition packaged media. We 
have already announced more than 50 titles for release on Blu-
ray Disc, which we believe will further drive HD adoption.
    Finally, at Disney we will continue to work to be the first 
choice for digital and interactive entertainment and 
information in the most convenient and timely ways possible.
    Thank you again for inviting me to testify today.
    [The prepared statement of Mr. Pyne appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you very much, Mr. Pyne. Our next 
witness, Tom Rogers, is the president and chief executive 
officer of TiVo Incorporated. Mr. Rogers and his company are 
revolutionary. I know it has revolutionized my life, TiVo. 
These west coast basketball games, Mr. Cuban, I have to TiVo. 
At a certain point you get into a negotiation with your wife 
around 11:30, 11:45. And I have lost every one of them so far. 
But I gamble with the pickup, because of TiVo, the rest of the 
action at some future point in my life.
    But Mr. Rogers is an alumnus of this committee. He was the 
chief counsel of the Telecommunications Subcommittee long ago 
and far away in another life. He was a visionary then in terms 
of the changes that he felt had to be made in American law in 
order to open up this innovation which we have seen today. We 
welcome you back, Tom. Whenever you are ready, please begin.

   STATEMENT OF THOMAS S. ROGERS, PRESIDENT, CHIEF EXECUTIVE 
                OFFICER, TIVO, INC., ALVISO, CA

    Mr. Rogers. Thank you, Mr. Chairman. I have to say I am 
exceedingly uncomfortable sitting here. You have no idea. I 
feel like I should be up there passing you notes. And being 
down here just does not seem quite right. I do feel like this 
is my alma mater. I am not quite sure if it is like being a 
cheering love returning for a football game or a former student 
returning for disciplinary action. But in any case, I am very 
pleased to be here. Actually, in deference to you and Mr. Cuban 
I should have said returning for a basketball game. Excuse me.
    Mr. Markey. I was going to ask you to tell the truth, the 
whole truth, and nothing but the truth.
    Mr. Rogers. I had to do that as a staffer and I will 
continue to do so. Thank you. I guess going back 25 years ago--
and to be truthful and honest I was counsel to this 
subcommittee from 1981 to 1986, so I can actually speak in 
terms of 25 years ago of what the subcommittee was looking at. 
We were asking the same question. What is the future of 
television and how can this subcommittee guide it?
    I have to say, I think this subcommittee has had an 
unbelievably strong legacy in guiding the future of television. 
I go back to the 1984 Cable Act, which I had some hand in. And 
that certainly helped to very much encourage the number of 
cable channels that developed over the course of the 1980s. The 
1996 Telecom Act, of course, has had a major impact on the 
growth of the Internet.
    And along the way, the subcommittee has always had a clear 
view of not letting incumbents choke off competition. And I 
think back to distant broadcast signals being carried by cable 
and how the subcommittee avoided competition by cable broadcast 
being choked off by ensuring access to those broadcast signals. 
The issue came up again with satellite and cable and making 
sure that direct broadcast satellite had access to cable 
channels. More recently, the issue of requiring cable to open 
up consumer access to cable set-top boxes. And I will return to 
that point in a minute.
    But the last 25 years both in terms of TV policy and the 
business arena, in terms of both, it has been all about getting 
viewers more choices. And now we are going from an era of 
consumer choice to an era of consumer control, where the 
consumers' decision of what they see, when they see it, where 
they see it, how they see it, that is all decisions now that 
the consumer can make about how they take television into their 
lives.
    TiVo has been a pioneer in terms of leading the way with 
this. Many other innovators are contributing to this. Sling is 
a perfect example. We made it much easier for people to find 
and record any show. A number of innovations since the initial 
development, such as you are out to dinner, a friend mentions 
to you a great show and you say I wish I had recorded that, you 
can pull out your cell phone now, type in a code, talk to your 
TiVo from dinner and make sure it records it at home. Or you 
are late at work at the office and you can do the same thing 
over the Internet. And many other innovations which I will not 
go into now.
    But I think for purposes of this subcommittee, maybe our 
most important innovation goes to an issue that you have been 
grappling with even before my time, which is kids' television 
and all aspects of kids' television: quality kids' television; 
violence on kids' television; how to keep inappropriate content 
out of the view of kids. And this has been a really, really 
tough issue in terms of the Government's ability to solve. How 
do you get all the great kids' TV that is actually out there, 
Disney being a perfect example of somebody that provides it. 
How do you get all that great television that is actually out 
there and make sure when the child turns on the television set 
that--those TV shows are actually the ones sitting there in 
front of the set and at the same time how do you block all the 
bad stuff from coming in? It is a double order. And if the 
future of TV in this country, in my opinion, having toiled 
heavily in these issues going back to my subcommittee days--if 
that future is going to be bright one this issue has to be 
solved. And we believe that TiVo may have solved it.
    Congressman Upton last year actually took the lead in 
helping us announce this new feature called TiVo Kids Zone. 
Supporters include Senators Clinton and Obama. We also have 
support from the National Evangelicals Association, the YWCA 
and the NEA. And you say how do you put together a group like 
that? And I guess my answer is we came up with a private sector 
technology-based non-regulatory approach to solving the kids' 
TV issue.
    And we recognize there are limits as to just how far the 
Government can go in solving any problem, and that is why we 
felt we had to take it upon ourselves to help try to solve it. 
And what we did is we created a really easy way for parents to 
create the ideal kids' world in the household. The V-chip has 
gone unused and all this great television programming that you 
have helped encourage be out there for kids has largely gone 
unseen. So how did we do that?
    Well, we allow various groups, Parents Television Council, 
Common Sense Media are two groups I know the subcommittee is 
well aware of--on a daily basis try to give parents guidance on 
what are the best shows to watch. And we let them create menus, 
maybe 30 shows a week, that are delivered automatically to the 
television set and nothing else gets through unless the parent 
wants something else to get through.
    So we have created this way of an ease for a parent. You 
have got to let the kids use the remote control. You cannot 
deny them that. And anything the parent wants is behind a wall 
that the children cannot see. And it is a free service as part 
of the TiVo service. One great innovation that we think has a 
lot to do with making the video future bright.
    Let me just close by going back to the CableCARD issue. 
Because if a company like TiVo as an independent consumer 
electronics company is going to continue to flourish, companies 
like us need to continue to have access to the digital signals 
that are being provided. And CableCARDs in that respect are 
key. Our new boxes are going to be CableCARD based. And 
CableCARDs, of course, are the regulatory response to the 
policy this subcommittee created in terms of opening up set-top 
box competition.
    But a potential problem has emerged. And that is that 
CableCARDs could be rendered useless. And why could they be 
rendered useless? Because cable companies are beginning to send 
their signals with a new technology called switched digital 
that the CableCARDs cannot read. And that creates a real 
problem. It creates a potential black eye for the FCC, for this 
subcommittee, for NCTA, for TiVo, for other consumer 
electronics companies.
    And I will close by simply saying there is good news. We 
pointed out this problem to the cable industry and to their 
great credit they said we want to work this out. We want to 
work this through. Consumers should be able to get this kind of 
expectation, the CableCARDs and new technologies like this will 
work. And we are hopeful it will be solved. And Mr. Chairman, I 
well remember how mad I got when people went over their 
allotted times, so I profusely apologize.
    [The prepared statement of Mr. Rogers appears at the 
conclusion of the hearing.]
    Mr. Markey. He got the former staffer courtesy testimony 
extra minute and 54 seconds. And we thank you, Mr. Rogers.
    Our final witness is an innovator and an entrepreneur who 
has put his stamp on the Internet and its history. He is a 
historic figure. He stands with Jerry Yang at Yahoo! and Jeff 
Bezos at Amazon and Sergey Brin and Larry Page at Google as 
someone who has revolutionized the relationship between not 
only the American people but the people of the world and this 
technology. We really are so glad that you are able to come 
here today.
    YouTube has revolutionized the complimentary video media, 
empowered consumers. Chad Hurley is the chief executive officer 
and co-founder of YouTube. We welcome you here today, Mr. 
Hurley. Whenever you are ready, please begin.

STATEMENT OF CHAD HURLEY, CHIEF EXECUTIVE OFFICER, YOUTUBE, SAN 
                           BRUNO, CA

    Mr. Hurley. Chairman Markey and members of the committee, 
it is a great pleasure to be with you this morning. My name is 
Chad Hurley, and I am the CEO and co-founder of YouTube. This 
is my first appearance before a congressional committee and 
hopefully I will not mess this up. Because if I do, it could 
end up on YouTube. I thought we would open with a YouTube video 
that you in particular would enjoy.
    So today I am here specifically to talk about three of 
YouTube's goals: promoting community, advancing democracy, and 
driving economic growth.
    Let me start with a few facts about YouTube. YouTube is the 
world's leading online video community. YouTube allows people 
to watch, discover and share originally created videos. We 
started the company after realizing there is no easy way to 
share homemade videos with our friends. Two years later things 
have changed. Every day people upload hundreds of thousands of 
videos to YouTube and watch hundreds of millions of videos on 
the platform.
    The way YouTube works is simple. An individual creates a 
video, then posts it to our site. The community of viewers then 
decide what rises to the top. They connect and engage around 
videos that inspire, teach and entertain them. Videos that are 
less compelling to the masses, for an example a video about how 
to make omelets in a Ziploc bag, still will find an audience on 
our site.
    Videos that include unauthorized copyrights are removed as 
soon as we are made aware by the rights holder. And those that 
violate our community guidelines come down minutes after users 
flag them. And as a father of two, that last part is 
particularly important to me.
    YouTube is helping a wide range of video producers reach a 
new audience in a changing marketplace. For example, we 
currently have more than 1,000 partnerships with organizations 
ranging from the NBA to 10 Downing Street.
    Now let me turn to our goal of promoting community. Content 
creators such as entertainers, educators, authors, medical 
students and U.S. military are building audiences on YouTube. 
You can even learn how to remove a tree from your sewer drain 
by tuning in to ``Ask the Builder.''
    Then there are stories like that of Leigh Buckley, a mother 
of two from Derry, NH, who discovered that she was suffering 
from leukemia. A family friend made and posted a video about 
Leigh's search for a bone marrow donor on YouTube. That video 
helped draw more than 1,000 people to a registry drive. A donor 
was found and she underwent treatment. Through the power of 
video, people came together to help a complete stranger.
    Now I will turn to advancing democracy. YouTube is a new 
platform for putting democracy in action, a great forum for the 
free exchange of ideas where everyone is provided equal 
opportunity to be heard.
    Our new You Choose '08 platform creates the world's largest 
town hall. 17 presidential candidates are currently on YouTube, 
and they have combined to post over 500 videos, and they have 
been viewed millions of times.
    We believe that YouTube provides another way to promote the 
values of freedom and liberty, to strengthen democracies and to 
let citizens from other countries give an authentic voice to 
their most urgent needs and common dreams.
    Turning to economic growth, many examples arise. Owners of 
small businesses, such as real estate agents and music 
teachers, have a much less expensive way of finding new 
customers on YouTube. Musicians are selling their own CDs and 
in some cases signing with record labels, as Terra Naomi did 
with Island Records.
    YouTube would never have launched had it not been for this 
country's commitment to an open Internet. We share with many 
the belief that access to the Internet must be open to all 
users and services on fair and equal terms.
    So where is online video headed next? If I had to identify 
a few trends to watch for in the future I would point to the 
following. First, originally created video content will 
continue to establish itself as a new form of communication. 
Second, a critical mass of content will continue to be built 
from small communities online. Third, YouTube will increasingly 
empower users to take control of how they create and consume 
media.
    Finally, as more and more countries utilize YouTube, 
citizens from around the world will have the opportunity to 
communicate across borders. Even when nations disagree, video 
brings a human element to our dialog that enhances 
understanding.
    Mr. Chairman and members of the committee, thank you for 
letting me appear here today. And I look forward to answering 
your questions.
    [The prepared statement of Mr. Hurley appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Hurley, very much. The Chair 
will now recognize myself for a round of questions. And my 
first question will go to you, Mr. Rosenthal. Do you think the 
television industry should be permitted to use programming--not 
advertising but programming--in order to sell Oreos or other 
unhealthy products knowing that it is targeting a child 
audience and knowing that we have a childhood obesity epidemic 
in the United States? Do you think that the industry should be 
allowed to do that?
    Mr. Rosenthal. There would be a conscience that would self-
regulate it. But in lieu of that there might have to be some 
kind of restrictions placed in the same way that you cannot 
sell alcohol on television or cigarettes anymore on television. 
This is a major health issue and maybe it should be looked at.
    Mr. Markey. OK. And thank you, Mr. Rosenthal. Do you think 
it is harmful for movie producers to include the use of tobacco 
products in their movies knowing that they cannot advertise on 
television and knowing that in certain G and PG movies that the 
kids are going to be looking up at this huge screen seeing the 
actor or the actress smoking cigarettes? Do you think that that 
is an appropriate thing for movies that are specifically 
targeted at the G and the PG audience?
    Mr. Rosenthal. I think the ratings should dictate whether 
or not this is to be allowed. I think that is a very good 
point.
    Mr. Markey. I thank you, Mr. Rosenthal. My next question 
goes to the panel. And that is a question that refers back to 
our first hearing this year where Sir Tim Berners-Lee, who is 
the creator of the World Wide Web, was our first witness this 
year. And here is what he told the committee. He said that if 
the Internet had not been open, and he likened the Internet to 
a white piece of paper, that he would not have been able to 
create the World Wide Web because someone would have told him 
no, that his idea was not acceptable.
    Mr. Cuban, Mr. Rogers, Mr. Krikorian, Mr. Hurley, do you 
agree with that assessment? And please give us an example, if 
you have any, of how openness actually helps in the creative 
process to revolutionize the Internet on an ongoing basis. Mr. 
Hurley?
    Mr. Hurley. Yes. I mean, you can take our own site as a 
perfect example. It did not exist over 2 years ago. Because of 
an open Internet we were able to look at problems that we were 
personally faced with and that was how to deal with video 
online, how to make that easy. And we were trying to address 
those needs. And we were able to develop a service that was 
able to compete with other competitors in the market. And 
because of that we have been able to provide a service that has 
been helpful for people and have been able to spur innovation 
in the video market online.
    Mr. Markey. Mr. Krikorian?
    Mr. Krikorian. I will just give you just our example. First 
off, we clearly have enough large industry folks who would 
rather see us go away, so we had some challenges there from the 
start. But just quite simply, we got laughed at a lot of 
different capital firms for just talking about building a 
hardware product with a U.S. based company--questions about 
copyright and so forth. If we had another going on there in the 
business plan which would set--the first thing we need to 
accomplish is get approval from AT&T or something like that to 
do this, I mean, we would have been kicked in the pants on the 
floor. I mean, there is just no way that any of these new 
technologies would make it.
    It is not to say anything bad about AT&T. It is just the 
fact of the matter is that things are being created every day 
that none of us ever even thought about before. And without 
having that open flexibility there is just no way in heck this 
stuff could ever come to life.
    Mr. Markey. Mr. Cuban?
    Mr. Cuban. I guess I am always the contrary. Before the 
Internet there was CompuServe. There was The Source. There were 
a variety of companies that offered services that were host-
based computers that offered content but none of them were 
graphically driven--and offered hyperlinks which Mr. Burn and 
the folks that put together Mozilla/Mosaic originally used as a 
step forward.
    So in essence, our beautiful capitalistic system is really 
what propelled us to this point. And I do not think that it can 
be constrained at this point because communications and telecom 
activity was here and will continue to be here no matter what 
happens.
    Mr. Markey. And a quick word, Mr. Rogers?
    Mr. Rogers. We look at the Internet in terms of the 
combination of your two jurisdictions. Where does the Internet 
meet television? And ultimately the Internet connected directly 
to the television set is what is going to give people the 
ability to choose what they want to see when they want to see 
it anytime.
    In addition to YouTube via broadband on the Internet, every 
movie company, every television company, every program company 
today is putting its content on the Internet. Most of it is 
only viewable on a PC. What we have started to do is make it 
viewable straight to the TV set. We look through Amazon today 
directly to your TV. You can download any number of movies to 
your television set. If the Internet is not open that promise 
of ultimate choice to the TV will totally be frustrated.
    Mr. Markey. Thank you, Mr. Rogers. My time is expired. The 
Chair recognizes the ranking member of the subcommittee, the 
gentleman from Michigan, Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman. I appreciated too the 
testimony of all of you. And I have got a couple questions 
before these long series of votes here this morning.
    Mr. Markey. If the gentleman would yield just briefly. What 
we have is, for the Members, a 15-minute vote followed by two 
5-minute votes. Then there will be 10 minutes of debate and a 
vote on recommital.
    The plan that the Chair is going to try to execute would be 
to continue for an additional 10 minutes to recognize Mr. Upton 
and then to recognize Ms. Eshoo, then to break so that we can 
make the 15-minute vote and then the two 5-minute votes. I will 
then immediately return to reconvene the hearing and then try 
to get in 20 minutes of additional questioning before the vote 
on recommital.
    So any members that wish to be recognized should return. I 
will try to recognize them there in that 20-minute period. The 
gentleman from Michigan is recognized.
    Mr. Upton. Thank you. Mr. Hurley, am I correct that YouTube 
proactively filters out adult content and child pornography?
    Mr. Hurley. We provide those tools to our users. We made it 
very clear to our community what it is about and not to violate 
our Terms of Use. And we have been able to provide the tools 
where they are easily able to flag content that they can 
identify as----
    Mr. Upton. And when that appears, a consumer can actually 
report in. Is that right?
    Mr. Hurley. That is correct.
    Mr. Upton. And then take it off? Now is there a reason why 
you wouldn't think about looking at filtering out copyrighted 
content as well? Can you address that at all?
    Mr. Hurley. Visually when you get a piece of video content 
you cannot tell who owns the rights, so a perfect example is 
marketing departments within studios and networks uploading 
content to our site and then the next day we receive the calls 
from the lawyers to take it down.
    Mr. Upton. Did it work?
    Mr. Hurley. Yes. We take it down when it is requested to do 
so. But it is hard for our users to make that decision. And we 
are working with thousands of media companies that are fighting 
us for officially licensed content.
    Mr. Upton. Mr. Rogers, it is a good welcome back. It is 
good to see you. And I was pleased to participate last summer. 
You talked about TiVo consumers being able to send messages 
from their cell phones as it related to taping and then viewing 
content from their homes. I wonder if TiVo devices, and maybe 
the Sling devices as well, ought to be perhaps regulated to 
ensure that they comply with existing geographic limitations, 
whether it be network non-duplication, syndicated exclusivity 
or something that Mr. Markey and I care deeply about, that is 
sports blackouts as it relates to our Cubs and Red Sox and 
Wolverines.
    Mr. Rogers. From TiVo's point of view, those are really not 
issues for us because TiVo can only be used within the 
household. You can watch things on your television set or 
transfer something within your house to another consumer 
electronics device, but we do not provide for the ability to 
transfer things out of the household. They must be part of the 
same subnet.
    Mr. Upton. Mr. Krikorian, do you want to comment on that?
    Mr. Krikorian. We absolutely enable a consumer to watch 
their TV wherever the heck they are, so a few things there. One 
is if you look at one of the examples I gave you earlier, it 
was Saturday night and we were watching the de la Hoya fight. I 
paid $50 while I am sitting in a Kentucky hotel room. It was 
pretty good for me and pretty good for the industry I would 
say.
    If you look at the appearance perspective first off, does 
the Internet and the Slingbox bring in the question the decades 
old notion of geographic boundaries? Absolutely. And that cat 
is out of the bag. Now if we look at it from a true 
perspective, an industry perspective, think about what is 
happening. First off with the Slingbox--I have a Slingbox at my 
home. Things such as blackouts, let us say the San Francisco 
49ers are blacked out. If I am sitting here in Washington, DC--
--
    Mr. Upton. I believe that.
    Mr. Krikorian. What is that?
    Mr. Upton. Based on their record, that might be a good 
thing.
    Mr. Krikorian. Yes. Tell me about it. The Raiders are 
blacked out, thank gosh. If I am sitting here in my hotel room 
in Washington, DC and I want to watch the 49ers game, I am 
thinking back home. The blackouts are basically maintained just 
as they were intended for me as a consumer. So it sort of 
follows you. If you look at it from the local broadcaster 
perspective, when the technology first came out there was a lot 
of concerns.
    But if you stop and you really look at what we are doing, 
we are turning local into global. We are giving the consumer 
the ability to watch and control their, like, local television 
programs wherever they are. That for the local broadcasters is 
a wonderful thing. And by the way, it is actually very 
measurable with the existing Nielsen rating system.
    Now some people do not like it because it brings into 
question these boundaries that were thought about 50 years ago. 
But from a pure economic perspective, I think it is a great 
thing.
    Mr. Upton. Mr. Cuban, I wanted to finish up. Can the 
Internet currently handle the free streaming of live full 
length digital high def programming on that scale?
    Mr. Cuban. No.
    Mr. Upton. How much investment do you think that would 
take? I do not want to watch a sports game on a screen that is 
this small and look for that little ball constantly.
    Mr. Cuban. The costs are declining, but the reality is the 
amount they need to deliver is limited by that last mile. If we 
get fiber to the home--and from my perspective of everything we 
should encourage that, then not only can you get high 
definition as we know it today with ATSC standards but you will 
get ultra high definition. At some point, that will enable a 4k 
camera that will be sitting in front of Grandpa with that 
picture transmitted to a doctor somewhere around the world at 
the best hospitals and enable health care. So there is not only 
high definition applications for sports but for our welfare as 
well.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentlelady from California, Ms. Eshoo.
    Ms. Eshoo. Thank you for recognizing me, Mr. Chairman. 
First, I just want to make an observation. In Silicon Valley we 
like to talk about disruptive ideas. And we have heard some of 
them today. And the technologies that make the shifts to new 
paradigms and fundamentally change the status quo. YouTube has 
certainly had this affect on the Internet, on media and on 
politics and our culture generally. And I might say that the 
new majority party in the Congress owes something to YouTube as 
well. It helped change another shift in our country.
    What I would like you, Mr. Hurley, to just comment briefly 
on because I have another question to ask is how an open 
Internet really facilitates all of this. There are some here on 
the committee that really tend toward gate keeping and 
chokepoints. And I think what the testimony today really 
highlights and underscores is that that really is a thing of 
the past. We cannot afford to sit on old platforms and old 
ideas. So would you just comment on that, Mr. Rogers?
    Mr. Markey. Was that to Mr. Hurley or Mr. Rogers?
    Ms. Eshoo. I mean Mr. Hurley. I am sorry.
    Mr. Hurley. Yes. I believe an open Internet allows the 
ability for not only businesses to participate and be 
innovative, but it is giving consumers choice and it has 
allowed them also to participate, allowed them to look for 
media, to distribute their media through services like our own 
and a chance to decide what they want to consume, not only when 
but where they want to do that. So I feel because of that open 
Internet this is all possible.
    Ms. Eshoo. And to Mr. Rogers, I was taken with your phrase 
that we are moving from consumer choice to consumer control. 
And I did mention in my opening statement the part of the 
Telecom Act that I worked so hard on to enact, section 629. You 
only were able to spend just a few seconds on that. Would you 
elaborate, please, and maybe refresh the memory of the 
committee about that and what that means and where it is going 
now and if it is not fully realized, that section, the effect 
that it will have?
    Mr. Rogers. Well, I will try to be very brief. It is a very 
important provision of legislation to appoint some time for the 
FCC actually to construct the policies that they are supposed 
to put together from that legislation. What emerged from it was 
a way to open up set-top box competition to allow independent 
players like Barcel to be able to provide alternative ways for 
people to think about controlling their media life in their 
home. The CableCARD emerged as the way to do that. The 
CableCARD has just begun to roll out. It is a one-way 
CableCARD, meaning it was worked out by the FCC with the 
industry. It does not allow for two-way services to be read. 
The new technology that cable is using to transmit signals to 
the home, I referred to as switched digital, is a two-way 
technology that cannot be read by a one-way CableCARD. That is 
the conflict. All of the sudden this whole promise that this 
committee created is going to be frustrated to the extent an 
issue like that is allowed to continue. As I said, I am hopeful 
it will be worked out because I do not think any of us want the 
black eye that comes from a bunch of consumers who rightfully 
went out to buy consumer electronics devices dependent on these 
new CableCARDs and not have them work. So the good will of 
ourselves and the cable industry, which I said indicated a 
willingness to work this out, will hopefully take care of this 
problem for consumers. But it is obviously one this 
subcommittee needs to keep a close eye on.
    Ms. Eshoo. I think some cable operators in some parts of 
the country are doing a better job than others.
    Mr. Rogers. There is no doubt. There are some cable 
operators that comply easily with CableCARDs. There are other 
consumers that call up and they are told, what, a CableCARD? 
Jeez, to get a CableCARD we have to come out to your house and 
we have to hand deliver it to you and you have to be there when 
we say you have to be there and all kinds of things that causes 
people to jump through hoops simply to get a card that could be 
mailed to easily operate a set-top box.
    Ms. Eshoo. Thank you very much. I commend all of you on 
terrific and creative testimony today. Thank you.
    Mr. Markey. The gentlelady's time is expired. There are 3 
minutes left on the House floor for this roll call so what we 
will do is we will adjourn right now. I urge the Members to 
come back after we have the second 5-minute vote. We will 
reconvene. So to the witnesses, you have about an 18-minute 
break right now. Thank you. This hearing is recessed.
    [Recess.]
    Mr. Markey. The hearing is reconvened and the Chair 
recognizes the gentleman from Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. I will just move 
rapidly. First of all, I want to thank the panel for being 
here. And I also want to especially recognize the Disney 
representation. It just highlights something that the chairman 
and I have been working on, our kids.us, ABC.kids.us. You have 
been there on that site for many years. My 4-year-old actually 
said it is the fall site, so he thinks he is going on the 
Internet. He is in a limited way--protected. He cannot get out 
of it.
    I want to use this opportunity to thank you. I also 
encourage you to put a Disney lineup on there and an ESPN 
lineup on there. We are working with NTIA to restructure some 
of the cost, but for good corporate citizens like yourself, I 
do not think it is much to ask. And I want to encourage all of 
you to use your ability to leverage your positions to help 
explore the kids.us Web site, which is one way that you can 
really protect kids and give them that initial experience. And 
they really do think they are on the Web. They are but they 
cannot get out of it there. So I just wanted to raise that.
    Mr. Markey. I have worked together with the gentleman over 
all these years. I think it is excellent work.
    Mr. Shimkus. Thank you. The other issue that is the real 
elephant in the room of this hearing is net neutrality. And 
this is the way I tried to explain it to folks, and you can 
correct me if I am wrong. I want Mr. Cuban to talk. I have my 
notes here, but since I had to run from microphone to 
microphone I have kind of lost them.
    There are a lot of things that have been said. There is 
open Internet. There is gate keeping. There is choke points, 
fiber to the home, and I like the highway analogy. What I use 
to talk about it to constituents or people that are saying oh, 
we want to have an open access and net neutrality so innovation 
can aspire, I talk about the pipeline. And the fear is that 
someone is going to choke off innovation.
    I have always came to the premise that you really have to--
if Mr. Cuban is right and technology is going to be driven by 
digital video--I think in his opening statement he said there 
is not enough broadband. There is not enough spectrum. So the 
public policy debate that we need to hear from you is how do we 
expand more pipeline.
    Mr. Cuban. Right.
    Mr. Shimkus. And Mr. Cuban, if you could follow up on that. 
Because I am a supply guy. The more supply we have the greater 
opportunity we have. The limited supply we have you all are 
always going to be fighting over this part.
    Mr. Cuban. Thank you, sir. There is no question bandwidth 
will cure it all. I think in all these discussions we are 
recognizing that the Internet family itself is actually a 
utility. Like other utilities, whether it is transportation 
over a highway, whether it is electricity, you have to have 
enough to power the applications that the entrepreneurs, that 
the innovators in this country envisioned.
    Unfortunately right now because of what is happening here 
via the witnesses and other companies, we are consuming all the 
utility that is available. And we are arguing about the fact of 
who gets it when in reality we should be focusing on how do we 
get bandwidth to the next level so that any constraints go 
away.
    And so if we are saying where to start and how to do it, I 
cannot sit here and give you dollar figures. But I can tell you 
from an application perspective and as an entrepreneur, an 
opportunity perspective, that until we get to 1 gigabit per 
second switched to the home we are not going to really 
entertain competitive opportunities that make us a power in the 
global economy. We will find ourselves always fighting 
limitations, and that is unfortunate.
    Mr. Shimkus. Let me follow up. Do you think regulation 
limits that ability to get to that 1 gigabit?
    Mr. Cuban. I do not think regulation limits it per se. I 
think it misdirects. I think it puts a focus where it should 
not be. I think it is just the nature of where we are that 
everybody is trying to get something. I think we have got to 
just supersede that and just say what we need. And right now 
people are trying to get more bandwidth but more bandwidth is 
not enough.
    Mr. Shimkus. One thing I love about this committee is that 
technology, you guys are all proof of it, it moves faster than 
we can regulate.
    Mr. Cuban. The reality is the fact that we are here, we 
jumped the shark, to use some Hollywood terminology. It would 
move so fast that, like you said, you could not keep up with 
it, but we are keeping up with it. We are putting constraints 
of 10 minutes of video. We are happy to have Slingbox because 
there is not enough bandwidth to go around. We are happy to 
store it to our TiVos because we cannot just get it when we 
want it, how we want it, where we want it. Those are all 
responses to constrained bandwidth. If we had the gigabits at 
home who knows how long that would last--all those constraints 
go away.
    Mr. Markey. All right. The gentleman's time has expired. 
The Chair recognizes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. And I think all of us 
experience amazement with our panel and what they have done on 
the cutting edge of technology. We just need somebody to show 
us how to turn on the button, to make our lights even work. But 
Mr. Hurley, there is a difference in video on YouTube and full 
screen and broadcast quality video, but many people, especially 
you, who believe there is a future in the service you started. 
I know there are limitations on the video length and quality 
users post on YouTube. Do you see YouTube trying to get into 
longer, better quality video?
    Mr. Hurley. No, not at this time. We are offering a 
different experience than the TV. We are offering low quality 
short clips that can easily be viewed by everyone and ways for 
them to interact with that video. It is far from full length 
high quality television programming. What we do, we provide 
this chance for people to get in front of media that they would 
not have otherwise had an opportunity to do. But the cases with 
our partners, like CBS for example, providing clips on our 
site, they have probably said that it has helped increase their 
ratings by 5 to 7 percent. So we are just seeing that it is 
just an opportunity for them to enjoy basic content and provide 
them the best experience possible without being TV.
    Mr. Green. Do you have comments on Mr. Cuban's concern 
about the past view, the limitations on the current consumer 
Internet infrastructure?
    Mr. Hurley. No. We are not seeing those limitations.
    Mr. Green. Mr. Cuban, before you did HDNet--I am from 
Houston. Obviously, I am a Rockets fan. I am glad at least both 
of our teams made it to the playoffs, but we did not make it 
after the first round. I know you more as the Mavericks' owner, 
but when you mentioned in your answer just now that the utility 
of it--that the Internet is a utility--and I guess as a lawyer 
that comes from a different side.
    A utility is something that needs to be regulated, needs to 
be shared with everyone. But I go from 1996 and the Telecom 
Act. And since then it is to try and eliminate that utility and 
have lots of competitors in there with comparable service, so I 
can have a competition between my cable and satellite. So that 
is why I am glad our Bells are getting into it so we do have a 
competition and not necessarily ``a utility.''
    But you started your testimony discussing current capacity 
limitations on the Internet. I think you made a good point, 
especially regarding P2P. Do you think software applications 
can become more efficient or will the real problem be the 
capacity, the actual lines into my home?
    Mr. Cuban. The real problem is in the capacity in the 
actual lines into your home. You cannot fit more into it than 
what it has capacity for.
    Mr. Green. OK. The broadband speeds in a number of 
countries overseas dwarf the speeds that we have. And do you 
see anything that Congress should or should not do to help the 
U.S. close that gap and do we think the competition with DSL, 
cable, and wireless will force those increased speeds and solve 
our capacity problems?
    Mr. Cuban. It is hard to say. I will tell you that if we do 
not go much further than where we are, we will not be able to 
compete in the global environment. We will see an exodus of 
people who deliver content to those countries who can. And that 
is how eventually we want to be.
    Mr. Green. Because my colleague from Illinois says these 
are so much Telecom issues and not partisan issues, because I 
have a concern about that last mile and the net neutrality 
issue. My concern is how do we pay for that? If it is AT&T that 
last mile then they are going to charge me if they happen to be 
my Internet service provider instead of the folks who end up 
making money on it, whether someone else through--and I guess 
that is our bottom line. I do not want them to control your 
access or YouTube. How do we pay to get that last mile there? 
And if they are going to charge us as a utility, and I have a 
district that tends to be underserved by Internet, I want the 
monthly charge to be cheap so I can encourage our families to 
get on it.
    Mr. Cuban. I understand completely. What I would tell you 
is what we can see is all we can see. But if we start as an 
economic policy, I do not understand how you guys do all that 
you do unfortunately.
    Mr. Green. We do not either.
    Mr. Cuban. But if we start an economic policy of 1 gigabit 
to the home then you will start to see other applications that 
will pay for it. So in other words, there will be medical 
applications that insurance companies will look to pay for, 
that hospitals will look to pay for, that pharmaceutical 
companies will look--because their costs drop dramatically. 
There will be security applications that will enable us to 
better monitor our neighborhoods. There will be other 
applications that I cannot even envision.
    When we went from no PCs to PCs, we started to see 
applications. When the PCs started becoming practical, smart 
people came up with new applications we never envisioned. The 
platform for our future of this country is bandwidth.
    Mr. Markey. OK. The gentleman's time has expired. The Chair 
recognizes the gentleman from New Jersey, Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. I want to go back to 
a line of questioning, Mr. Hurley, that Mr. Upton had been 
talking about before.
    When someone posts something on YouTube that is not 
appropriate, do you have a way of just pulling it down?
    Mr. Hurley. Yes. First of all, that is not what our site is 
about and we are not experiencing those problems because we 
have been able to have effective policies. We also have 
effective technology that we provide to our users. And we 
leverage the power of millions of people on our site to police 
it.
    Mr. Ferguson. If someone does not follow the rules, they 
put something up there that is obviously offensive or 
pornographic or something inappropriate, what do you do? Do you 
have some people viewing it?
    Mr. Hurley. Our community understands that that is not what 
our site is about. They flag that piece of material. We have 
people 24/7 reviewing what is being flagged, and they are 
removed from the site within minutes.
    Mr. Ferguson. Now before, when Mr. Upton asked what about 
something that is copyrighted that is put up there you said 
that it is impossible for someone to know everything that is 
copyrighted or not copyrighted. But clearly that is probably 
technically in all cases may be true, but clearly if somebody 
puts a clip of a movie or a show from FOX or ABC or some 
copyrighted basketball game or something that is very obviously 
copyrighted, why would----
    Mr. Hurley. Well, we have a lot of partners. And in the 
case of the NBA, we do have a partnership with them. So we are 
relying on our users as like a content to correctly----
    Mr. Ferguson. What about someone who you do not have a 
partnership with?
    Mr. Hurley. Well, we provide them with industry leading 
tools to let us know and make it more easily identifiable to 
let us know.
    Mr. Ferguson. But I could get on a computer right now and 
go to YouTube and I could pull up hundreds more clips of 
copyrighted work that is very obviously copyrighted work. Why 
do you not take that stuff down?
    Mr. Hurley. Because the DMCA has a cooperation between 
content creators and----
    Mr. Ferguson. That leads me to my next question, actually. 
Mr. Cuban, I keep reading and I have heard many times in the 
press and other places that Google, who now owns YouTube, they 
are protected by the DMCA. You are obviously a successful 
business person. You are a high tech person. You have had a lot 
of experience in this regard. Is that your opinion as well?
    Mr. Cuban. No, it is not.
    Mr. Ferguson. Why?
    Mr. Cuban. No, I do not feel they are. Again, I am not 
going to try to play the lawyer here. But we had Broadcast.com 
and we were active in the initial thoughts of the DMCA. It was 
just the concept of hosting or being a service provider was so 
that Comcast or any ISP could post whatever a user wanted to 
upload and not be liable for it. And there were constraints put 
in. They were saying we generated revenue or if something was 
red flag obvious that you had to be responsible for it just for 
cases like YouTube.
    And what is happening now is that YouTube/Google has a 
choice. They can hide there behind the DMCA or be proactive, 
and I do not think they have the right to hide behind the DMCA. 
They are earning revenue. There is obviously red flag 
knowledge. Chad, all he has to do is go on to his site. I am 
sure if he searched for Comedy Central or whatever he could 
bring it down. And so I think it is just a misapplication of 
the DMCA.
    And as a content owner, the concept of takedown, it was not 
so that we had to continuously monitor the host and service 
providers every single one of them on a 24/7 basis. One of our 
most is Enron, the smartest guys in the room, and others 
goodnight, good luck. We have to monitor continuously. For some 
of our smaller movies we spent more monitoring than we made on 
the movies. And so I think it is a definite misapplication and 
they do not fall behind the DMCA.
    Mr. Ferguson. Mr. Hurley, back to you. Eric Schmidt, who is 
a CEO of your parent company, Google, recently said at an 
investor conference, this is a quotation, ``Traditional media 
argue that content has a certain intrinsic value while Google 
says, `Prove it.' Ultimately, product value is determined if 
people view it,'' Schmidt argued. ``They vote with their 
clicks. They vote where they go.'' Do you agree with him that--
or with Google that the number of clicks should determine the 
value of somebody else's property? I mean, it just seems to me 
that is a very dangerous road to go down.
     Google's search engine technologies, they have invested a 
good bit of money in developing that and something that is 
their property, if someone got access to that and just put it 
out there for free for everyone else to use would you say or 
would Eric Schmidt say that that is a violation of Google's 
intellectual property rights or would they say that is really 
just a big motion for people?
    Mr. Markey. The gentleman's time has expired. Mr. Hurley, 
you can answer the question.
    Mr. Hurley. Our site is not about copyrighted material.That 
is what it has never been about. The word YouTube is about you, 
the people.
    Mr. Ferguson. But it is. I understand that. It is a great 
product. I use it all the time.
    Mr. Markey. The gentleman's time has expired. I want to be 
able to recognize Mrs. Capps, if you can you answer, Mr. 
Hurley?
    Mr. Hurley. What we are doing, we go up and be on with DMCA 
and we have always been proactive because we want it to be 
about the community. And we put 10-minute limits on our videos. 
So it does discourage people uploading full length content of 
copyrighted material. We also take a half of each individual 
file we take down from the site so it does not make it back 
into our system. And then we strictly enforce our policy to 
keep people off of our services that violate our Terms of Use.
    Mr. Ferguson. Thank you. Mr. Chairman, just for the record, 
if somebody wants to watch a 30-minute TV program they could go 
to three different sections of Google and watch three 10-minute 
clips.
    Mr. Markey. The gentleman's time has expired. There are 10 
minutes left to go on the roll call on the floor. The 
gentlelady from California has 8 minutes to be recognized. I am 
going to leave it with her discretion as to when she leaves to 
go make the vote on the floor. We will then have two votes and 
then we will return approximately 10 minutes after the point at 
which the gentlelady completes her questions. And the 
gentlelady is recognized for 8 minutes.
    Mrs. Capps. Thank you, Mr. Chairman. This has been a 
fascinating hearing. I am kind of dreaming of a sequel hearing, 
more like a round table. These entrepreneurs, I would love to 
see them talk with each other as well as to us. It would be 
fascinating. I am going to try to do three sets of questions.
    Mr. Rosenthal, you raised some important questions about 
product integration in TV shows and the decline of independent 
producers. As you know, there are FCC regulations providing for 
children's programming during certain hours. The United Kingdom 
has also limited advertising for unhealthy foods during 
children's programming. Do you think that product placement 
during children's programming could undermine current and 
potential regulations about advertising?
    Mr. Rosenthal. Let us get back to you in writing on that.
    Mrs. Capps. All right.
    Let me try this. I was going to say anybody else, but I 
think we may be flooded. Do you believe that the rise of 
YouTube and other user-generated content mostly available on 
the Internet will counteract the trends of product placement 
and the consolidation of the media? And can new media pressure 
old media then to reform its practices?
    Mr. Rosenthal. Well, where I am coming from whether you are 
watching on TV or a big screen or a little screen or your 
computer or your phone, it is all content. And the people who 
create that content should be compensated. So that is our 
concern.
    Mrs. Capps. I understand.
    Mr. Rosenthal. Yes.
    Mrs. Capps. Well, how about the new media pressuring old 
media to reform its practices? Do you think there is any 
validity there or----
    Mr. Rosenthal. I do not know.
    Mrs. Capps. You do not know?
    Mr. Rosenthal. No.
    Mrs. Capps. Well then, Mr. Hurley, we are talking about you 
maybe. Would you comment on that question and what effect do 
you think YouTube will have on TV programming, especially with 
regard to the issues that I attempted to get out of Mr. 
Rosenthal?
    Mr. Hurley. Well, in terms of our effects on television 
programming--and like I said, I think we are a great 
promotional platform, a way for people to experience media and 
drive them to a better experience, which would be on TV. And we 
are committed to that. And we are committed to allowing 
everyone the opportunity to participate in that process where 
before they would not have had the opportunity to.
    Mrs. Capps. Do you feel that YouTube and other non-
traditional video providers would prod mainstream? Is it a push 
or a pull into increasing the diversity of its--can you make 
them be better, mainstream? And curtailing what some would see 
as perhaps excessive product placement?
    Mr. Hurley. I think so, because you are allowing more 
people to participate in the process. And you are also allowing 
talent to be discovered, to take what they are creating to the 
next level. We have had many examples on our sites, users that 
are signed not only with record labels but with major 
television networks. And this is just a new resource for people 
to expose their talents on.
    Mrs. Capps. Thank you, Mr. Hurley. And one more round, but 
I will maybe have time to go back to that, my first question, 
and open it up.
    I would like to ask you, Mr. Krikorian. The Slingbox sounds 
like a fascinating device. I can hardly imagine how it happens 
but I can only appreciate it. As you say in your testimony, it 
is a great example of American innovation. You also state that 
it is extremely important for companies creating new devices to 
know that consumers are able to attach any device they please 
to broadband networks.
    How do you see the balance between the ability of consumers 
to attach devices to the network, the potentially large demands 
on the network made by these devices, and the network 
providers' desire to maintain high quality of service for all?
    Mr. Krikorian. These products are in demand. I would 
actually call that a high class problem.
    Mrs. Capps. What do you mean by high class?
    Mr. Krikorian. It is a high class problem. I mean, what 
drives innovation? What drives investment? What drives 
broadband, newer services, higher tiers? They can charge more 
and so forth. Without innovation they commonly become stagnant. 
If you are a service provider--and let us say--on a contrary 
view, let us say you are a service provider and we are the 
business--you believe you are the business of selling gym 
memberships, so to speak, where you are going to charge 
consumers and hope to gosh they do not use the product. Well 
certainly having more and more products using the network is a 
bad thing.
    I will give you a specific case in point with the Slingbox. 
So in my local area, Comcast has one service that they charge, 
let us say it is $29 and it is for 3 megabits down and 384 
kilobits up. Now they also have a service that they call the 
Plus Pack, or something like that, that they charge another $10 
a month for and you actually get 6 meg down and 768 up.
    Now we actually get complaints from our customers who call 
us and tell us hey, I see this product called the Slingbox that 
you guys have. When I am sitting at work I realize that if I 
have higher speed I get a better quality. I am calling my local 
cable company and telling them I want to pay them that money, I 
want to pay them $10--and how often do you hear that, by the 
way? Right?
    Mrs. Capps. Exactly.
    Mr. Krikorian. And I get in an argument with the customer 
service operator because they do not even know the thing 
exists.
    Mrs. Capps. I guess that is a good definition of high 
class.
    Mr. Krikorian. That is a high class problem, I would say.
    Mrs. Capps. Now I am going to run real fast and vote so I 
am going to take a little bit more time. A lot of parents and 
many of us are concerned about advertising on kids' programs. 
We have an obesity problem. We have lots of kids being 
bombarded with--even though the show--the content might be OK, 
that the advertising of food products is anything but OK in 
terms of their healthy lifestyle. So the United Kingdom has 
limited advertising for unhealthy foods. Do you think that this 
kind of product placement during children's programs could 
undermine current and potential regulations about advertising? 
Anybody. Yes, Mr. Pyne?
    Mr. Pyne. Just a couple of points here. One is that product 
placement in children's programming is--our understanding is it 
is illegal so we do not do any at the Walt Disney Company for 
any of our services, product placement within children's 
programming. In addition, the one----
    Mrs. Capps. Well, do you think we should make it legal?
    Mr. Pyne. No.
    Mrs. Capps. OK.
    Mr. Pyne. In addition, the Walt Disney Company, as I think 
many of you know, has taken a real leadership role from Bob 
Iger, our CEO, on down to change its licensing practices to 
really take on the challenge of obesity and really revamped how 
it works.
    Mrs. Capps. Even though the advertising might run counter 
to that goal?
    Mr. Pyne. We have changed throughout the company, our 
licensing, our advertising, throughout the whole company. We 
would like to try to take a proactive step to address the issue 
that you raised.
    Mrs. Capps. OK. Mr. Rogers?
    Mr. Rogers. I will say since I was with the subcommittee 
when the issue was there were too many commercials attached to 
kids' programming and those commercials were influencing kids 
in ways that was not healthy, TiVo and DVRs have dealt with 
that because what we find is that the people who fast forward 
through ads more than anyone else are kids. They know how to do 
that. And so then you face other issues once that happens, none 
the least of which is the product placement issue you 
mentioned, although there are regulations related to product 
placement in kids' programming. But kids have gotten really 
smart about figuring out what they do not need to see or want 
to see and commercials are first on that list.
    Mrs. Capps. So you think that is taking care of the 
problem. Of course, you have to have a TiVo.
    Mr. Rogers. I will not say it is taking care of the problem 
but it does show how new technology, to your original question, 
can influence old media in a way that may have a good public 
policy impact.
    Mrs. Capps. I think I am out of time. Thank you.
    Mr. Markey. All right. The hearing is recessed for 10 
minutes.
    [Recess.]
    Mr. Markey. The hearing is reconvened. Without objection I 
would like to submit a statement from the National Association 
of Broadcasters into the record. Hearing no objection it is so 
ordered.
     Let me now turn and recognize the gentleman from Texas, 
Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. And 
welcome to the witnesses. The first observation is I know that 
my colleague from Illinois said that the elephant in the room 
is net neutrality. I do not believe that it is. It is to the 
extent that the Congressman has put it in the room. It is 
really not necessary. It is not relevant. It is not material to 
what we are discussing and the common goals that we all share.
    All of you represent a different actor or player in a 
system. And innovation will determine, as Mr. Krikorian has 
indicated, whether you are successful or not. The obligation of 
Congress is that we have a level playing field and that we 
encourage investment and such. I think Mr. Cuban has touched on 
that.
    This is a delicate balancing act for us. We are talking 
about buildout of broadband and the expense that it takes. And 
who are the individuals know that are going to do that and who 
is going to make those investments? And then now it is whether 
it is going to be backboned infrastructure or are we going to 
be talking about peer to peer? You know more about it than any 
of us up here.
    But we also still would like to apply those historical 
principles of law that have served this country so well. And I 
am talking about patents. And I am talking about copyrights. I 
am talking about trademarks. And I am talking about the 
sanctity of contract. Technology does not really change any of 
that.
    We have had individuals in court that have said it does. It 
was not that many years ago that somebody in this universe of 
the Internet and computers said we really ought to have 
temporary monopolies in this country because technology allows 
that and it will thrive if we have monopolies. That is not 
true. It was not true in that case and it is not true today.
    The other issue I know that Mr. Markey said he was going to 
have a statement submitted by the National Association of 
Broadcasters, and I think that is an important point here. In 
this whole debate, Congress's nexus--what it authorizes us to 
pass laws that truly impact what is out there for the people 
because we represent the people. And they do have use and they 
do have values. And they would like those somehow translated 
and reflected in some programming. And it is really the 
broadcasters out there. That is the only nexus is the public 
use of this spectrum by the broadcasters. And we have to, I 
think, be real sensitive as to as we proceed if we diminish 
their role and make them less competitive then what impact do 
the people have? All of that.
    Then we go into something else that you also discussed. The 
international impact of this, to allow us to continue to be 
competitive and not let other countries that maybe do not 
safeguard this business environment. I will ask Mr. Rogers. 
This is really interesting. Because we have had I guess the 
effect of what TiVo has done in essence, which I think is a 
wonderful, wonderful device. But nevertheless it impacts ad 
revenue, does it not? And so if we have these new business 
models out there that are changing basically how people do 
business, who pays for the production? Who pays for the product 
and such? So how do you all view your role in changing that 
particular landscape?
    Mr. Rogers. Well, that is a great question, Congressman. 
The first thing I would say is that the trend related to local 
over-the-air broadcasting has been one of audience erosion for 
the last 25 years as cable has emerged and Video on Demand, 
satellite channels have emerged. It has met a steady erosion of 
audience from broadcasting.
    And what TiVo has meant is for the first time there is the 
new technology which has actually caused an increase in 
broadcast viewing, which is critically important, I think, from 
a policy point of view. Today when you look at prime time 
shares, it is about 50 percent broadcast, 50 percent cable. 
When you look at replay of programming, about 70 percent of 
what gets replayed in TiVo homes is of a broadcast nature. So 
what we actually see is broadcast viewing increasing.
    That leads to another question, which is OK, the viewing 
may be increasing, but if the commercials are not necessarily 
getting seen, what is the revenue impact for the public 
licensees that you are concerned about. And there we are seeing 
some very positive things as well.
    What we have introduced is all kinds of new advertising 
inventory which allows advertisers to find ways to engage 
viewers when they might otherwise be fast forwarding through an 
ad to do something to prompt a response, to get them to go 
deeper, to get them to instead of seeing something for 30 
seconds see a 2 or 3-minute clip of some kind which may be a 
much deeper way to engage with that advertising product or 
service.
    And we are getting the kind of response from advertisers 
that suggests that makes television advertising more valuable, 
not less. So the combination of higher viewing on broadcast and 
greater opportunities to engage the viewer and create a more 
valuable advertising experience makes me quite optimistic, 
actually, that this technology is going to help broadcasting.
    Mr. Gonzalez. Mr. Rogers, I hope you are right. But it also 
leads to other things, as Mr. Rosenthal has pointed out. We are 
hoping that the marketplace and you guys will be able to figure 
it out and you all survive because we need each and every one 
of you.
    In my last 2 minutes, Mr. Cuban--and it is wonderful to see 
you here as opposed to on the floor of the Spurs' arena. I wish 
the Mavericks were in there, and I wish the Rockets had made 
it. It would be wonderful.
    In the time that is remaining, you likened or you made a 
comparison to a thousand-lane highway and how do we encourage 
the builder of that highway to make that kind of investment? 
And we say, an open Internet, net neutrality. It all sounds 
good. And we are not at that crisis state at this point. But we 
are also, by the same token, not building out as we should 
broadband applicability and the new technologies.
    If you were the one that was going to build that thousand-
lane highway and I told you well, someone can buy 85 percent of 
your lanes. You cannot do anything about it. I still want you 
to make that investment. 90 percent of your lanes. 95 percent 
of your lanes. Would you still go and make that investment? And 
those individuals that are occupying the 85, 90 percent or 
whatever it is of the lanes, you may not be able to negotiate 
anything with them. You are a businessman. Where are we in that 
debate?
    Mr. Cuban. Well, I think our problem is we are looking at 
consumer-driven applications as how we fill that family pocket 
as opposed to commercial applications. I think we have got a 
lot of issues in this country with technology. Although it may 
not be able to solve it, it could have an impact on it. I 
alluded to this one earlier: health care.
    If I was being an entrepreneur and there were 1 gigabit 
platforms, then as I mentioned earlier, I would be going to 
health care providers commercially--in other words, I would 
look at commercial applications and say if we were to enable a 
1 gigabit platform, what type of new commercial application 
could you provide, put your thinking caps on, and how would you 
be willing to contribute to paying for this? Because you can 
move the cost from physical and other types to digital. I think 
that is the unique opportunity we have to leverage.
    Mr. Gonzalez. Thank you very much. Yield back.
    Mr. Markey. The gentleman's time has expired. The gentleman 
from Nebraska, Mr. Terry.
    Mr. Terry. Thank you, Mr. Chairman. And may I suggest, Mr. 
Chairman, that for future hearings we take Mr. Rosenthal's 
testimony, download it to YouTube and e-mail that testimony to 
any of our potential witnesses so they can see the new 
standards that have been set for this subcommittee.
    Mr. Markey. Can I just augment what you said without taking 
away from your time is that Mr. Rosenthal probably is not aware 
that he is the first witness to ever be applauded by the 
Members of Congress.
    Mr. Terry. Yes.
    Mr. Markey. So that is an unprecedented moment in my 31 
years.
    Mr. Rosenthal. I am going to come here more often.
    Mr. Markey. I have never seen that. Anyway, the gentleman 
is recognized for 8 minutes.
    Mr. Terry. Thank you, Mr. Chairman. And just to follow up, 
Mr. Rosenthal, to your comment that at home we all seem to have 
our neutral setting. And I understand that. Our spouses' 
sometimes missions are to humble us and mine does a great job.
    With that, I do not think I have ever felt as inadequate 
with the panel. I mean, all of you are impressive and 
successful. And I am a Congressman, and I am glad my wife did 
not see this because she is going to say why can't you be more 
like them. But with that, let me, Mr. Rosenthal, just throw 
something out to you.
    I have noticed the trend of embedding into scenes 
commercial products. I think one of the first ones I saw was 
maybe it was a Sprint phone where they got to download their 
music and in one of the many cop shows on they were sitting 
there talking about downloading and naming a product 
specifically. But then on the other side of that, let us not 
talk a product of Oreos or specific phones but political 
speech.
    For example, I do not watch Law and Order. I got tired of 
that entertainment and me being told as a conservative 
Republican how bad I am for supporting certain ideals. And then 
even in the speaking parts of the characters would take slaps 
at specific Republicans in Congress. Is that OK but Oreos are 
bad?
    Mr. Rosenthal. In that case you are talking about honestly 
an exchange of ideas and free speech.
    Mr. Terry. Oreos are not?
    Mr. Rosenthal. Well, you are selling a product. If you have 
Rush Limbaugh for the other side. Right?
    Mr. Terry. All right. I just wanted to lay that out, 
because I think that is an irony that needs to be discussed.
    Mr. Rosenthal. We are in America. Thank God for that we can 
do that.
    Mr. Terry. So as long as it does not involve an Oreo but it 
involves----
    Mr. Rosenthal. The moment Law and Order says that you 
should eat these Oreos, then I think it----
    Mr. Terry. OK. But as long as you vote for Hillary Clinton 
and Republicans are bad then it is OK politically?
    Mr. Rosenthal. I am actually fine with that.
    Mr. Terry. Yes. I thought you would be. So is Dick Wolf, 
and that is why I do not watch that show anymore because there 
is a lot of other good shows on that do not slap my politics 
while I am watching it.
     I appreciate that. I just wanted to lay that out there. It 
has been one of my frustrations with nighttime television is 
how political they have become, especially that show.
    Speaking of shows, I really appreciate ABC making a 
commitment to 9,000 hours of HD programming. I think as we move 
to the digital switch with our hard date in place, the 
programming has to be there in place. So I compliment you on 
that. I am going to ask you for some help on something. I have 
an HD set at home and I cannot watch my HD programming on my HD 
set because your local affiliate refuses to allow it to be 
shown. Would you help the HD roll out and tell your affiliates 
to quit hijacking their HD signal from me? Will you do that?
     It is Hearst Argyle, Omaha, Nebraska. I will give you 
their phone number.
    Mr. Pyne. We only have 10 owned stations for which we have 
retransmission consent. And all of our stations have digital 
retrans that will give the signal to all those consumers in 
those areas. ABC has 215 affiliates, Hearst being one of them, 
that could control that conversation and negotiation between 
them and your Omaha station.
    Mr. Terry. Well, we are going on almost a 1-year 
anniversary. And I think it is atrocious. And I do think you 
have a say with your affiliates. But does it not disturb ABC, 
your national company, that you are denying me something that 
you are bragging about? Or not you but your affiliate is doing 
it. Are they not hurting our relationship by doing that? Are 
they not hurting the HD rollout by doing that?
    Mr. Pyne. I mean, clearly as I think from the testimony and 
I think practice with the 9,000 hours, our goal is to get as 
broad an HD roll out of our viewership of all of our 
programming as we possibly can. But there are also local 
negotiations that take place that quite frankly our 
relationship with the affiliate is----
    Mr. Terry. So it is OK with ABC national, the corporate, 
that this is going on? That I am being denied, my constituents 
are not----
    Mr. Pyne. We do not----
    Mr. Terry. I am going to move on because I only have 2 more 
minutes. Mr. Rogers, you brought up the CableCARD and it has 
come to my attention that the CableCARD is becoming an issue 
between the consumer and the cable companies. I have been told 
by our cable company what a huge problem these CableCARDs are. 
That they do not work. They are losing a lot of time having to 
work with them. Are you aware of this problem? Is that a 
separate one than the CableCARD that enables the product to 
work?
    Mr. Rogers. No. It is the same CableCARD. And the 
CableCARDs generally do work. There are issues getting the 
CableCARDs into consumers' hands, which are really cable 
company operational issues relating to their own marketing and 
how easily they want to make it for customers to access those 
cards. And most of the friction for customers has been on 
actually getting their card in their hand from their cable 
company, the requirement that you schedule a visit from your 
cable operator to actually come and hand you the card, as 
opposed to being able to get it through the mail, easier ways 
to access it.
    The issue I was pointing to is actually an operational 
issue relating to the CableCARD where cable operators are 
moving to a technology called switched digital. And that is 
beginning to create actual issues with the CableCARDs not 
functioning, which would undermine the entire ability of 
CableCARD technology and CableCARD set-top boxes such as ours 
to work. Though as I said earlier, the cable industry has 
indicated----
    Mr. Terry. Do you think the cable company is doing this to 
eliminate your product in that the consumer can only buy their 
DVR?
    Mr. Rogers. No. The particular issue that I was referred to 
is actually one where the cable operators are going to switched 
technology to be more efficient with the use of their 
bandwidth. It just happens to be a technology that isn't able 
to work with CableCARDs and somehow that is going to end up 
being a big problem for consumers that support that.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Michigan, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. And thank you for 
putting together this panel and this hearing. It has been an 
excellent hearing. I apologize for being in and out as we were 
doing other things with food safety and gas price gouging. But 
I did catch a lot of it and read the testimony.
    So I would like to start with Mr. Hurley if I may. I 
understand that YouTube has a feature that allows users to 
designate the video they upload as private and that users can 
then share them with friends of their choosing. Right now is 
there any way for a copyright owner to search through private 
videos to determine whether any of them are unauthorized copies 
of copyrighted owners' works?
    Mr. Hurley. Yes. We provide a tool where they are able to 
easily identify content in our system. And they are industry 
leading tools that we have been working on for quite some time. 
We provide them to everyone that is working with us. And what 
we are doing is giving a choice for them to not only have the 
opportunity to remove material from the site but after----
    Mr. Stupak. But who is making the determination that--if it 
is in violation of copyright laws?
    Mr. Hurley. Well, under DMCA, they notify us that something 
is rigid.
    Mr. Stupak. Who are ``they'?
    Mr. Hurley. The media company, the rights owner.
    Mr. Stupak. If they are private, how would they access them 
on YouTube?
    Mr. Hurley. Yes. With private videos in particular, they 
are not accessible through the tools. It is a private feature 
that is limited to the user.
    Mr. Stupak. It is limited to the user but not possibly the 
owner of the copyrighted works. And they have no way of 
determining whether or not their copyrighted work was being put 
on this private videos then, right?
    Mr. Hurley. Yes. We are working on technology to make it 
more effective to those----
    Mr. Stupak. OK.
    This leads to my next question. Violating private or 
copyrighted stuff, we have got copy laws to take care of that. 
Last year we held 10 hearings on child pornography, 
exploitation of children on the Internet. What we saw was 
disgusting. We have sexual predators now taking part in peer-
to-peer sharing of videos of children, babies often being 
sexually exploited. They trade these images and now videos just 
like baseball cards. So can you or can you not monitor this?
    Mr. Hurley. Yes.
    Mr. Stupak. There is no way you can underneath your 
privates, in these so-called private videos. How would you 
monitor that?
    Mr. Hurley. Well, we made very clear in the Terms of Use we 
do not tolerate any of that content in our system.
    Mr. Stupak. Well, no one does.
    Mr. Hurley. Yes.
    Mr. Stupak. But there is literally millions of them out 
there. So how do you do that at YouTube?
    Mr. Hurley. We monitor the activity that is happening on 
the site. And we, when notified of anything inappropriate--and 
our users have done a very good job of letting us know when 
something should not belong.
    Mr. Stupak. Well, let me ask you this. In your testimony 
you said that videos that violate Community Guidelines come 
down minutes after users flag them. So what are these Community 
Guidelines? You never mention them in your testimony. Who 
determines Community Guidelines?
    Mr. Hurley. We have a very clear set of Community 
Guidelines that clearly states things such as adult content, 
violent content, hate. All of these are against our Terms of 
Use and our Community Guidelines and also make it very clear to 
our users that is what we are about.
    Mr. Stupak. So it is really up to the users to flag the 
violations?
    Mr. Hurley. Yes. We are seeing that not being an issue on 
our site. Very few of the videos that are being uploaded to our 
system are actually private. The main drive for people putting 
video on our system is to be seen and to be heard, to get 
views, to get comments and to interact with our community.
    Mr. Stupak. Sure. Do you monitor these private videos? 
Having these Community Guidelines is like the FDA on food 
safety giving the industry voluntary non-binding non-
enforceable management practices. But if no one is enforcing, 
how are they being enforced? What are the consequences?
    Mr. Hurley. Well, we enforce our Terms of Use, and we 
eliminate users that violate that. And what we are seeing is 
that it is not a problem, and we are aggressively working on 
technology to address all the issues potentially with our 
system.
    Mr. Stupak. OK. Thanks. Mr. Cuban, a number of questions, 
but first of all, I come from a very, very rural district. In 
addition to the satellite cable we have several wireless 
broadband efforts. We literally have water towers instead of 
cell towers being used to provide wireless broadband. But the 
upcoming 700 MHz auction--everyone is talking about wireless 
broadband becoming the true third pipe for Internet content. 
And you talked and you discussed about the need to upgrade the 
infrastructure of the current cable and copper-based Internet 
system to fiber to regrow the Internet into the future. So a 
couple questions. Do you think the Government has a role in 
encouraging fiber to the home?
    Mr. Cuban. Yes.
    Mr. Stupak. And including investment, to encourage that 
investment to get that last mile as we talked about?
    Mr. Cuban. Yes, I do. As much as I would like to call 
myself a Libertarian, just like building highways, just like 
putting the right of way in place for electrical wires and 
telephone wires, I think there is a place simply because from a 
competitive perspective if we find ourselves without it we will 
have problems. I am not qualified to say that we cannot get 
there on the road we are on already but it would be something 
that would be appropriate.
    Mr. Stupak. Well, let me ask you this, if I may. Is it in 
your view going to be a true competitor to fiber? Can it offer 
the same quality in bandwidth? And how do we build a wireless 
network that is forward looking that can handle videos, gaming 
and other high bandwidth applications?
    Mr. Cuban. I think it is an interim competitor but not a 
long-term competitor. It is a shared medium, which means the 
more people that use it and the more heavy the use, the slower 
everybody gets. And that has a point of diminishing returns.
    Mr. Stupak. Thank you. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. This is for Mr. Pyne. 
I have a headline from the Internet here which says, ``Walt 
Disney Sells 23.7 Million TV Shows and 2 Million Movies via 
Apple iTunes Store.''
    So my question is a little bit tied in to what Mr. Terry 
talked about when he asked Mr. Rosenthal about the product 
placement. Just give me maybe a personal opinion here. Is this 
subscriber model that I just read from this headline, how far 
is this away perhaps where you can actually see a day when 
consumers would say I am just not going to watch the TV. I am 
just going to go to my shows here, download it, and then I will 
have it.
    And advertising people say golly, we cannot even get to 
this person. Now we have got to get to them through the 
Internet. So the first question is do you think this subscriber 
model is going to replace anything in the near future and if 
so, when?
    Mr. Pyne. I do not think it will replace our current 
broadcast model, whether for ABC or for any of our cable and 
satellite networks. I think our view and what we have seen 
through all of our research is that today's audience--and 10 
years ago, 15 years ago, people would come home from whatever 
they were doing during the day, school, work, whatever, and 
they would go to the TV set.
    Mr. Stearns. Yes.
    Mr. Pyne. In today's world, given all the plethora of 
technology that has been enabled, that is out there, our 
audience just gets it in so many different ways. They still, 
whether it is at their 52-inch HD set, they still go to the TV. 
But what we have found is whether it is what we do with Apple, 
what we do with our ABC.com player, or what we are testing now 
with Cox with via free VOD, all of that we have found is 
complimentary to the broadcast. In fact, we have seen ratings 
go up. We have seen increased viewership.
    Mr. Stearns. You have heard Mr. Rosenthal. He suggested 
that product placement should be regulated. I think that is 
what we are hearing from you. Did you agree with his idea?
    Mr. Pyne. I do not agree.
    Mr. Stearns. This has probably already been covered, if you 
will bear with me here.
    Mr. Pyne. For the record, the Nissan ad that was referred 
to before we checked with our sources and in fact the actual 
dialog that was referred to did not take place. Our standards 
and practices took that out of the broadcast. In addition, we 
have no product placement in children's programming and 
following the rules any time we integrate, and this is a 
producer's decision. It is not our companies'. It is the 
producer's who is very entwined with the creative process. 
There are something called a 317, so that there are specific--
--
    Mr. Stearns. But you do not think we need to have product 
placement regulated by the Government?
    Mr. Pyne. I do not.
    Mr. Stearns. OK. And Mr. Rosenthal, is there a point, 
though, where you pick up a show and you watch maybe a man and 
woman pick up a cigarette and it is a Lucky Strike and that 
actual use of that cigarette at that moment creates the 
authority and the drama which carries full scene? And maybe it 
is not a Lucky Strike. It is a Marlboro. Or maybe it is a Coke 
or maybe it is whatever. Isn't there some creative freedom here 
that should be allowed instead of having product placement 
under Government----
    Mr. Rosenthal. I think what Mr. Markey was talking about, 
and I concur, is that we are only talking about in the--in 
terms of how it looks to kids who are watching. So he--what he 
is suggesting is that for rated G and PG movies that the 
``cool'' character is not portrayed as smoking because that is 
what the kids are responding to.
    Mr. Stearns. OK.
    Mr. Rosenthal. I just want to apologize if there was any 
misinformation in the last thing. The other thing is I do not 
think we are talking about regulating. I think we are only 
coming from, and I speak for the WGA and SAG, is disclosure.
    Mr. Stearns. I have this Treo and sometimes it is 
frustrating because there is so much information on it and I 
get fooling with it and really I am wasting a lot of time.
    And I guess the other question that goes for I guess Blake 
Krikorian and Mark Cuban. Use of the bandwidth is intensely 
used when you have streaming video. What is the best way for 
wireless carriers to manage the various funds--voice, video, 
data traffic? Because I cannot imagine if this had video it is 
even more addictive. How do you even as a consumer go about 
disciplining yourself so that you are not fooling with it?
    I see Members on the floor, and I see them on the subway, 
everywhere. They are just fooling with this thing. How do 
wireless carriers go about managing all those various forms of 
voice, video, and data traffic?
    Mr. Krikorian. First off, you get a Sling player on there 
because that will make you more educated as opposed to 
destroying your productivity. Yes. I think first off there is 
probably a couple of questions in there. No. 1, in terms of 
these applications that are going to drive or are going to 
require more and more bandwidth--again, back to my earlier 
point, I view a lot of that as a high class problem. I think 
that the way that a mobile operator should deal with it is to 
certainly not discriminate between services they are providing 
and other ones that are available on the Internet.
    But for those people who are actually using the bandwidth 
quite a bit, it is all about a pricing game. Something we just 
did in the UK, actually, with Three and Hutchison, they are the 
first mobile operators to really embrace the Slingbox. And what 
they did is they created another tier of service called the X-
Series. I cannot remember exactly what it was because it was in 
pounds. But you paid an incremental amount and you basically 
get things such as Slingbox functionality and even Skype, 
believe it or not. And they found that to have quite a bit of 
good amount of success.
    Mr. Stearns. My time is expired. Is it possible to have Mr. 
Cuban answer that question?
    Mr. Cuban. Just very quickly, kind of the mantra of the 
management is bits for bits. In the digital world, it does not 
matter what the application is. To the provider, it is all just 
digital bits. On the consumption side, though, it gets to be an 
issue because there once you start filling up the pipe other 
people suffer. And right now we are in the scenario where most 
bandwidth is being priced on an all-you-can-eat basis. And that 
might change to a revenue per bit or a cost per bit basis. And 
that will have different implications.
    Mr. Stearns. Thank you.
    Mr. Markey. The gentleman's time has expired. I do not know 
if any other members are going to return. But what I am going 
to do is I am going to ask each one of you to give us your 
summation, 1 minute that you want us to retain out of your 
visit here to the Subcommittee on Telecommunications and the 
Internet. While you are thinking about that, let me just ask 
you, Ms. Lombardi. Channel 55 all across America is going black 
on February 17, 2009. No more Channel 55. You will have 
MediaFLO on that. How long after February 17, 2009 will it take 
for you to be up and fully operational across the whole 
country?
    Ms. Lombardi. We have 27 markets today. We will be 
continuing to buildout, and by the time we get to early 2009 we 
hope to have the top 100 cities in the United States fully 
functional.
    Mr. Markey. Excellent. Thank you. And you, Mr. Pyne, you 
are an old business but without an old business model. How do 
you negotiate this relationship between your affiliates that 
are the old model and this new business strategy which you 
have? How do you negotiate that tension?
    Mr. Pyne. Carefully. We have in terms of our local 
broadcast affiliates, again we have over 210 of them. We have 
tried to work with them collectively as we delve into this new 
media. So for instance, our dot com player, our ABC.com player, 
we include them in the advertising so that they can monetize 
it. They can take advantage. And in addition, we allow them to 
co-brand their local station with the ABC brand. So the viewers 
in that community can actually access through the local Web 
site. You can see local news but that can be brought to the 
ABC.com player.
    In addition to what we just announced this week with Cox 
Communications on a VOD model that was broadband, we look 
forward to doing a similar type of thing and we have got a 
strong interest.
    Mr. Markey. Mr. Shimkus, do you have a final question?
    Mr. Shimkus. Just two follow ups.
     Ms. Lombardi, what does the free spectrum from the DTV 
transition mean for MediaFLO and for wireless video innovation 
generally?
    Ms. Lombardi. Sir, QUALCOMM is a company that continues to 
innovate and look at new wireless technologies. And the fact 
that the United States Government had spectrum available that 
we could acquire and utilize to bring consumers more choice, 
every content, like ESPN, to consumers wherever they go on 
their handset--the picture quality is fantastic. People up to 
70 years old are willing to watch the screen. And to be able to 
do that across the country is very compelling, we think, to the 
marketplace.
    Mr. Shimkus. Ms. Lombardi, could MediaFLO have gotten off 
the ground if the spectrum auction it participated in had rigid 
conditions on how the spectrum could be used?
    Ms. Lombardi. No. The rules have been very good to us, and 
we have complied with the requirements of the FCC, and that has 
enabled us to launch this service across 27 markets.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired. So we will 
turn now to the members of our witness panel. You have been 
outstanding. We thank you for that. Your one-minute summation 
to the committee is very much appreciated. Mr. Cuban, we will 
begin with you.
    Mr. Cuban. I will try to get to the one minute. First, in 
terms of the February 2009 cutoff date, I think what has not 
been anticipated is that it is going to be a retail bonanza for 
consumers. As cable competes with satellite, TV manufacturers 
try to take advantage of the conversion, we are going to see 
some of the best deals for multi-video distribution that we 
have ever seen in our lifetime, so it is going to be 
interesting.
    Two, I think there needs to be significant respect for 
copyrights because if we do not deal with it, whether it is 
YouTube, whether it is other video-hosting environments, that 
content providers are going to look to get very Draconian in 
how they protect their content and that is going to be a 
significant negative for consumers over the long haul.
    And three, in terms of bandwidth for consumers, we need to 
start thinking in terms of 1 gigabit and up, not just merely 
incremental increases, simply because the consumers benefit, 
the commercial opportunities that are created with that 
platform will propel this country in a competitive basis in all 
things we have been considering at this point.
    Mr. Markey. Thank you, Mr. Cuban. Mr. Krikorian?
    Mr. Krikorian. OK. So I think if I could leave you with one 
thing I would say that when we talk about disruption, 
disruption and invasion are very much synonymous. You hear them 
mentioned in the same breath many times. And one thing that I 
really thank you guys for giving us the opportunity to come 
here. I encourage you to keep doing that because as you really 
see things that can be viewed as disruptive end up becoming 
actually great things for the people who were threatened by it.
    And I do not need to remind you too much, but I will just a 
little bit. Remember when radio came out. People were saying no 
one was going to provide music. We all know what happened with 
the Betamax issue and where we went there. And in fact, we saw 
last year $9 billion in movie ticket sales and $24 billion in 
this little thing called DVD and VHS. There are certainly 
challenges, even TiVo brings up in terms of people skipping 
commercials. But at the same time I am confident that in fact 
what Mr. Rogers was saying that there is going to be new 
innovations there that are going to address that and perhaps 
make advertising even more successful.
    I urge you to keep the forums that you are having here 
because a lot of times--I am a big believer in copyright, as an 
example, but I am not a big believer in using copyright to 
protect business models.
    And so I think it is very important that all of us really 
understand what this technology means, what it does, and keep 
an open mind on how it can be used to the industry's advantage 
as well as the consumers' advantage. Thank you.
    Mr. Markey. Thank you. Mr. Rosenthal?
    Mr. Rosenthal. I just want to thank you for having these. I 
learned a lot today and it has been such a pleasure listening 
to these brilliant people.
    I disagree a little bit with Marsha Blackburn's statement 
that ``the medium is the message.'' I believe that the message 
is still the message. And all I would ask of these geniuses is 
that as new technology is implemented that they continue to 
respect the creators of the cup.
    Mr. Markey. Thank you, Mr. Rosenthal. Ms. Lombardi?
    Ms. Lombardi. Sir, one thing that I would like to put on 
the record, mobile TV has existed in the world for a while. In 
Korea they have had mobile TV and now Europe is rolling it out. 
What we have done here in the U.S. is leapfrog what exists in 
the marketplace today. And with the flexibility, with the DTV 
transition date, with the flexibility here in the United 
States, we are able to innovate, create a new technology, 
create a new service, and provide consumers a real value. And 
so I want you to realize that the U.S. is driving things faster 
than other countries because of your flexibility. Thank you.
    Mr. Markey. Thank you, Ms. Lombardi. Mr. Pyne?
    Mr. Pyne. Thank you. Clearly I think the technologies have 
enabled the consumer to access content in so many ways that I 
think 5 years ago were completely unthought of. And we as a 
company and content creators want to make sure that we are in 
the forefront of that and to work with, to be out funding, and 
to be proactive. Clearly creating quality content the way we do 
every day is expensive, it requires a tremendous commitment of 
resources and time. And we are committed to looking for new 
models to make all of this possible.
    Just to reiterate one point, section 317 of the 
Communications Act actually already requires disclosure of 
product placement. So just to reiterate the point before, we do 
not believe any new law is needed. Thank you.
    Mr. Markey. Thank you, Mr. Pyne. Mr. Rogers?
    Mr. Rogers. I would simply say that this subcommittee has 
always been guided by creating more competition and creating 
more consumer choice. And you do not create innovations. But 
this committee does define the future in terms of whether those 
innovations are going to succeed.
    And I must simply say as you always have done, do not allow 
incumbents to choke off new competition, new choice, be it in 
broadband or new set-tops or wherever it might emerge. This 
subcommittee has always been a great guider of innovations 
being able to emerge in that sense. And I think if you continue 
in that role the video future will be a bright one.
    Mr. Markey. Mr. Hurley?
    Mr. Hurley. Yes. I would like to say first of all thank you 
for having me here today. And secondly, that YouTube is more 
than an entertainment destination. YouTube is truly a site that 
informs, inspires and empowers people to communicate their 
messages to the world.
    We hear stories about children in Africa having the 
opportunity to go to computer centers. And they are actually 
viewing YouTube. And this is acting like a window to the world 
for them, where they have a chance to see what is happening 
beyond their borders. And we really feel in the future it is 
going to be able to really promote understanding between 
cultures.
    Another thing with what we are working on is we take 
copyright seriously. We are going to continue to work on 
technologies and work with our rights holders and partners that 
are currently working with us to create new markets to exist 
for them to promote and create new revenue services. Thank you.
    Mr. Markey. Thank you, Mr. Hurley, very much. I cannot tell 
you how much the subcommittee appreciates the incredible 
expertise that this panel represents. And I cannot tell you how 
many times I have been complimented during the breaks by the 
members. They very much appreciated your testimony and really 
feel illuminated.
    Mr. Krikorian, even going back before radio, the disruptive 
technology, when they moved from silent movies to talkies it 
put 20,000 piano players out of business who were playing in 
each theater across America as the movie was up there. It was 
probably a very tough time for piano players in America in 1928 
and 1929.
    When I arrived here 31 years ago on the Telecommunications 
Subcommittee we had one phone company that had 1.2 million 
employees. It was bigger than the next five companies in 
America combined. And we were all using a rotary dial phone 
even though they had invented touchtone phones 20 years before.
    The cable industry was in its nascent form. So was FM 
radio. There was no Internet. Cell phones were just something 
that was in the imagination of telephone companies but not of 
the inventors.
    And so this subcommittee over the years has played a role 
in breaking down these barriers--as Mr. Rogers said, moving 
over 200 MHz of spectrum in 1993 so that a third, fourth, 
fifth, and sixth cell phone company could be created; passed 
the 1996 Telecom Act, the 1992 Cable Act, all of them with the 
intention of further making it possible for technological 
innovation. And I think to a very large extent this hearing 
would not have been possible without all of those changes.
    And hopefully we will be guided by your testimony so that 
we can continue to adapt and change in a way that in another 5 
or 10 years there is a whole new panel of people who are 
sitting down here that the committee members can basically say 
wow, look at those people down there. Look how they are 
changing not only our country but the world.
    With the thanks of the subcommittee, this hearing is 
adjourned. Thank you.
    [Whereupon, at 12:55 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

                        Statement of Mark Cuban

                           Co-founder, HDNet


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

         Statement of the National Association of Broadcasters

     The National Association of Broadcasters (NAB) 
respectfully submits this statement for the record in the 
subcommittee's hearing on Digital Future of the United States: 
Part V: The Future of Video. NAB is a trade association that 
advocates on behalf of more than 8,300 free, local radio and 
television stations and also broadcast networks before 
Congress, the Federal Communications Commission and other 
Federal agencies, and the Courts.
     The future of video clearly includes free over the air 
television. The broadcast television industry has invested and 
continues to invest very significant time, effort and financial 
resources to complete the transition to digital broadcasting 
successfully, expeditiously, and in a consumer-friendly manner. 
The local television stations that today keep their 
communities--and your constituents--informed and connected 
intend to remain a vibrant part of the media landscape in the 
21st century. Innovations such as digital broadcasting will 
enhance broadcasters' competitiveness and ability to serve 
local communities and viewers in numerous ways.
     Beyond ensuring a smooth digital transition by February 
17, 2009, broadcasters must also look towards a future where 
the Internet and its myriad applications will alter profoundly 
the video marketplace. Despite rumors of their demise, however, 
local television broadcasters and national networks will also 
play an important role on new distribution platforms, including 
Internet delivery, vodcasting, and mobile video. In the coming 
years, with local programming as the backbone, broadcasters 
will effectively compete in a ``wherever, whenever'' video 
environment.

  Broadcasters Have Made Tremendous Strides Toward Completion Of The 
       Digital Television Transition, To The Benefit Of Consumers

     Broadcast stations have made remarkable progress and are 
fully committed to completing the digital television (DTV) 
transition in a timely manner--and in a manner that is as 
seamless as possible for consumers. As of May 7, 2007, 1600 
full-power television stations in 211 Designated Market Areas 
across the United States were providing programming in digital. 
Why have television broadcasters embraced DTV? In short, 
because digital technology is the future of video--it will 
enable us to better serve our local viewers and communities and 
to remain competitive in a marketplace where all communications 
services and media will be digital.
     Digital technology offers service of far higher quality--
high definition (HD) pictures, improved sound, and screen 
dimensions better suited to the human eye. This technology also 
allows broadcasters to offer additional, free programming 
streams within each television licensee's six MHz channel. 
Because digital technologies are more robust than traditional 
analog technology, stations can be packed closer together 
without causing destructive interference to the public's over 
the air service, thereby reducing the amount of spectrum needed 
for over the air television stations. At the end of the DTV 
transition, this ``left-over'' spectrum will be returned to the 
government. Some of the returned spectrum will be used for 
vital public safety needs--needs we have all become acutely 
aware of in light of the events of September 11, 2001. Some of 
the freed spectrum will be auctioned for other innovative uses 
at substantial benefit to the U.S. Treasury.
     Indeed, even though the digital transition is not yet 
completed, consumers have already benefited from it. The major 
broadcast networks provide their most popular programming, 
including prime-time programming and major sporting events, in 
HD. About 45 local stations throughout the country, including 
WUSA-TV here in Washington, broadcast their local news in HD. 
Hundreds of local stations are also using their digital 
channels to provide multiple program streams within their 
digital signal, and many more are considering doing so in the 
future. Decisionmark, a media technology and software and 
information firm, estimated in late 2006 that approximately 780 
television stations were offering multiple program streams, 
including news, weather, entertainment, sports, religious and 
ethnic-oriented programs. Even local stations in medium and 
small markets, including markets as small as Boise, Idaho, are 
providing numerous news, sports and weather services to their 
local communities over their digital signals.
     Clearly, the public--even those who view television 
through cable--would be served by access to these new program 
streams. So far, however, many broadcasters have encountered 
resistance from cable operators who have denied, delayed or 
otherwise impeded delivery of the full digital signal to cable 
consumers. Stripping out these services is contrary to the 
terms of the 1992 Cable Television Consumer Protection and 
Competition Act, and threatens the health and vitality of 
broadcast services for all viewers. Congress should accordingly 
direct the Federal Communications Commission (FCC) to prohibit 
cable and satellite operators from stripping out programming 
streams from broadcasters' digital transmissions.
     Congress, the FCC and the National Telecommunications and 
Information Administration (NTIA), as well as all sectors of 
the television industry, must also work to educate the public 
about the DTV transition. In particular, members of the public 
need to know what steps they must take to continue to have 
access to the television programming they rely upon after the 
analog television cut-off on February 17, 2009.
     NAB has formed a Digital Television Transition Team to 
spearhead the broadcast industry's efforts to provide 
information about digital transition issues. Managed by a new 
Vice President of Digital Television Transition, with a full-
time media relations director, two directors of outreach, and a 
multimillion-dollar budget, this team will coordinate a 
national public affairs and consumer education campaign with 
the goal of ensuring that no consumer is left unprepared, by 
lack of information, for the end of analog broadcasting. 
Specifically, the NAB consumer education campaign has and will 
continue to utilize both survey research and focus groups to 
identify and market to those impacted by the transition. The 
campaign's media relations director will be making sure DTV has 
a presence in local, as well as national, publications and 
programming. With the help of local affiliates, NAB will 
spearhead a national speaker's bureau aiming for thousands of 
local speaking engagements throughout the country about the 
transition. NAB will produce and distribute high-quality public 
service announcements for play on networks and local stations. 
NAB's digital transition team will also help coordinate the 
Digital Television Transition Coalition, a coalition of (to 
date) about 85 member organizations that have joined together 
to raise consumer awareness of the digital transition.\1\
---------------------------------------------------------------------------
    1 Members of this Coalition include the Association for Maximum 
Service Television, Inc.; the National Cable and Telecommunications 
Association; the Consumer Electronics Association; the Association of 
Public Television Stations; the Consumer Electronics Retailers 
Coalition; the Leadership Conference on Civil Rights; and many others.
---------------------------------------------------------------------------
     This Coalition, which intends to work closely with NTIA 
and the FCC, will launch public education efforts (including 
media placements) to convey accurate, consistent and needed 
information to the public.

 Broadcasters Continue To Explore New Distribution Platforms For News, 
                     Information and Entertainment

     Traditionally, broadcasters have relied on transmission 
through the television signal to reach local communities with 
national and local news and entertainment. That distribution 
medium will remain, and in fact thrive, in the digital future, 
as outlined above. In addition, broadcasters are actively 
embracing a future where video is consumed through multiple 
outlets, including the Internet, cell phones, portable gaming 
devices, iPods and personal digital assistants (PDAs). Each of 
these distribution channels provides broadcasters with new 
opportunities, both to extend their current business model, and 
to create new models that will take advantage of each medium's 
unique characteristics.
     Broadcasters have long used the Web to provide local news, 
both in text form and through video clips. The Web offers 
broadcasters more flexibility to provide deeper coverage of 
their local communities. Concurrent with the expansion of 
broadband penetration in the United States, broadcasters have 
accelerated Web video offerings, including longer versions of 
stories that originally appeared on their local newscasts. 
Plus, many broadcasters are providing live local news 
simulcasts through their Web sites. As the convergence of 
television and the Internet comes to fruition, broadcasters 
expect to provide a virtual bridge between the technologies, so 
that in the future, as the so-called ``I Generation'' matures, 
the local television brand will extend seamlessly across 
multiple platforms.
     Much of the attention at today's hearing focuses on ``new 
media'' initiatives in the video marketplace, and with good 
reason. The remarkable rise of YouTube, for example, 
illustrates the volatile nature of an industry that for decades 
has relied upon established, larger media companies. Today, a 
16-year-old auteur in Des Moines can film a clip of his friends 
skateboarding that could be viewed by thousands, even millions, 
of global viewers within a week. The Internet is breeding 
``video stars'' like Lonelygirl15 who have never appeared on 
television or in the movies. And with the combination of more 
powerful computing, faster broadband speeds and lowering costs 
of storage, this trend will only continue and quicken.
     In many households, appointment television has been 
replaced by recorded television with the increasing use of 
personal video recorders like the Tivo. And consumer 
expectations are shifting with the technology. For example, 
digital cable consumers can count close to 4,000 programs 
available through on demand services, most of which are free to 
cable subscribers. With Apple TV or Sling Media's SlingCatcher, 
consumers with a wireless home network can stream almost 
anything they see on the Internet directly to their television. 
In a virtual sense, the broadband Internet connection is now 
just a few inches away from the television. And when it finally 
gets plugged in, it will open an infinite channel universe 
through which consumers will merely point-and-click, rather 
than change the channel.
     But, even in the face of increased competition, 
broadcasters remain confident that the very best products and 
programming will still draw the most eyeballs. High-definition 
television is the killer application for television in the 
digital age. It may be more than a decade before the Internet 
can provide a comparable quality picture to an over the air 
signal. As the price of high-definition televisions continues 
to drop, consumers will look for the very best signal to fill 
their screens. And broadcasters will be there, providing local 
and national news, high-quality entertainment, and, when 
necessary, life-saving emergency information.
     Broadcasters are not satisfied to merely provide the best 
signal to your television, however. They are actively looking 
to extend their content to other devices, including cell 
phones, as well. In the last six months, major technology 
companies have announced two exciting standards that could help 
broadcasters reach millions of consumers when they are away 
from their home televisions. Samsung's Advanced Vestigial 
Sideband (AVS) standard, and the LG/Harris MPH In-Band Mobile 
DTV System, each enable portable devices to receive broadcaster 
signals independent of a cellular network. Local broadcasters, 
with little infrastructure investment, can use capacity in 
their digital stream to accommodate each new standard, and 
reach on-the-go consumers with real-time, high quality video 
signals. Soon consumers will be able to catch American Idol or 
The Office on their cell phones just as they can on their home 
televisions. The new technology will also work well with Mp3 
players like the iPod, PDAs, and in-vehicle television screens, 
even at speeds as fast as 80 miles per hour. While latency 
issues and low quality have impeded adoption of mobile 
television by consumers in the United States, these new 
standards foretell a revolution for broadcasters and cellular 
companies alike.
     Even in this Web 2.0 world, broadcasters will play a 
prominent role in the way consumers watch video long into the 
future. With the promise of digital television, and the advent 
of new distribution streams, broadcasters are well positioned 
to provide top quality video programming to every American, 
just as they have for the past 60 years. The National 
Association of Broadcasters, local television stations, and 
national networks look forward to working with Congress to 
ensure that free, over the air television remains an important 
part of any conversation about the future of video.
                              ----------                              


 
                THE DIGITAL FUTURE OF THE UNITED STATES

              THE FUTURE OF TELECOMMUNICATIONS COMPETITION

                              ----------                              


                        TUESDAY, OCTOBER 2, 2007

              House of Representatives,    
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:37 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Edward J. 
Markey (chairman) presiding.
    Members present: Representatives Doyle, Harman, Gonzalez, 
Inslee, Boucher, Towns, Pallone, Eshoo, Stupak, Engel, Green, 
Capps, Dingell, Upton, Stearns, Deal, Shimkus, Pickering, 
Fossella, Radanovich, Walden, Terry, and Ferguson
    Also present: Representative Blackburn.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Good morning. Today's hearing is about the 
future of telecommunications competition in the United States. 
But I also feel a certain sense of deja vu. In April, the 
subcommittee held a hearing on broadband deployment competition 
and consumer adoption in other nations, including Japan, New 
Zealand, the United Kingdom and Rwanda. That hearing took place 
the day after the United States dropped from 12th to 15th out 
of the 30 countries in the OECD broadband rankings. And mind 
you there is no excuse for the fact that America is falling 
behind. This is because the United States started out on the 
right path by implementing provisions in the 1996 
Telecommunications Act designed to jumpstart competition both 
between and among technology platforms. Gradually, however, we 
lost our way. As regulators became convinced that competition 
within a platform actually hindered overall broadband 
deployment and took market opening rules off the books, it is 
as if the FCC several years ago picked up a loose football on 
the field after a collision and started running with the ball 
full speed towards the wrong end zone.
    Our international competitors look on at what we are doing 
and must be stunned, and that is because we started this 
Internet game ranked No. 1 in the world because we invented it 
and now we are No. 15. People quibble with the methodology of 
the OECD rankings, but regardless of how you slice it, price, 
speed, percentage of subscribers, the United States is no 
longer in the top tier and we continue to drop.
    Many other nations took one look at our broadband 
situation, learned from our experience and took the opposite 
approach. Japan and the United Kingdom implemented the very 
polices that the FCC had gradually eliminated in recent years 
such as local loop unbundling and broadband resale which 
facilitate competition using the incumbents' plan regardless of 
technology.
    These foreign competitors are now enjoying broadband 
success stories. The United States, however, continues taking 
the opposite approach. We are digging ourselves a hole, and now 
we are in violation of the first law of holes, which is if you 
are in one, stop digging. Take the issue of forbearance. Some 
incumbent phone companies have asked the FCC to eliminate their 
essential network sharing arrangements under section 10 of the 
Act. One of today's witnesses, Cavalier Telephone, leases 
copper phone lines for the last mile and provides residential 
consumers with the triple play bundle of voice, 150 channels of 
cable TV, and high speed broadband for approximately $80 a 
month. But if the forbearance petitions are granted, Cavalier, 
Time Warner Telecom and other broadband competitors will lose 
access to the critical bottleneck facilities that they need.
    A related issue is special access. Special access circuits 
are the lifeblood connections for wireless carriers such as 
Sprint Wireless, and as a result wireless carriers depend on 
special access which will grow as they deploy broadband 
networks that deliver greater bandwidth but correspondingly 
require more capacity.
    The GAO found that the FCC's deregulatory pricing regime 
for special access has resulted in higher prices and little 
competitive choice for special access circuits. Because prices 
today are higher than what a truly competitive market would 
support, current and future wireless providers will expend 
funds on special access that would be better spent reducing 
prices to consumers or deploying more and better broadband 
facilities. Unless this market failure is corrected, special 
access could have a negative impact on all wireless broadband 
deployment, including deployment that facilitates 
interoperability between public safety organizations.
    But the most outrageous issue is copper retirement. In this 
sense interpret the word retirement the way Luca Brasi used to 
retire competitors to the Corleone family. Some incumbent 
telephone companies are disabling perfectly functioning copper 
loops that could be used by competitive broadband providers 
such as Cavalier after the incumbent deploys its own fiber 
facilities. Like Sherman's march to the sea these incumbents 
leave scorched earth in their wakes cementing the broadband 
duopoly between the incumbent phone company and the cable 
company.
    In the final analysis, today's hearing goes to the core of 
our nation's broadband policy. How many apertures will 
consumers have to reach the broadband Internet, one, two or 
many more? At what speed? At what price? Will municipalities be 
permitted to serve their citizens and provide the best 
broadband service they can? I have certainly battled for such 
rights. These choices are vital.
    For example, we recently saw Verizon's initial and quick 
reversal of a decision to block certain text messages on its 
service, as well as the fine print in AT&T's contract terms 
which seem to indicate it might censor messages it finds 
unpleasant.
    Network neutrality rules could safeguard consumer rights in 
such instances, but more and better broadband choices would 
help, too. And we are simply not going to reach that goal if 
regulators keep knee-capping those who would provide consumers 
such much needed broadband choice.
    I look forward to hearing from our witnesses.
     I turn to recognize the ranking member of the 
subcommittee, the gentleman from Michigan, Mr. Upton.
    Mr. Upton. Well, thank you, Mr. Chairman. I might just ask 
initially that all members be able to submit their statements 
for the record. We have a Republican conference this morning 
that runs until a little bit after 10:00.
    Mr. Markey. Without objection.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Good morning. I would like to start by welcoming 
our witnesses and particularly you for holding yet another 
hearing on the digital future of the U.S.: today's installment, 
the future of telecommunications competition.
    The trend in the telecommunications sector is towards 
deployment of advanced technologies and increased competition. 
Deregulation has successfully promoted investment, innovation 
and more competition, benefiting consumers. The growth 
statistics are impressive and further bolster the arguments for 
a deregulatory posture. VoIP subscribers grew an eye-popping 
709 percent from 1999 to 2006. The number of wireless 
subscribers grew 372 percent from 1996 to 2005. The number of 
competitive local exchange carrier lines grew 263 percent from 
1999 to 2006. And meanwhile the number of incumbent local 
exchange carrier lines dropped 5.6 percent from 1996 to 2005. 
And as the saying goes, the numbers do not lie. And even more 
telling about the strong state of competition, as of June of 
last year the number of high-speed data lines was nearly 
equally split between incumbent phone companies on one hand and 
non-incumbent cable providers on the other.
    The business market is particularly competitive for 
computer networking, Ethernet services, with no one entity 
having more than a fifth of the market. Time Warner Telecom, 
the third largest provider with 14 percent behind AT&T and 
Verizon, and the rest spread among many other entities. The 
number of consumer choices and services available has 
significantly grown as we trend away from regulation. Where 
competition is present we must continue the course away from 
regulation. As new services and technologies become available 
we must avoid the lure of government red tape.
    Another issue that will be addressed today is municipal 
broadband. Chairman Boucher and I have recently introduced H.R. 
3281, the Community Broadband Act of 2007. Our legislation 
preempts States from prohibiting municipalities from providing 
broadband, voice data or other video service. It is important 
to note that the bill requires municipalities to apply all of 
their regulations to their own broadband service without any 
preference. And before a municipality may provide broadband 
service it must seek public and industry comment on the cost 
and benefits of the proposal and any alternatives.
    While there are clearly risks associated with 
municipalities offering broadband services, it may prove to be 
a value in communities where there is no commercial provider. 
Municipalities and their citizens should have the right to 
decide for themselves whether to enter the market and should be 
allowed to succeed or fail like any other broadband provider.
    Lastly, I would like to again recommend the auctioning of 
white spaces. The market is much better than the regulators at 
determining the value of and best uses for this spectrum. There 
are likely a number of possible uses, and one that has recently 
been raised is an alternative to special access. All potential 
providers and services should be given an opportunity to 
compete for this spectrum in a fair auction. Licensing would 
also have the added benefit of protecting against any 
interference with digital TV should it arise. The recent test 
results released by the FCC demonstrate that that indeed may be 
a problem. At a minimum, additional FCC testing is needed.
    Again, I thank our witnesses for joining us today, and I 
look forward to your testimony. I yield back the balance of my 
time.
    Mr. Markey. Gentleman's time has expired. The Chair 
recognizes the gentleman from Pennsylvania, Mr. Doyle.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman. Mr. Chairman, it is 
kind of funny. Everyone downtown is worried that I might be up 
here this morning with an ax to grind. I just want to let 
everybody know that I woke up on the right side of the bed this 
morning. I had my Starbucks and I had a rather delicious bacon, 
egg and cheese sandwich on multigrain toast and I am feeling 
pretty good.
    I just want to take a step back and talk about the future 
of competition. I read an article by Art Brodsky in The 
Huffington Post about a man in the United Kingdom who built a 
spreadsheet to compare his options for broadband services. And 
some estimate that there are now over 200 ISPs in the UK. 
Across the pond there is competition on price, speed, 
installation cost, Web storage space and more.
    Mr. Chairman, have you ever been to a grocery store and you 
see a hundred different bottles of wine on the shelf fighting 
their way into your basket? That is the kind of choice this guy 
has, except wine is better than broadband in that it doesn't 
hit you with a $200 early termination fee if it is not any 
good. Give Americans the same choice for Internet providers 
that the people in England have. Isn't as catchy a slogan as 
``one if by land, two if by sea'' or ``the Redcoats are 
coming.'' But it is an important question I hope my colleagues 
on the committee have considered.
    Now I wouldn't blame the CEOs and executives on today's 
panel if they had been afraid of having to compete with 200 
Internet service providers. But we don't live in that world. 
Instead, Cavalier has to hope that Verizon isn't successful in 
killing the competition rules that will allow it to survive 
until 2008. And Sprint Nextel and T-Mobile have to hope that 
special access rates don't eat a hole in their bottom line so 
big that it will slow them down from rolling out faster 
technology.
    Now I suspect there will be much talk about Verizon 
Wireless blocking pro-choice groups sending text messages to 
its supporters, and they quickly changed their policy, a smart 
move. But I say to my friends who oppose net neutrality because 
competition will take care of any problems, we can't cut 
competition off at the knees and then expect it to save us.
    A few months ago I said the debate over special access 
should really be called critical access, that these special 
access lines are critical to broadband deployment and 
competition. These lines allow America's businesses to bring 
growth and development to far-flung areas. They allow us to 
stay connected to our data and to the world around us. These 
are not small issues with funny names. They are our link to the 
broadband future, Mr. Chairman, and we can't get this one 
wrong.
    I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Georgia, Mr. Deal.

  OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Deal. Thank you, Mr. Chairman. I want to thank our 
witnesses for joining us today. I think the future of 
telecommunication competition is certainly one of the more 
important issues facing our committee and one that we should 
continue to explore.
    As I have expressed in the past, I believe it is critical 
for our telecommunications infrastructure to be grounded in 
competition where market forces create proper incentives and 
pricing. We should strive to avoid regulation whenever 
possible. The Government should not interfere when competitive 
forces are at work, but at the same time where a free 
competitive market has yet to evolve it remains necessary to 
uphold protections which ensure the public interest is met 
while promoting increased competition.
    The forbearance petitions currently pending before the FCC 
are excellent examples of how these questions are being played 
out in the marketplace. We here in Congress do not have the 
expertise to know which particular markets are competitive and 
which are not. This responsibility rests with the FCC, which 
has been tasked with encouraging competition whenever possible 
while simultaneously ensuring that deregulation does not occur 
where competition is absent.
    I am interested to hear from today's witnesses as to their 
views on how the forbearance petitions allow them to work with 
the Commission to ensure that adequate data and information is 
provided in a timely manner. The various industry participants 
feel they are afforded sufficient time and opportunity to 
respond to data and statements submitted to the FCC in the 
forbearance petitions. Do they feel that the FCC is doing a 
good job of analyzing competition in all aspects of the market, 
both residential and business?
    In large part these questions also apply to the special 
access market. I know certain industries have expressed concern 
that the special access market is broken. These companies 
describe a pervasive problem where a lack of competition in 
certain segments of their local markets, where inflated prices 
are increasing as are anti-competitive terms and conditions.
    Finally, I would note the pending retirement of the copper 
facilities. I am interested to learn if the incumbent carriers, 
when they decide to retire the copper wire, are open and 
willing to sell the copper network in the last mile to allow 
for another carrier to purchase them. It doesn't seem 
beneficial to the public interest if we simply allow this 
valuable network to be retired when numerous companies have 
expressed interest in purchasing it.
    Thank you, Mr. Chairman. I look forward to hearing from our 
witnesses, and I yield back my time.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Washington State, Mr. Inslee.
    Mr. Inslee. Thank you. I just look forward to the testimony 
about these multiple forbearance issues and I hope we can reach 
a consensus on the truth of special access. That will be a 
bright day. Thank you.
    Mr. Markey. The Chair recognizes the gentleman from 
Virginia, Mr. Boucher.

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. Well thank you very much, Mr. Chairman. And I 
particularly want to express my appreciation to you for making 
a part of today's hearing the subject of State barriers to the 
provision of broadband and other commercial telecom services by 
municipalities.
    A century ago as the electricity industry was emerging it 
was deemed to be in the public interest to permit local 
governments to offer the new electricity services to their 
residents in places where the investor-owned utilities had 
declined to make investments. Broadband today, I would argue, 
is as essential to the economic future of communities as the 
new electricity services were to the people of America 100 
years ago. And where broadband is either not available or is 
available only at unaffordable prices, municipalities clearly 
have a role to play in filling the gap.
    We stand, as the chairman pointed out in his opening 
statement, fifteenth in the world in the deployment of 
broadband, and for the sake of our national economy we have got 
to do a lot better. Freeing local governments to offer the 
service is one way in which we clearly can do better. Today 14 
States bar in whole or in part the provision of 
telecommunication services in commercial form by local 
governments. The ranking member, Mr. Upton, and I have 
introduced the Community Broadband Act of 2007, which would bar 
States from enacting laws that prohibit or have the effect of 
prohibiting the offering of these services by their localities. 
This measure is very similar to a provision in the 
telecommunications legislation that was approved in this 
committee and passed by the full House during the course of the 
last Congress. And my recollection is that when that measure 
was a part of the base bill that was approved in this committee 
there were no amendments offered to remove it. In fact, it was 
not even the subject of debate or further discussion beyond a 
mere description of its presence in the bill. So that provision 
was not controversial last year, and I think this year it 
clearly deserves to be enacted on a freestanding basis.
    Across the Nation there are many examples of municipal 
networks that have stimulated economic growth. And I would note 
the presence on our panel today of Mr. Wes Rosenbalm, who is 
the chief executive officer of Bristol Virginia Utilities. That 
is a municipal broadband provider with a great story to tell 
about how that investment has stimulated the arrival of a very 
large number of technology-based jobs and we welcome Mr. 
Rosenbalm and look forward to his presentation of that 
testimony.
    The Community Broadband Act would open the door for 
additional communities to enjoy that progress. I appreciate the 
subcommittee's focus on this need, and I very much look forward 
to the testimony of our witnesses.
    And that said, Mr. Chairman, I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Nebraska, Mr. Terry.
    Mr. Terry. Mr. Chairman, thanks for calling this hearing. 
It is an important one but I want to waive to reserve enough 
time for questions.
    Mr. Markey. The Chair recognizes the gentleman from New 
Jersey, Mr. Pallone.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman, and thanks to the 
witnesses here today. I am happy to take part in what is sure 
to be an interesting look at the telecommunications marketplace 
and what lies in its future.
    Studies have increasingly shown that consumers benefit 
tremendously from competition in the telephone marketplace. I 
have continually been a firm believer that all consumers, both 
individuals and businesses, deserve to have many choices when 
deciding on their telecommunications services. I also believe 
that there is a role for the Government in the 
telecommunications sector to ensure that competition is 
vibrant. That role, however, is a tricky one as we must make 
sure that the level of regulation is appropriate to the level 
of competition. And I am hoping that our witnesses will shed 
some light on this and flesh out the debate on some of the 
issues we have been hearing so much about this past year 
including special access services.
    The FCC began decreasing regulation of special access to 
increase competition and investment, and I am interested to 
hear whether some of our witnesses think that this approach is 
working. But I suspect that our panel will present compelling 
evidence on both sides.
    And finally, Mr. Chairman, I would like to bring a letter 
to my colleagues' attention. Last week the Communications 
Workers of America filed a letter at the FCC with respect to 
special access services, and I would like to ask unanimous 
consent that this letter be made part of the record of this 
hearing. I believe their position on the issue deserves a place 
in this debate.
    Thank you, Mr. Chairman.
    Mr. Markey. Gentleman's time has expired. The Chair 
recognizes the gentlelady from California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman. Welcome to the 
witnesses, and thank you for yet another important hearing that 
you are holding this year.
    The preamble of the Telecommunications Act of 1996 states, 
``An Act to promote competition and reduce regulation in order 
to secure lower prices and high-quality services for American 
telecommunications consumers and encourage the rapid deployment 
of new telecommunications technologies.''
    So I think that we need to ask ourselves if the 1996 Act 
has lived up to its preamble. I don't believe that it has 
fully, in most frankly, in any way, shape or form. That may be 
a harsh judgment but we are more than a decade past the passage 
of that, and what I think many of us have observed is a crest 
of a wave that is unprecedented consolidation in the 
telecommunications market in our country.
    Now I recognize that not all consolidation and mergers are 
bad. And realignment of a dynamic industry such as 
telecommunications is inevitable. But the course of events that 
has led us here, I think is really rather distressing. So I am 
very glad we are having this hearing this morning.
    The competition that I envisioned and I think that many of 
us envisioned in the 1996 Act has largely been frustrated. One 
bottleneck to the competition is the last mile and I think many 
of us are going to raise questions about this this morning.
    Michael Powell, the previous FCC Chairman, and others had 
their solutions to the last mile, broadband over power lines. 
Proponents of this technology assured us it was just years 
away. Well, we are years away from those rather bold 
pronouncements and broadband over power lines has just 0.008 
percent of the broadband market. I want to repeat that, 0.008 
percent of the broadband market. I really don't think that's 
the American way and I don't think anyone can say that we have 
leapfrogged into the future. That is a dismal percentage. So 
surely this isn't the answer that we bring competition to the 
last mile.
    This morning I want to hear the assessment of our witnesses 
that are here today about competition in the last mile, and, 
also, on special access lines. These two parts of the network 
are critical bottlenecks that can be used by incumbents to 
actually strangle competition. I think that Congress has the 
responsibility to ensure that nascent competition is given the 
opportunity to take root and that emerging avenues of access to 
potential customers remain open to innovators and new entrants.
    So thank you again, Mr. Chairman, for holding this hearing. 
I look forward to the testimony and the answers to the 
questions that we pose to the witnesses.
    Mr. Markey. The gentlelady's time has expired. The Chair 
recognizes the gentleman from Florida, Mr. Stearns.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Thank you, Mr. Chairman. I am not sure I agree 
with the gentlelady from California. Where there once were 
separate phone companies and cable companies and wireless and 
other industries all providing distinct services, we now see, I 
think, a blur, convergence, all competing against each other 
offering broadband, voice and video services and more. I think 
we see the iPhone now is moving us all ahead in terms of our 
cell phones and what we will see in the future. Even the copper 
network once thought a dinosaur for traditional voice services 
can now offer triple play services and up to 100 megabits per 
second.
    So I think the future looks good and I think we are moving 
in the right direction. I think after the Internet bubble 
burst, the core investment dropped to about 85 billion at the 
end of 2002 but that has rebounded to almost 120 billion in 
2005. And I think that is due in no small part to the 
deregulatory framework that we had in Congress and the FCC.
    Furthermore, it's not just one set of companies investing 
billions in new technologies. The witnesses before us today all 
are investing, bringing new innovation and applications that 
will drive tomorrow's digital economy.
    And my colleagues, against this backdrop the proper course 
is to continue the trend away from regulation of new services 
and towards deregulation of traditional services where 
competition is present. At minimum we must be mindful of re-
regulation of particular services absent a compelling showing 
of market failure for certain services.
    At our hearing in July I questioned the FCC's 
implementation of the forbearance statute in section 10 of the 
1996 Act. As I said then, I am well aware of Congress's intent 
in this matter to deregulate based on proper analysis of the 
competitive market. However, I am concerned about whether or 
not adequate procedures are in place to ensure that a rigorous 
analysis is conducted. Are there adequate rules in place? If 
not, what should the FCC do to ensure an equitable process? I 
understand that there is a pending petition before the FCC to 
adopt a certain set of rules for forbearance petitions. I think 
this might be a good idea.
    So I look forward to our witnesses' views on this subject 
in particular because they are in one way or the other 
obviously going to be affected by the outcome. Let me be clear, 
I am not taking a position one way or another on the merits of 
the actual petitions. I am merely saying that there needs to be 
a proper process in deciding whether or not these petitions 
should be granted.
    So, Mr. Chairman, I thank you for this hearing. I look 
forward to hearing from our witnesses and ensuring that a 
tremendous technological growth continues in a deregulatory 
environment. Thank you.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, and I want to thank you 
for holding the hearing and I want to thank, like my 
colleagues, I want to thank our witnesses for being here. But I 
am not going to share with you what I had for breakfast.
    In the series of hearings the subcommittee has had over the 
last 9 months, and I frequently talked about promoting 
competition to consumer choice, last month in my hometown of 
Houston, like many other cities around the country, experienced 
its plans for a municipal WiFi network fall through. The 
Houston system was planned to be the largest in North America, 
covering 600 square miles and it would have offered low-income 
individuals and households with reduced rates for the service. 
It also would have greatly benefited public safety and our city 
employees as well as increasing broadband coverage and local 
competition.
    Our Houston system would vary significantly from Mr. 
Rosenbalm's, who is on our second panel. I look forward to 
hearing from him on the fiber optic system deployed in Bristol, 
VA and hope we can take away some of the ideas for building a 
successful municipal network.
    I look forward to hearing from today's panels on another 
issue. There seems to be a lot of interest in special access. I 
believe the Federal Communications Commission should make a 
thorough review and analysis of the special access marketplace 
in competition as well as significant impacts on rolling back 
phase 1 and phase 2 flexibility could have on this market and 
on the jobs it creates. Many of these companies are the same 
companies investing significantly in residential and next 
generation broadband networks, investment necessary to meet 
consumer demand for broadband bandwidth now and in the future.
    Additionally, I look forward to hearing from our witnesses 
on the issue of forbearance. As the technology and 
telecommunication industry evolves, I think the forbearance 
process is important both from the industry side and the 
Commission side as regulations become unnecessary and outdated. 
And I am concerned, however, that with other procedural issues 
at the Commission right now that if a lot of these conditions 
are not acted on, Congress may have to revisit the issue.
    And, again, I thank the chairman for holding the hearing. I 
look forward to the testimony.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Mississippi, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, I want to thank you and 
commend you for having this hearing. I would yield the balance 
of my time, reserve those for the questions, please.
    Mr. Markey. The gentleman's time is reserved. The Chair 
recognizes the gentleman from New York, Mr. Towns.

 OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Towns. Thank you very much, Chairman Markey, and of 
course, Ranking Member Upton for holding this hearing. I also 
want to thank the witnesses. And it is also good to see a 
former member, Tom Tauke, who is here. It shows you that there 
is life after this place. It is good to know.
    I am sure many of my colleagues on this committee will 
agree with my views when I say that I hope that the future of 
telecom competition is vibrant, sustainable and beneficial to 
the consumers. Hailing from New York it is safe to say that the 
consumers and businesses probably benefit from as much 
competition as any city in the United States. New York City's 
dense population and heavy concentration of businesses make it 
a target rich environment for telecommunication carriers, 
especially for business customers.
    I do believe that facilities-based competition is very 
healthy for the market, beneficial to the consumers and 
sustainable in the long term. And it illustrates why the FCC 
needs to stay the course set by former chairman Bill Kennard 
back in 1999, and ignore the calls to re-regulate the special 
access market.
    Mr. Chairman, thank you again for holding this hearing 
today, and I look forward to hearing from our witnesses, and on 
that note I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair, by 
unanimous consent, will recognize the gentlelady from 
Tennessee, Mrs. Blackburn, who is not a member of the 
subcommittee. Welcome.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Mrs. Blackburn. Thank you, Mr. Chairman, and I thank you 
and Ranking Member Upton for allowing me to continue to 
participate in the hearings that we have. And I thank you for 
the hearing that you are going to have today because I do 
believe it is a timely and really a critical matter that there 
should be a discussion about.
    Over the weekend I did what a lot of Americans do, I 
watched a little bit of football. The Tennessee Titans were off 
for the weekend, but Indianapolis had to come to Tennessee to 
find them a quarterback, and I had to check in on him and make 
certain that he was carrying forth in the appropriate manner. 
And like a lot of Americans I kind of glanced through the 
football game but I pay a lot of attention to the commercials. 
I like to see what is being marketed out there, and I was 
struck this weekend with how much time was being spent on 
telecommunications providers and the new options that are being 
rolled out there. My goodness, traditional video services, 
their expanded triple-play options, voice video, phone, 
broadband, voice-over Internet protocol, everybody was 
marketing their low-cost service. And it just seemed to go on 
and on for the weekend. I think it does say a couple of things. 
Number 1, competition is robust. It is quite robust and there 
is a market that is there and there is a void to be filled. If 
it was not, you all wouldn't be advertising like you are 
advertising on Sunday football.
    Until recently, as Mr. Stearns said, everybody operated in 
a stove pipe, providing one or the other. But now companies 
that are both large and small companies can compete with one 
another on a regulatory playing field that doesn't force 
competitors to line up and choose sides. Today's industry 
leaders are playing a different game in an environment that 
provides for robust telecommunications competition and the 
American consumer is the winner in this. VoIP subscribers grew 
by 709 percent from 1999 to 2006, the number of wireless 
subscribers by 372 percent from 1996 to 2005, local exchange 
lines grew by 263.5 percent.
    So the companies are increasing. A lot of this has happened 
because of the Telecom Act of 1996 and the framework that it 
put in place. The current deregulatory regime seems to be 
working. I am looking forward to hearing from our witnesses and 
I appreciate the courtesy of the chairman and ranking member, I 
yield back.
    Mr. Markey. We thank the gentlelady for participating. We 
also thank her for raising college football. We Boston College 
football fans are quite dismayed, actually, that we have now 
risen to No. 7 in the Associated Press Poll. But Boston College 
football fans are also dismayed that the United States has 
dropped to No. 15 in the OECD broadband rankings and those two 
subjects have been commanding my attention for the last 2 days.
    Any other statements for the record will be accepted at 
this time.
    [The prepared statements of Mr. Stupak and Mrs. Capps 
follow:]

 Prepared Statement of Hon. Bart Stupak, a Representative in Congress 
                       from the State of Michigan

    Thank you, Chairman Markey for holding this hearing on the 
future of telecommunications competition.
    The timing of this hearing could not have come soon enough, 
with the recent developments regarding pending forbearance 
petitions at the Federal Communications Commission. The FCC's 
decision on these petitions will have far reaching consequences 
for Competitive Local Exchange Carriers.
    I am concerned that the FCC is implementing section 10 of 
the Communications Act, which allows forbearance, in a manner 
that is inconsistent with sound agency practice. I am 
specifically interested in how the FCC's failure to act results 
in a petition to be ``deemed granted.''
    If the granting of forbearance is supposed to be in the 
public's interest, it is difficult for me to believe that 
failure to act can ultimately serve that purpose.
    In the case of the 2006 Verizon petition for forbearance, 
the FCC was under gridlock with a split 2-2 vote because it had 
only 4 commissioners at the time.
    The lack of majority should have resulted in a rejection of 
the petition. However, because the rules governing the process 
by which forbearance petitions are handled are not clearly 
stated, the petition was ``deemed granted.''
    I find it troubling that according to the GAO, decisions to 
deregulate are guided by insufficient data used to predict 
future market competition.
    Another issue that we are discussing today is the 
implications of ``copper retirement.''
    I understand the difficult position of companies that 
invest large sums of money in deploying fiber optic lines while 
maintaining their old copper network. However, I feel that the 
current ``Copper Retirement Procedure'' can use some slight 
modifications to be more fair and open.
    I welcome suggestions from the witnesses here today in how 
to properly address the issue, so that Americans don't suddenly 
find that their rights to competitive choice were pre-emptively 
disconnected.
    Lastly, the issue of barriers to municipality provided 
broadband. It is unfortunate that communities that need 
broadband the most, rural communities such as the ones I 
represent, are swept up in the legal and lobby battles between 
big cities, States, and the telecom companies.
    How can we expect rural Americans to compete and their 
communities to thrive if we do not ensure them broadband access 
to the Internet?
    The reality is, broadband access is as essential to an 
economy as electricity. It is my belief that communities simply 
will not be able to survive and thrive in the 21st century 
without high-speed, broadband Internet access.
    Mr. Chairman, thank you again for holding today's hearing. 
I look forward to the testimony of our witnesses, and I hope we 
can find answers to these very important questions.
                              ----------                              


  Prepared Statement of Hon. Lois Capps, a Representative in Congress 
                      from the State of California

    Thank you, Chairman Markey, for holding this important and 
timely hearing on competition in telecommunications.
    As we are all aware, pending FCC decisions regarding 
special access and forbearance petitions will play a major role 
in shaping the competitive landscape of the telecommunications 
industry.
    My district experiences changes in the telecom industry 
rather distinctly. Not only because of its urban and rural 
settings, but also because of its geographic composition.
    Mountain ranges and remote areas can restrict access to 
communications technology for my constituents.
    With that in mind I am especially interested in ensuring 
that competition remains vibrant and fair, so that smaller 
telecom companies can continue to provide services where others 
may not recognize an opportunity.
    In particular, I am concerned that special access costs may 
present a barrier to entry for some broadband companies and may 
stifle deployment.
    As I have stated in the past before this committee, the FCC 
should continue to work for greater transparency in the special 
access market, and I commend it for reopening the record on 
this issue.
    The FCC should ensure that these fees are fair and not set 
or collected in a manner that reduces competition.
    Finally, I would like to take a moment to address the need 
to reform the forbearance process.
    Deregulation requires careful consideration and an active 
response to the realities of the market--not tacit approval 
borne of insufficient time or consideration. I am concerned 
that the ``deemed granted'' language in the statute makes it 
difficult for the FCC to make good decisions. And since we are 
talking about the core competition provisions of the Act, I 
believe we may need to take a look at forbearance.
    As technology and media continue their convergence toward 
advanced communications technologies that we cannot know, 
robust oversight of competition is necessary to ensure market 
fairness and consumer protection.
    I again want to commend Chairman Markey for holding this 
hearing and look forward to hearing from the witnesses.
    Thank you.
                              ----------                              

    Mr. Markey. And our panel here today can help us to unravel 
the mystery of the second phenomenon which is of great 
consequence for our Nation's future. And we are going to begin 
our distinguished panel today with Mr. Parley Casto. Mr. Casto 
is an assistant vice president in the AT&T Business Marketing 
Division. He is responsible for all aspects of AT&T's pricing 
for a dedicated Internet line sold to competitors, can't be a 
more important person in the country in terms of these issues. 
We welcome you, Mr. Casto. When you are ready, please begin.

   STATEMENT OF PARLEY CASTO, ASSISTANT VICE PRESIDENT, AT&T 
              BUSINESS MARKETING, AT&T OPERATIONS

    Mr. Casto. Thank you. Chairman Markey, Ranking Minority 
Member Upton and other distinguished members of this 
subcommittee, thank you for the opportunity to testify at 
today's hearing on the future of telecommunications 
competition.
    My name is Parley Casto, and I am assistant vice president, 
Strategic Pricing, AT&T Business Marketing. I am responsible 
for all aspects of pricing for AT&T wholesale products and 
services, including services sold to interexchange carriers, 
wireless carriers, CLECs, content providers, systems 
intergrators and Internet service providers. Insofar as I am 
responsible for wholesale products and services, I am well 
aware of the competitive alternatives that are available to and 
utilized by AT&Ts wholesale customers. Since the FCC 
implemented its pricing flexibility framework for special 
access services in 1999, that competition has dramatically 
increased.
    AT&T faces both intra-modal competition and increasingly 
intermodal competition from wireless and cable-based technology 
platforms. I will focus my testimony today on the competition 
AT&T faces in the wholesale enterprise market. AT&T faces 
intense business market competition from a very large number of 
competitors. Traditional wireline CLECs have continued to 
expand their fiber networks to virtually all areas where there 
is demand for special access services. Indeed, CLEC fiber 
blankets most major metropolitan areas of the country where 
large businesses that use special access services are 
concentrated and increasingly in more remote areas, as well. 
This intense competition is recognized by analysts, one of 
which recently reported that CLEC competition for wholesale 
private lines services rates a 9 out of 10.
    In recent years CLEC competition has been accompanied by 
the advent and rapid growth of inter-modal competition from 
cable and broadband wireless providers. With fiber and coaxial 
networks that blanket nearly all locations where people live 
and work, cable operators can and increasingly do provide all 
levels of service including to business customers.
    Broadband wireless providers likewise are actively and 
successfully competing against AT&T. All the major wireless 
carriers now rely heavily on wireless backhaul. According to 
one study, roughly 20 percent of mobile base stations in the 
United States are already served via wireless technology, and 
that percentage is expected to double by 2011.
    AT&T has responded aggressively to these competitive 
pressures. AT&T has significantly lowered its prices for DS1 
and DS3 circuits including where rates have been deregulated. 
Rates are far lower today than they were at the time the FCC 
established its pricing flexibility regime. Moreover, AT&T is 
taking other steps to meet its customer specialized needs, 
including dramatically increasing investments in its network 
and deploying more innovative service offerings.
    These trends, characterized by declining prices, increased 
investment and increased innovation, demonstrate that re-
regulation of special access services is unnecessary and 
inappropriate. To be sure, any large business would welcome a 
Government mandate of price reduction in the cost of its input. 
But the FCC was right in 1999 to introduce pricing flexibility 
where AT&T faced competition. Eight years later competition for 
special access services are even fiercer and the justification 
for pricing flexibility is even greater.
    AT&T special access customers constantly remind AT&T that 
they can turn to alternative providers. In fact, Sprint has 
repeatedly pointed out that it has many other options to meet 
its backhaul needs, especially from cable and broadband 
wireless providers, as well as its ability to self-supply 
special access via microwave solutions.
    These are not hollow threats. In August, Sprint announced 
that fiber power will provide backhaul services in seven of 
Sprint's initial WiMax markets and that is just one example of 
this competition. As a result, my team at AT&T is constantly 
looking for ways to provide special access service to our 
customers more efficiently at lower cost and higher quality in 
ways that are better tailored to customers' individual and 
diverse needs.
    It is not necessary for me to rely solely on customers to 
confirm that there are a myriad of special access alternatives 
throughout the country. My colleagues in AT&T Mobility have 
confirmed that AT&T Mobility generally has multiple 
alternatives for backhaul suppliers at its many cell sites. 
AT&T purchases thousands of backhaul facilities from broadband 
wireless and cable companies outside of AT&T's local service 
territory.
    The reality is that prices are lower and differentiation is 
greater, both of these thanks to the introduction of robust, 
facilities based competition. This competition obviates the 
need for re-regulation which would destroy the incentives that 
all companies currently have to constantly approve their 
service offerings and enhance their networks.
    Mr. Chairman, thank you for the opportunity to testify 
today.
    [The prepared statement of Mr. Casto appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, sir, very much. Our next witness is 
Ms. Larissa Herda. Ms. Herda is the chairman, president and 
chief executive operator of Time Warner Telecom. She also 
serves on the Economic Advisory Council of the Federal Reserve 
Board of Kansas City. We welcome you, Ms. Herda. Whenever you 
are ready, please, begin.

STATEMENT OF LARISSA HERDA, PRESIDENT, CEO, AND CHAIRMAN, TIME 
                         WARNER TELECOM

    Ms. Herda. Thank you, Mr. Chairman. Thank you, members of 
the subcommittee.
    My name is Larissa Herda. I am chairman, president and CEO 
of Time Warner Telecom. And let me be perfectly clear. We have 
absolutely no association with Time Warner, Inc. or Time Warner 
Cable. We are a separately traded company, and we simply lease 
their name. That lease runs out next summer.
    It is an honor to appear before you here today to discuss 
the future of broadband in this country. This is an issue that 
not only impacts my business but the bottom line of every 
American business that wants to take advantage of the 
additional bandwidth cost-savings and efficiencies that 
broadband technology provides.
    In order for American businesses to have access to this 
technology, the FCC must not forbear from regulating the ILECs 
because unlike the residential market the ILECs still control 
the only last mile transmission facility or local loop to the 
vast majority of office buildings nationwide. Instead, the FCC 
needs to revise the current regulatory regime to recognize the 
fact that the ILECs still control the last mile connection to 
the business customer regardless of what technology is used to 
provide the service.
    Time Warner Telecom has invested billions of dollars to 
connect approximately 8,000 buildings with our own fiber 
network, more than any other non-incumbent telecommunications 
carrier in the country. But there are many locations where it 
is simply uneconomical to build our own network facilities. In 
such locations we have no choice but to rely on facilities we 
lease from the ILECs to meet customer demand. In fact, we have 
no choice but to serve a high percentage of our customer 
locations by leasing incumbent facilities.
    At Time Warner Telecom we are focused on serving the data 
and communications needs of enterprise customers. We are 
particularly focused on providing those customers a service 
that is called Ethernet. I want to explain a bit about Ethernet 
because it is such an important tool for business and the ILEC 
petitions for forbearance that are currently pending at the FCC 
threaten the potential economic benefits of Ethernet.
    Ethernet is a plug and play transmission technology that 
allows customers to converge all of their data communications 
needs on to a single transmission facility. Older technologies 
like ATM and frame relay require a piece of equipment to 
translate between various different kinds of equipment used by 
end users and carriers. Ethernet technology eliminates the need 
for these translations making it simple and cheap for customers 
to add new services and capacity to their communication 
services. The qualitative difference for businesses between 
Ethernet and older and more complicated technology such as ATM 
and frame is like the difference between dial up broadband and 
cable modem or DSL service.
    Ethernet allows businesses to function more efficiently in 
countless ways. For example, Ethernet enables medical 
institutions to send urgent messages and information between 
locations in seconds. It also enables banks to improve response 
times and process more information in significantly less time. 
It supports all customers with data and disaster recovery 
capabilities crucial to protecting the electronic files 
critical to both business and public institutions.
    Despite the great benefits of Ethernet, most businesses are 
unable to purchase this service today. It is an economic burden 
on business development that businesses across the country 
don't have access to the benefits of this technology. It places 
the United States at a disadvantage vis-a-vis other countries. 
In striking contrast to what is available to American 
businesses, Ethernet is widely available in the UK. The 
question is then why aren't more businesses receiving the 
benefits of Ethernet in this country? The answer is quite 
simple. The ILECs have relatively no incentive to promote 
Ethernet aggressively because it cannibalizes their huge 
legacy, the old generation of frame-relay and ATM services.
    Not only is Ethernet unavailable from the incumbents in 
most office buildings, the cable companies generally do not 
offer it to a significant degree. And in reality, we are in 
more business buildings than they are. That means it is up to 
competitors like Time Warner Telecom to drive the rollout of 
Ethernet.
    In fact, Time Warner Telecom is the No. 3 provider of 
Ethernet in the country. But we are the third biggest fish in a 
very small pond, and we do not have the power to make it much 
bigger because we cannot economically reach most business 
locations without our own network. Only 25 percent of our 
customer locations are on our network. For the remaining 75 
percent of customer locations I rarely have a choice but to 
lease the ILEC network facilities in order to provide service 
the customers demand.
    Even where the ILECs offer Ethernet on a wholesale basis, 
they charge extremely high prices for services as illustrated 
in the charts that are supposed to show up on that up there. 
Well, they should be showing up there, and what you will see, 
there we go, the color code there is ivory is Time Warner 
Telecom and the red are the various different incumbent local 
exchange carriers. And I think we have got Qwest, Verizon and 
AT&T up there.
    In most cases, as you can see, our prices are considerably 
lower. In most cases it is not economical to purchase wholesale 
Ethernet and combine it with our non-Ethernet product, in order 
to sell customers the complete service offering they need to 
manage their communications needs most effectively.
    Mr. Markey. If you could summarize your statement, please.
    Ms. Herda. Yes, I have been told countless times, well, I 
have been told countless times from a diverse group of 
customers that they could not purchase Ethernet until it was 
offered by Time Warner Telecom. And the reality, let's see, 
that won't happen if the FCC forbears Ethernet services, we 
will not be able to have a discussion on special access because 
Ethernet is special access. Thank you.
    [The prepared statement of Ms. Herda appears at the 
conclusion of the hearing; because of its length, the appendix 
of her statement is on file with the committee.]
    Mr. Markey. Thank you so much, Ms. Herda. And now we will 
hear from one of the most distinguished alumni of this 
committee, Tom Tauke, who was a member of this subcommittee for 
12 years, and he is now the executive vice president at Verizon 
for Public Affairs, Policy and Communication. Welcome back, 
Tom. Whenever you are ready, please, begin.

 STATEMENT OF HON. THOMAS J. TAUKE, EXECUTIVE VICE PRESIDENT, 
                            VERIZON

    Mr. Tauke. Thank you very much, Mr. Chairman. I first must 
note I spent the weekend, parents weekend at Boston College, 
watching the soaring Eagles, and I do want you to note that the 
poll that counts is the Coaches Poll, that counts in BCS and 
there we are No. 6.
    Mr. Markey. There BC is No. 6.
    Mr. Tauke. BC is No. 6.
    Mr. Markey. Let me just tell the audience this that Tom, 
this is not, can we go back to 5 minutes, that Tom is actually 
a graduate of Loras College, which is a Jesuit school in Iowa, 
and up until there was an unbundling of Notre Dame's control 
over Catholic high school graduates playing football for them 
there was no chance that somebody from Iowa was going to Boston 
College at the campus, so it just shows you what happens when a 
competitive football marketplace opens up and kids are allowed 
to make their own decisions as to where they are going.
    Mr. Tauke. And we are grateful for that, Mr. Chairman.
    Mr. Terry. Mr. Chairman, as the gentleman from Nebraska and 
maybe the gentleman from Michigan, this football talk is making 
us a little uncomfortable.
    Mr. Tauke. Here I thought I was watching the Iowa-Indiana 
game this last week.
    Mr. Terry. Well you notice how I moved from Iowa to Boston 
College very quickly.
    Mr. Markey. So the gentleman is recognized for 5 minutes.
    Mr. Tauke. Mr. Chairman, members of the committee. The 
world of telecommunications keeps changing ever more rapidly. 
Since Congress and the FCC have adopted policies that permit 
adaptations to the market technology in the marketplace have 
unleashed a host of new communications services and we have 
seen the development of a highly competitive telecommunications 
market.
    Now we have TV services being offered by companies like 
Verizon and AT&T. Phone services from Comcast, Cox, and other 
cable companies. And, of course, we have the most aggressive 
and most advanced wireless mobile communications market in the 
world. Not only do we have four national carriers but we have 
dozens of regional carriers like Alltel, U.S. Cellular, Leap, 
that are providing a host of new services to consumers. Not 
just voice, not just data, but text-messaging, video, and now 
even live broadcast services.
    The U.S. wireless consumer is not only benefiting from this 
advancement of new services, but the wireless market is also 
driving down prices and serving consumers well. When you look 
at the U.S. versus Europe, for example, here consumers pay 60 
percent less for their wireless services and they use, not 
surprisingly, twice as much service on a per capita basis.
    Similarly the investment in broadband has been a good 
success story. The adoption rate for broadband is remarkable. 
The fact is that the adoption rate for broadband is faster than 
it was for TV or even cell phones, and prices are going down. 
Consumers in most parts of the country have at least three 
competing platforms for broadband, and the speeds that those 
platforms are offering go up, up, up.
    But is it good enough? Definitely not. We do need to be No. 
1, Mr. Chairman, not only in deployment and availability but 
also in the innovation and the services that are offered. It is 
important that the Congress and the FCC do two things, I think, 
as you look to the future. First, stick with those policies 
that are working, and secondly, adopt new policies that will 
address challenges in certain areas. Two that I will mention 
briefly are universal service and broadband adoption.
    First, let us talk about the existing policies, the 
forbearance petitions. Creating broadband service for the 
underpriced market with the light regulatory touch is working. 
It has been demonstrated by the forbearance Verizon received a 
year ago and what has happened as we have entered into 
agreements with hundreds of companies since then to offer 
services to those entities. This kind of market-based 
competition allows for investment, innovation and competition.
    Second, the traditional special access services policy is 
on target. These are services that connect business locations 
obviously to each other and cellular services to the landline 
network. What Chairman Bill Kennard did has proven to be 
successful. Prices in this market are falling 5 percent a year 
in real terms since he adopted these policies, and more players 
are entering the market, and there is more competition in the 
special access market.
    Now let me mention a couple of those issues that need 
attention, first, broadband deployment to underserved areas. We 
support Congress's effort to create programs to gather more 
information. We need to know who is not being served in order 
to focus attention on those areas. We believe the Connected 
Nation process has been a good process. It was used as Connect 
Kentucky in Kentucky, and as you know, it found out where the 
problems existed. It focused attention on those areas, and it 
created a public/private partnership, and Kentucky leaders tell 
us they will be at 100 percent availability for broadband by 
the end of the year.
    As we look elsewhere in the country, it is not just 
broadband availability, however, it is also adoption that is a 
problem. And as the Consumer Electronics Association study 
recently showed part of the problem is that 26 percent of 
households have no home computer. That also is an issue that 
needs to be addressed.
    The second issue, Mr. Chairman, is the Universal Service 
Fund. This fund is badly in need of reform. In the past 8 years 
the high-cost funding has grown from $1.7 billion to $4.1 
billion. And we are seeing a distortion in the way this money 
is distributed which we can talk more about later. The bottom 
line is this needs urgent action or that percent that is in the 
bottom of the bill, which is currently 11.1 percent the 
consumers are paying for universal service is going to move to 
15 percent in a few years, and 22 percent 5 years out. 
Something needs to be done to correct this issue, and it is 
going to be easier if Congress acts now. We urge the FCC to 
adopt the recommendation made by the joint board to try to put 
some kind of a cap on the Universal Service Fund. And we 
support a reverse auction to try to fairly distribute these 
funds in the future.
    The bottom line, Mr. Chairman, Congress, and the FCC have 
generally done a very good job in creating policies which are 
allowing this marketplace to grow, and to bring new services. 
Is it good enough? No, but we are making good progress.
    [The prepared statement of Mr. Tauke appears at the 
conclusion of the hearing.]
    Mr. Markey. We thank the gentleman, and now we turn to Gary 
Forsee who is the chairman and chief executive officer of 
Sprint Nextel Corporation. He is also the chairman of the 
President's National Security Telecommunications Advisory 
Committee. We welcome you, Mr. Forsee. Whenever you are ready, 
please, begin.

  STATEMENT OF GARY D. FORSEE, CHAIRMAN, CEO, AND PRESIDENT, 
                   SPRINT NEXTEL CORPORATION

    Mr. Forsee. Good morning, Chairman Markey, and Ranking 
Member Upton, members of the subcommittee. Thank you for the 
invitation to be here.
    I am Gary Forsee, chairman, and chief executive officer of 
the Sprint Nextel Corporation. I would like to thank you for 
the opportunity to testify about a substantial barrier to 
bringing broadband to the American public. As Chairman Markey 
recently wrote to the FCC, the special access market failure 
directly affects the pace of broadband deployment, and I urge 
you to let the FCC know that it must fulfill its statutory 
obligation to ensure that special access rates are just and 
reasonable.
    Let me point out that Sprint takes a backseat to no one 
when it comes to advocating free markets, and we commend you 
for your key role in creating the competition we see in 
telecommunications today. Thanks to your efforts over time 
Sprint brought competition to the long-distance market with the 
first all-digital fiber optic network in the 1980s. Sprint and 
Nextel brought competition in the 1990s to the wireless market 
that had been a duopoly, and we continue to invest in our 
wireless markets to the tune of $5.7 billion this year.
    We are also investing an additional $5 billion to bring 
competition to the broadband marketplace through our announced 
plans to deploy the world's first mobile broadband network 
using WiMax technology. However, when markets fail the 
Government must act to protect consumers. This is a primary 
obligation of the FCC.
    As someone who has been in this industry for 35 years, I 
have been around the block and including a few chairs at this 
table, I can tell you that the failure in the special access 
market is obvious and I think it is also unique given what 
would also be considered the hyper-competitive aspect of this 
industry. But it is obvious due to the overwhelming and 
increasing market share of the two dominant special access 
providers, AT&T and Verizon. It is obvious in their vast and 
increasing special access revenues and their inflated special 
access prices and in their exclusionary lockup terms and 
conditions.
    The FCC relied on its hopes and predictions of competition 
for special access in granting the dominant providers pricing 
latitudes. But special access competition has not developed. 
The incumbent LECs' share of the wholesale market as shown on 
this chart grew to more than 94 percent in 2005, 94 percent. 
Having acquired AT&T and MCI, the two biggest proponents of 
special access reform in addition to Sprint and the two biggest 
alternative providers of special access, AT&T and Verizon now 
account for 81 percent of the incumbent LEC special access 
revenues. Even in the largest markets, including New York, the 
incumbent LECs dominate. As this map shows, nearly 98 percent 
of our connections to our over 60,000 cell sites are provided 
by incumbent LECs, again, primarily AT&T and Verizon. With no 
competition, special access prices are substantially inflated.
    So compare the prices for similar capacity services in 
competitive markets. As this table shows, Verizon's FiOS 
service is $39.99 a month. But DS1s, which we rely on 
substantially for our cell sites and for our ability to provide 
commercial services to our retail customers are nearly 10 times 
that price. Again, for a similar capacity oriented service.
    As the next slide shows, with no competition AT&T's after 
tax special access return grew from an already excessive 40 
percent in 2000 to 100 percent in 2006. Verizon's more than 
tripled in that same period in growing from 15 percent to 52 
percent. In 2006 alone, AT&T and Verizon brought in $6.3 
billion over what they would have earned in an 11.25 percent 
rate of return.
    I understand that there is some assertion that there is not 
sufficient data available to analyze the market. I respectfully 
disagree. The data on this chart combined with the fact that 
Sprint purchases 98 percent of its special access, which is 
about $2 billion, from one source, meaning the ILECs, is more 
than sufficient to demonstrate that this market has indeed 
failed.
    As Sprint Nextel and the other independent providers are 
being over-charged, we are subsidizing AT&T and Verizon, our 
largest wireless and long-distance competitors. These subsidies 
directly affect the availability of broadband and other special 
services that we provide.
    Let me give you an example. Special access represents about 
33 percent of our cost to operate a cell site. Since we are 
paying at least twice a cost-based price, that 33 percent 
figure includes funds that are going to be diverted from our 
deploying this fourth generation WiMax global broadband 
network.
    There is a ready solution to the obvious special access 
market failure. The FCC has the tools, the evidentiary record, 
and the congressionally mandated obligation to ensure that 
special access prices are just and reasonable. I urge this 
subcommittee to let the FCC know that it must meet its 
obligations to reduce special access rates to reasonable levels 
and supply effective incentive-based regulation until the LECs 
face competition for special access services. That is not, by 
the way, accomplished by granting forbearance and giving them 
even greater latitude to overprice special access service.
    Addressing the special access market failure will produce 
tangible benefits for consumers today, including a choice of 
providers into the future, other than AT&T and Verizon, 
improved service quality, and faster rollout of broadband 
markets in the United States.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Forsee appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Forsee, very much. Our next 
witness is William Cheek. He is the president of the Wholesale 
Markets Division of Embarq. Embarq is a local phone and 
wireless company with operations in 18 States. Welcome, Mr. 
Cheek.

 STATEMENT OF WILLIAM E. CHEEK, PRESIDENT, WHOLESALE MARKETS, 
                             EMBARQ

    Mr. Cheek. Mr. Chairman, Ranking Member Upton, and members 
of the subcommittee. Thank you for the opportunity to testify 
today.
    I am Bill Cheek, president of Wholesale Markets for Embarq. 
Headquartered in Overland Park, Kansas, Embarq is a full-
service communications provider delivering voice, Internet, 
wireless, and entertainment products to about 6.5 million 
access lines in 18 States. We serve primarily rural 
communities, which typically have higher cost to serve, and we 
are always mindful of the role robust communications networks 
play in enhancing rural economies. Embarq was established 16 
months ago when Sprint Nextel spun off its local exchange 
operations, and we have been operating independently since that 
time. It is also a privilege for me today to testify on the 
same panel as my former chief executive, Mr. Forsee. While we 
may now approach telecom policy from different perspectives we 
continue to enjoy a relationship of great mutual respect. We 
commend the subcommittee for convening this hearing on the 
future of telecommunications competition.
    One particularly timely topic for this hearing is the call 
by some for the FCC to reverse the trend of deregulation and 
reimpose price controls and other regulations on the market for 
special access. While we fully appreciate and participate in 
the Commission's recent steps to refresh the record in its 
special access rule-making, we find the prospect of re-
regulating the market that was initially deregulated 8 years 
ago to be inconsistent with competitive conditions in the 
marketplace today.
    To put the issue in perspective, about 71 percent of 
Embarq's special access revenues are still subject to price cap 
regulation because they are provided in geographic areas where 
the Commission has not found the indicia of competition under 
current law. At the same time, 75 percent of our special access 
lines are subject to either CLEC or cable competition. In a 
more densely populated, low-cost market we typically face five 
or more competitors. Also, more than 70 percent of our special 
access revenues come from sales to carriers that are at least 
twice our size. And in fact, in most cases they are six times 
our size or larger.
    Increasingly, large buyers are putting their special access 
needs out for competitive bids, especially in the wireless 
backhaul markets where Embarq bids against multiple 
competitors, all of whom can see our public price schedules and 
few of whom are regulated to the same extent we are.
    Just this past month we submitted competitive bids for two 
multi-million dollar backhaul contracts in Nevada and the 
Carolinas. In both cases more than a dozen competitors 
submitted bids. Unfortunately, our most aggressive competitors 
aren't counted under the current competitive trigger analysis 
the FCC uses to determine when a particular geographic market 
should be deregulated.
    The problem is that current rules only count competitors 
who physically co-locate their equipment in the incumbent's 
central office. But many of the new generation of competitors, 
cable, fixed wireless, and other new entrants, bypass Embarq's 
network altogether and are never included when competition is 
measured. Despite the FCC's recent invitation to refresh the 
record, our top cable and fixed wireless competitors did not 
file their data. In fact, our own analysis indicates at least 
one of our currently regulated markets would merit pricing 
flexibility in deregulation if all of our competitors were 
counted because we are in direct competition with a cable 
provider, a fixed wireless provider, and a local electric 
utility that has entered the special access business in that 
city.
    In August and September, Embarq filed substantial data with 
the FCC showing our special access competitive losses as well 
as the continuing impact of price cap regulation on our rates. 
In fact, Embarq demonstrated that our DS1 channel terminations 
which are often used to connect cell towers are on average 
priced below forward-looking economic costs to providing the 
service. Prices for our high capacity DS3 services have 
declined 35 percent since deregulation in 2001. Just this year, 
to meet growing competitive threats, Embarq more than doubled 
fiber investment plans for wireless backhaul even as our prices 
have generally held steady or declined in some cases. Perhaps 
most tellingly, a November 2006 study by the GAO found that 
since the beginning of deregulation the average price per unit 
actually paid for special access has declined.
    Ultimately we believe that if the Commission were to take 
action on the special access rule-making a necessary 
prerequisite would be to close a gaping hole in the record by 
obtaining data from all new competitors in our filings and 
those of other ILECs in ensuring that services provided by such 
providers were considered in any eventual rule change.
    On the question of regulatory forbearance our chief concern 
is that once a market has become competitive and new entrants 
are strong and healthy, it is unfair to impose extensive 
economic regulations on just one provider even if only by 
regulatory inertia while others grow their share unburdened. 
Congress seemed to anticipate this danger, and deliberately 
structured such intents so regulators would periodically 
reaffirm the public interest in maintaining economic 
regulations or otherwise pare them back.
    In conclusion, ultimately we believe the best course for 
policy-makers is to pursue a technologically neutral approach 
that lets the market choose winners, and losers, not 
government, and recognizes that competition often comes about 
in ways very different, excuse me, from how it was originally 
predicted.
    We thank you for the opportunity to appear and look forward 
to working with the members of this subcommittee. Thank you.
    [The prepared statement of Mr. Cheek appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Cheek, very much. Our next 
witness is Brad Evans. He is the chairman of Cavalier 
Telephone. Cavalier is the third successful competitive carrier 
that Mr. Evans founded. We now turn to you for 5 minutes. 
Whenever you are ready, please, begin.

     STATEMENT OF BRAD EVANS, CHAIRMAN, CAVALIER TELEPHONE

    Mr. Evans. Thank you, Mr. Chairman, and members of the 
committee.
    I am Brad Evans, founder and chairman of Cavalier 
Telephone. Thank you for the opportunity to testify here today. 
I will briefly introduce Cavalier and then discuss the threat 
to competition posed by forbearance petitions pending at the 
FCC. We need congressional help to stop these petitions filed 
by AT&T, Verizon, and Qwest.
    Our company is a success story of the new, competitive 
marketplace mandated by the Telecommunications Act of 1996. 
Cavalier, we launched voice service on its first switch in 
Virginia in 1999. Since that humble beginning we have grown to 
become a profitable company with over $650 million in revenues 
and over 2,000 employees. Cavalier, we embrace the residential 
market, and we are adding approximately 25,000 new customers 
each month. We have made significant capital investments, and 
we now own over 11,000 miles of fiber, and we have saved 
customers untold millions on their telephone bill.
    Cavalier is a facilities-based provider. The only part of 
the network that we don't own is the so-called last mile. These 
are the copper lines that run from a local central office 
directly to a customer's home or office. These last mile 
facilities are essential for telecom competition and were the 
underpinning of the 1996 Telecom Act, and it is access to these 
facilities that forbearance threatens to eliminate.
    Cavalier has super charged the legacy copper network with 
the latest technology. Our super charged broadband provides up 
to 15 megabits to the home, to users. And Cavalier is an 
industry pioneer in competitive TV service that uses IP 
technology to provide 150 channels of television over 
Cavalier's broadband network.
    Unlike Verizon's FiOS, our TV service runs over existing 
copper loops. That means we can serve the older neighborhoods 
with copper facilities, not just the gated, suburban 
communities with the newly built fiber networks. Cavalier is a 
low-cost provider. Most of our 400,000 residential customers 
are in the lower-income brackets and enjoy the 20 percent 
monthly savings Cavalier offers. Our triple-play customers save 
$70 per month compared to the monopoly prices.
    As part of its FiOS rollout, Verizon is removing copper 
loop facilities built with rate-payer dollars. Why? Because 
Verizon wants to remove the copper facilities that competitors 
can use, replacing it with a fiber that the FCC has exempted 
from any unbundling requirements.
    We believe Congress and the FCC should not allow the 
dismantling of a valuable American asset, America's copper 
network. Forbearance permits the FCC to consider changes to the 
Act if those proposed changes will promote competition. Our 
problem is not with section 10. Our problem is that the FCC has 
permitted changes to occur using a process that is deeply 
flawed. Last minute evidence dumped into the record with no 
opportunity for other parties to respond. Orders being issued 
so no one even knows what relief was granted, and an agency 
process riddled with confidentiality and secrecy that makes a 
mockery of administrative transparency.
    Verizon has admitted using E911 data that was flawed in 
overstating competition in a proceeding before the Virginia 
State Corporation Commission. The word is now out. The way you 
get the relief you want from market opening protections in the 
Act is simply to file forbearance petitions. There is no due 
process. The forbearance proceedings are effectively a kangaroo 
court.
    Past forbearance petitions have been limited to small 
markets like Omaha, Nebraska, and Anchorage, Alaska. However, 
the Bells are now seeking forbearance in major markets like New 
York, Boston, and Denver.
    Cavalier alone has over 90,000 residential customers and 
another 50,000 business lines affected by the pending Verizon 
petitions in Philadelphia and Virginia Beach. All told 47 
million Americans live in areas affected by these petitions, 
and no one should kid themselves. Just as we saw in the grant 
of the Qwest forbearance petition, the Bell companies will not 
offer meaningful commercial terms. Once our right to access is 
removed through forbearance it will only be a matter of time 
before they choke off the remaining competition. Congress did 
not intend such intent of the Telecommunications Act to be a 
weasel clause for the Bells to eliminate competition.
    In conclusion, we ask Congress to urge the FCC to just say 
no by rejecting the pending petitions and setting clear 
standards or processes by which future forbearance petitions 
will be judged.
    Thank you.
    [The prepared statement of Mr. Evans appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Evans, very much. And our final 
witness is Mr. Wes Rosenbalm. He is the president and chief 
executive officer of Bristol Virginia Utilities. He is 
responsible for managing the municipal broadband network in 
Bristol, Virginia. Welcome, sir.

    STATEMENT OF WES ROSENBALM, PRESIDENT, AND CEO, BRISTOL 
                       VIRGINIA UTILITIES

    Mr. Rosenbalm. Good morning, Mr. Chairman, Representative 
Upton, and subcommittee members.
    My name is Wes Rosenbalm. I am president and CEO of Bristol 
Virginia Utilities. I would like to thank you for this 
opportunity to be here today.
    Bristol Virginia Utilities is a city owned, public utility 
offering water, sewer, electricity, phone, data, and cable 
television. We manage over 50,000 traditional utility and 
telecom accounts with an annual budget of $64-plus million. 
Bristol Virginia Utilities began a process of entering the 
telecom and information service business in 1999 because 
Bristol and its region were losing population. It was losing 
most of its manufacturing base. It was losing its most 
lucrative cash crop, and it was losing its highest paying jobs. 
Sharing Congressman Boucher's vision, city leaders decided that 
the city should install an infrastructure that would permit 
this area to compete in the information society if the city was 
to survive. It was not otherwise going to happen.
    We felt it was important that the people of our community 
have broadband options sooner rather than later. At an expense 
of $2.5 million in legal and regulatory costs plus capital 
expenditures, Bristol Virginia Utilities began offering 
services. The $2.5 million is equivalent to the approximate 
cost of initiating service to an additional 2,000 customers. By 
July 1, 2003, Bristol Virginia Utilities was able offer all 
three of its current services, phone, cable, and data, via a 
state-of-the-art fiber to the premise network.
    Have we been successful? We believe our success can be seen 
in the following facts. We currently enjoy a 65 percent 
residential penetration rate within the city of Bristol, 
Virginia. We have recently won the prestigious 2007 Cornerstone 
Award for customer service. We have stabilized rates in our 
community, thereby improving the quality of life. Because this 
infrastructure is now in place, we have launched a 
comprehensive economic development effort titled ``Access 
Bristol.'' It is our belief that broadband is the new essential 
infrastructure. That point was re emphasized recently by 
Virginia's Secretary of Commerce and Trade Patrick Gottschalk, 
who supported the launch of this economic development effort.
    Most recently we have been noticed on a regional basis. 
Economic development partnerships in the southwest Virginia 
counties of Washington, Smith, Wythe, Buchanan, Russell, 
Tazewell, and Wise have all requested that our infrastructure 
be expanded from Bristol into their communities with the help 
of economic development money and encouragement from State and 
Federal legislators. Many of them now have the broadband access 
that they so desperately need to thrive in the high-tech 21st 
century.
    Last, and potentially most important is regional outreach 
has brought new companies and jobs to our region. Fortune 500 
companies Northrop Grumman and CGI Group, two highly broadband 
dependent companies, are locating 700 jobs in Russell County 
alone. They pay an annual average salary of $50,000, 
significantly higher than the region's current average salary. 
Both companies attributed their decision to locate in our 
region in part to Bristol Virginia Utilities high capacity 
fiber optic infrastructure. The president of CGI Group stated 
in a letter to the editor of the Bristol Herald Courier that 
the fiber optic infrastructure was just like those found in 
northern Virginia.
    Because of this we have been contacted by as many as 50 
public entities with the assistance of the American Public 
Power Association, most of whom are facing the same lack of 
broadband technology opportunities in their communities. These 
municipalities are seeking from us solutions for their 
communities that will allow for the same level of choice and 
economic availability that we have now. They are telling us 
that the infrastructure in their city to provide broadband 
technology opportunities is not developing. The Community 
Broadband Act of 2007 will empower other communities to bring 
these same advantages to their residential and corporate 
citizens without delay and added expense.
    As has been noted this morning, according to the 
Organization for Economic Cooperation Development, the United 
States has dropped to fifteenth place on the global list. The 
Community Broadband Act of 2007 will remove the legal and 
regulatory barriers that prevent communities from uniformly 
providing the essential broadband infrastructure they so 
desperately need. For the hundreds of small, rural communities 
that want a robust broadband network available at a fair and 
stable price, providing for that infrastructure is a top 
priority. The Community Broadband Act of 2007 will allow 
municipalities to improve the quality of life in their 
communities, and enhance their economic development 
opportunities.
    I cannot say enough to express the debt we owe Congressman 
Rick Boucher for his efforts not only on behalf of Bristol but 
on behalf of all our country's needs for this new essential 
utility, high speed broadband service.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Rosenbalm appears at the 
conclusion of the hearing.]
    Mr. Markey. Thank you, Mr. Rosenbalm, very much. That 
completes the time for opening statements from our witnesses, 
so we will now turn to questions from the subcommittee.
    Let me just begin by saying that at our international 
broadband hearing I asked an executive from NTT, Japan's 
incumbent telephone company whether NTT was allowed to disable 
copper loops after it deployed fiber to a home or business. He 
responded that as much as NTT would like to do so, to dismantle 
the copper, that the Japanese Government had not allowed this 
practice because it would prevent broadband competitors from 
using the copper. So let me begin by asking you Mr. Tauke, does 
Verizon have a legitimate business reason for disabling the 
copper loops, or is Verizon just simply afraid of a truly 
competitive broadband market with more than two competitors the 
way it exists in Japan?
    Mr. Tauke. Let us start, Mr. Chairman, with the fact. The 
fact is that we don't disable the copper loops. We have not 
disabled copper loops to any home to which we have extended 
fiber, and we continue to provide services to competitors over 
copper loops in areas where we provide fiber. The FCC has 
established a process that we would have to go through if we 
decided to disable copper loops. Now there are instances where 
because of connections to the home or something, the last wire 
from the pole to the home, in some cases aesthetics and some 
cases other issues such as poor wire, is taken down. But we 
have an obligation under current rules to provide that copper 
loop or last wire from the pole to the home to a competitor if 
they choose to purchase that service from us.
    Mr. Markey. Well let me go to----
    Mr. Tauke.I will just say that we have a timeframe within 
which that must be installed as we do for other duties.
    Mr. Markey. OK. So would you oppose any efforts to disable 
such loops?
    Mr. Tauke. Well, Mr. Chairman, I think that the bottom line 
is that this is the technology that is getting older. We are 
replacing the network. At some point down the road there will 
be a point where either you have to put a lot of money into 
rebuilding the copper network or you decide to not continue to 
maintain it. And our view of that is a decision that we should 
be able to make down the road depending on what is going on in 
the marketplace, what customers want, and so on.
    Mr. Markey. So let us go to----
    Mr. Tauke. It is not an issue that we think is, frankly, 
ripe right now.
    Mr. Markey. Who owns that copper wire? Is it Verizon or the 
consumer?
    Mr. Tauke. Verizon owns the copper wire.
    Mr. Markey. You don't think the consumer owns it?
    Mr. Tauke. No, the consumer doesn't own it. The 
shareholders of Verizon are the ones that put up the money to 
continue to invest in the infrastructure.
    Mr. Markey. Well, again, I disagree with that. I do believe 
that the consumers have through their rates spent billions of 
dollars in helping to create that lifeline to their homes, a 
competitive lifeline to their homes as well in the future. And 
I think therein lies the core of this debate, and I would like 
to go to Mr. Evans who depends upon this copper wire as a means 
of competition.
    Mr. Evans. Yes, Mr. Chairman. Verizon is knowingly cutting 
off the wire into the homes when they put in the fiber. They 
are removing the NID, the box that interconnects the copper 
wire, and totally disconnecting the customer's home. They are 
putting a roadblock upon the local road so we can't get access. 
And so in order to do that then they would have to go back. We 
would have to issue a special order. Have a truck roll to pay 
charges for and re-put a box on a customer's house. There is no 
reason to take that box off the house. They are just doing it 
so that it is not easy for competitors to get to use that 
copper network.
    Mr. Markey. So Mr. Tauke says that that would just be an 
accident or aesthetics that would have the removal.
    Mr. Evans. We have had proceedings in Virginia and 
Pennsylvania. It is not an accident. It is happening all the 
time. It is commonplace.
    Mr. Markey. It is commonplace. So let me then move on to a 
question for Mr. Casto. You assert that special access prices 
have declined since 1999, but the GAO found that list prices 
and average revenues are higher in areas where AT&T and Verizon 
were granted unconstrained pricing authority then in those 
areas where prices are still capped by Federal regulation. How 
do you explain that outcome, Mr. Casto?
    Mr. Casto. Well, Mr. Chairman, I would at first reiterate 
that, in fact, prices have declined since the advent of pricing 
flexibility, in fact, double digit declines over that period of 
time. I think what the report indicates is that list prices as 
outlined in the deregulated section of tariff, which by the way 
are analogous to the prices on the sticker of a car are the 
prices that are, in fact, perhaps slightly higher. And those 
list prices are not prices that very many customers pay at all.
    Mr. Markey. OK. Where you have been given so-called phase 
two flexibility to set your own special access rates, those 
rates have actually risen. Ms. Herda, could you deal with that 
question?
    Ms. Herda. I would love to comment on that actually. I 
think that the statement that their prices have gone down is 
extremely misleading. In fact, that sticker price has gone up 
but what they have done is they have been locking up companies, 
customers, and user customers, as well as carriers into these 
long term contracts that I not so affectionately refer to as 
the heroin drip. The more you buy the more you have to buy in 
order to be able to get the discounts where you can be 
competitive. And every year the requirement gets higher and 
higher and higher, and this is a very anticompetitive practice. 
In fact, Mr. Forsee over there has major commitments. We have 
major commitments. I have tried to sell to Sprint, and the 
problem is that we can't bring our prices low enough to make up 
for the penalties that Sprint would have to pay if they move 
some of their services to us because they are not meeting those 
commitments. So it may appear, I think what is important is 
context here. If you see the prices look like they are going 
down, it is the result of these long term contracts that are 
very, very bad for us. One of the issues we have today is that 
as the world is moving to Ethernet, and Ethernet is special 
access. Even the incumbents have it in their tariffs as special 
access, in the category of special access. As the world is 
moving to Ethernet they are not even allowing us to put 
Ethernet into these revenue commitments so that, as we have to 
get bigger, and bigger commitments every year for special 
access, and the world moves to Ethernets, we are all going to 
be stuck with these big commitments with huge penalties at the 
end of the day without having any kind of recourse.
    Mr. Markey. Let me just conclude by saying that in the 
United Kingdom, in Japan, and other countries around the world 
they are using the age of copper to move to a bright broadband 
future for their countries. And I think it is very important 
for us to understand that this copper is invaluable in ensuring 
that there is real competition out in the marketplace.
    Let me turn now and recognize the gentleman from Michigan 
for his questioning.
    Mr. Upton. Thank you, Mr. Chairman. I just want to go back 
to the dialog between Mr. Evans and Mr. Tauke. Mr. Evans, you 
seem to indicate that, in fact, the copper is, in fact, 
disconnected, disabled. Mr. Tauke, you said it was not.
    Mr. Tauke. First, let us have definitions. The loop is from 
the central office to the home.
    Mr. Upton. Right.
    Mr. Tauke. The bulk of the loop is up to the pole. If you 
disconnect the wire from the pole to the home, which we do 
regularly----
    Mr. Upton. When you put in the fiber.
    Mr. Tauke [continuing.] When we bring in the fiber, in part 
for aesthetic reasons and in part because it reduces 
maintenance costs we do that on a periodic basis. Not in all 
parts of the country, but we do that in many areas. However, if 
the customer wants the copper or if a customer wants another 
carrier to use copper we put that copper back in, and we have 
rules that require us to do it within the same timeframe as we 
provide any unbundled network element. So there is no instance 
in which we are denying a carrier access to copper 
infrastructure to a consumer.
    Mr. Upton. You don't remove that last mile copper.
    Mr. Tauke. We are not removing the last mile. In no 
instance have we removed the last mile. Now I will say down the 
road as you know, obviously we are putting our investment into 
fiber. It is tough to invest and maintain two networks. We are 
putting the investment into fiber, but we are continuing to use 
the copper ourselves. Some others use copper but, frankly, not 
many customers want the copper services after they have the 
fiber available.
    Mr. Upton. So, Mr. Evans, what is wrong with that?
    Mr. Evans. Well the last mile loop is pretty useless if it 
stops at the telephone pole. I can't, haven't had many of my 
customers like on Green Acres.
    Mr. Upton. Yes, but they are able to reconnect it though is 
what Mr. Tauke is saying.
    Mr. Evans. It never works as easy as what he makes it out 
to be. When you try to order a loop they will say they do not 
have one available. We have to expedite and go around the 
process, and they have very stringent processes. They charge us 
truck rolls. They charge us reconnect fees for a piece of cable 
that should just stay in the ground and be where it is. They 
are only doing it to hamper competition. They don't have to 
maintain it if it is not in use. It just sits in the ground.
    Mr. Upton. Mr. Tauke.
    Mr. Tauke. There is no charge for reconnecting the drop 
from the pole to the home. We do not charge for that. For the 
customer we don't charge, and we don't charge the CLEC for it.
    Mr. Upton. All right. This question is for Mr. Tauke, Mr. 
Casto, and Mr. Cheek. There has been some confusion about 
whether the forbearance petitions at the FCC also apply to the 
facilities and the special access proceeding. The facilities 
and special access proceedings are called DS1s and DS3s. If the 
forbearance petitions were granted would either of these two be 
affected? Mr. Tauke or you can go ahead, Mr. Casto.
    Mr. Casto. Although I am not familiar with all the 
procedural aspects of it I can tell you from AT&T's perspective 
we are only seeking relief on switched and packet based 
services. In fact, DS1s, and DS3s will continue to be made 
available pursuant to the existing tariffs today.
    Mr. Upton. Go ahead.
    Ms. Herda. I would love to be able to respond to that. As I 
said earlier, Ethernet is special access. It is simply an 
access technology that takes a customer from one location to 
the other. It is less expensive than special access. It doesn't 
require all the equipment. We have Ethernet in this building, 
and most business buildings have Ethernet. You go to another 
building, and they have Ethernet in their LAN. What special 
access does is convert Ethernet to another technology to just 
turn back into Ethernet in the next building. What we have done 
is created a product that allows customers to take Ethernet all 
the way through so it reduces the electronics. The technology 
is slightly different. It is less expensive but it is the same 
concept, and Ethernet is part of the forbearance proceedings. 
If they allow it to forbear Ethernet then we will not be able 
to address Ethernet in the forbearance proceedings.
    Mr. Upton. Mr. Tauke.
    Mr. Tauke. Mr. Upton, again, I think definitions are 
helpful here. Just understand that under FCC terms you have a 
switched access bucket and you have a special access bucket, 
and everything that isn't in switched is thrown in special. But 
as you go further things like DSL have been taken out in our 
forbearance petition. The FCC further refined its definitions 
so that there are two categories. Special access is the 
traditional ATM services such as DS1 and DS3. The more advanced 
services like IP based services, Ethernet services, those 
things were put into the high speed broadband category, as the 
FCC did with the broadband marketplace, and residential, they 
looked at a nationwide market for broadband for the high speed 
business market. Now understand this is for the high speed 
customer. The Fortune 500 companies, these aren't the poor 
residential customers, these are the Fortune 500 companies. 
And, yes, that category of services, those high speed services 
are the subject of the forbearance petition. But they are not 
traditional special access services such as DS1, and DS3.
    Ms. Herda. I want to correct one thing that Mr. Tauke just 
said. The FCC did not redefine anything in their forbearance 
petition. It was strictly done by default. There was no 
process. There was no discussion. There was no debate. It just 
happened, and no decision was made.
    Mr. Forsee. And those DS1, DS3 services are the exact 
services we rely on today to get access to our networks for 
wireless, and for our retail customers, so it is at the heart 
of broadband deployment in this country, and again, to let that 
lapse, and not take action, again, will ensure that we will be, 
again, on the slow road to 18th place instead of 16th.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes Chairman Dingell from the State of Michigan.
    Mr. Dingell. Mr. Chairman, I commend you for holding this 
hearing. I believe it is both timely, and valuable. I ask 
unanimous consent that my opening statement appear in the 
record in an appropriate fashion.
    Mr. Markey. Without objection, it will be.
    [The prepared statement of Chairman Dingell follows:]

    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

     Mr. Chairman, thank you for holding this hearing. I am 
pleased that we have this distinguished panel before us today, 
and I thank the witnesses for being here.
     The focus of today's hearing is on the future of 
telecommunications competition. We will hear about four issues 
concerning broadband, and the pace of broadband deployment. 
Underlying any decision must be the twin goals of promoting 
greater broadband deployment, and greater choice for consumers.
     The first issue I wish to highlight is that of regulatory 
forbearance. Section 10 of the Communications Act permits the 
Federal Communications Commission to forbear from applying 
certain statutory requirements to telecommunications carriers. 
It is unusual for Congress to vest such power with a regulatory 
agency. For that reason, when Congress passed section 10, we 
included several provisions to protect consumers, and protect 
the ability of Congress to conduct oversight.
     Unfortunately, to date, I believe that the forbearance 
process lacks the necessary level of transparency. In one 
instance the FCC permitted a petition to be ``deemed granted,'' 
and did so without issuing a written order. I am not expressing 
an opinion on the merits of that petition. However, the lack of 
a written order renders unclear the scope of relief, prevents 
the Congress from conducting appropriate oversight, and may 
hinder the FCC's ability to defend such action in court. This 
cannot be permitted to happen again.
     Second, entities petitioning for relief have been 
permitted to make substantive changes to their petitions at a 
very late date--so late that opposing parties have been denied 
a meaningful chance to respond. I believe that we must make 
sure that the forbearance process is fair, open, and 
transparent in the future.
     Next on the list is special access. The FCC granted 
providers a measure of regulatory relief in 1999 and is now 
reviewing the marketplace to determine what, if any, changes 
are necessary to protect consumers, and promote continued 
investment in infrastructure. Much has changed since 1999. The 
market structure changed when the largest local, and long 
distance companies merged. And the incumbents are facing new 
competition from cable, and wireless companies, and others.
     The FCC must have all the relevant data if it is going to 
make an informed decision. I am troubled by reports that those 
seeking re-regulation have thus far been less forthcoming than 
they might be with data about their facilities. I expect to 
hear commitments from the witnesses today that they will make 
sure that the FCC is kept properly informed.
     Similarly, it is not the business of the Government to 
simply effect the transfer of funds from one set of private 
actors to another. Therefore, I also hope to hear specific 
commitments concerning how consumers will benefit from any 
reductions in special access rates.
     Finally, I want to mention municipal broadband.
     Municipal broadband networks are becoming more important 
in ensuring that all Americans have access to advanced 
broadband services. Provided that all competitors are treated 
fairly, it makes little sense for the law to prohibit 
investment in advanced broadband networks by municipalities, 
particularly in those areas least likely to attract private 
sector investment. I wonder if the panel, and the Members of 
this Committee can reach agreement around that simple 
principle.
    Again, I am pleased that we are holding this hearing today, 
and I look forward to the testimony of the witnesses.
                              ----------                              

    Mr. Dingell. I may have a lot of questions here, and so I 
am going to have to hurry the process. I am going to ask these 
questions in this way. Does anyone at the table disagree that 
the public has a right to know specifically which statutory and 
regulatory provisions the FCC is forbearing from? I take it 
that you all then agree with that statement. Do you all agree 
that the FCC should issue a written order to clearly set out 
the exact scope of the relief granted and to set forth the 
rationale underlying the agency's decision?
    Mr. Tauke. Mr. Chairman.
    Mr. Dingell. Yes.
    Mr. Tauke. If I may, let me comment on that. The statute 
that Congress passed suggested that if the FCC did not issue an 
order that the forbearance petition was granted. That was 
designed to force the FCC to address the issue.
    Mr. Dingell. Is that a quite different result though? The 
different result is that all of a sudden we have orders issued 
by the FCC which are unappealable, which are unwritten, which 
no one has an opportunity to comment on, and which no one has a 
right to get any justice on simply because the FCC has failed 
to act. That is very wrong, isn't it?
    Mr. Tauke. Mr. Chairman, I don't think that is the right 
process either. But under the statute that is what happened, 
and what my concern would be is if you require an FCC order, 
and the FCC doesn't issue one, and many of us have waited years 
for the----
    Mr. Dingell. Well, I am aware of that.
    Mr. Tauke. Then the forbearance piece falls apart.
    Mr. Dingell. But it is quite probable that there are better 
ways of addressing this problem, and that is one of the things 
that I intend for this committee to do. Now, does anyone 
disagree with this? Because the deemed granted language of the 
statute has resulted in petitions being granted without a 
written order would you agree that the deemed granted language 
should be removed from the statute? Is there anyone who 
disagrees with that statement? Would you want to tell us why?
    Mr. Tauke. Mr. Chairman, without knowing how you are going 
to force the FCC to act within the 15 months and issue an order 
I am reluctant to agree that the deemed granted piece should be 
removed because in essence what that does is put us back to 
where we were in the past where the FCC, there was no forcing 
mechanism to require the FCC to address an issue.
    Mr. Dingell. And so would you agree that we have 
substituted one abomination for another?
    Mr. Tauke. That could be, but I guess that the point is, 
Mr. Chairman, is what we want to do is to have some mechanism 
to force the FCC to act. If we can get an order that is even 
better.
    Mr. Dingell. Does anyone disagree with this statement: Any 
interested party should have a fair opportunity to comment on 
the merits of the petition? No disagreement. Would any disagree 
that if a petitioner revises its petition in the midst of a 
proceeding all interested parties should have a meaningful 
chance to comment on the change? I assume that all, therefore, 
agree. And then would anyone disagree that the FCC should adopt 
procedural safeguards to ensure that interested parties have 
sufficient opportunity to weigh in on revised forbearance 
petitions? No disagreement. And I want to be fair, but you have 
got to understand time is limited here. Now would any disagree 
with the statement that the FCC needs a clear picture of the 
state of the telecommunications market to make informed 
decisions concerning special access?
    Mr. Forsee. Mr. Chairman, I would submit that in 
disagreement with the GAO report that, in fact, that record has 
been established, and the facts that we have showed today that 
represent a $16 billion market for the ILECs, with excess 
profits that we would estimate in the $8 billion range, that 
that record is clear, that the market hasn't developed, and 
that the FCC should act on.
    Mr. Dingell. Of course, it should be observed that the FCC 
does need that clear picture, does it not?
    Mr. Forsee. They had the picture. The record has been 
established.
    Mr. Dingell. Are you satisfied that they had that?
    Mr. Forsee. They don't need more data to make that 
determination.
    Mr. Dingell. Now is there any disagreement with this 
statement, that to get a clear picture of the market the FCC 
needs to know where some of these exist, and where they do not 
exist, is that a fair statement? Anybody disagree with that? 
All right. Now then let me ask this, would each of you commit 
to ensuring that your company provides the FCC with all the 
data it needs to make an informed decision? Is there anyone who 
will do that?
    Ms. Herda. Yes, Mr. Chairman, if I may? At Time Warner 
Telecom we are the largest competitive provider in terms of 
actual buildings connected with fiber in the country. We have 
8,000 buildings connected with fiber, and we have participated 
in all of the proceedings. We have given our information to the 
GAO. We have given it to the FCC as recently as last month, and 
last year, and whenever they ask for it. And as part of the 
Department of Justice process with regard to the merger 
activities they had subpoena power.
    Mr. Dingell. The question, however, is just this, would all 
of you commit to ensuring that your company provides the FCC 
with all the necessary data it has to have to move forward with 
an informed decision?
    Ms. Herda. We do, and we have. Absolutely.
    Mr. Dingell. Very good. Is there anyone who would not agree 
to file periodic reports to the FCC providing data that the 
Commission determines it needs to remain informed about the 
telecommunications marketplace, and the state of affairs there? 
Very well. Now is there anyone there who would not agree that 
if the FCC decides to lower special access rates the amount 
your company spends on special access will decrease?
    Mr. Tauke. Could you repeat that?
    Mr. Dingell. Well in other words, if the FCC decides to 
lower special access rates the amount that each of the 
companies there will spend on special access will, in fact, 
decrease? Is there any disagreement with that statement?
    Mr. Forsee. Well, in fact, if prices were decreased as you 
suggest that may allow faster deployment of broadband, and our 
special access deployment may accelerate as a result of that so 
on an apples to apples basis the prices roll back.
    Mr. Dingell. So you qualify the statement but you----
    Ms. Herda. Actually that depends because a lot of the 
commitments that the incumbents have required us to commit to 
have our rates down as a result of those so it would depend on 
where the rates would actually go.
    Mr. Dingell. Now which of the companies at the table will 
pass the savings on to the consumers in the form of lower 
rates, and which will use the savings for other purposes? 
Starting at your right, ladies and gentlemen, at your left and 
going across to your right.
    Mr. Rosenbalm. This really is not an issue for Bristol 
Virginia Utilities. We are facilities-based and defined in 
geographic region so it is not our issue.
    Mr. Dingell. Sir.
    Mr. Evans. Cavalier would pass it on. We have lower access 
rates in Detroit, for example, because AT&T charges us about 
half of what Verizon charges us for special access already.
    Mr. Dingell. Sir.
    Mr. Cheek. As a local exchange carrier, Embarq, we are not 
really faced with the pass on question. That is really for 
those that would be charged the rates that we have for special 
access if our rates go down.
    Mr. Dingell. Sir.
    Mr. Forsee. Yes, in some cases today as we provide retail 
services to Fortune 1000 customers, in fact, we are not 
competitive today because we are having to rely on special 
access services so there could be an opportunity for us to pass 
that along and to be more competitive and ensure that there is 
robust competition for long distance. Related to wireless, it 
is our opportunity to be more innovative, to deploy more 
broadband services, and to deploy a more robust wireless 
network, and we would intend to use those sources for that 
purpose.
    Mr. Dingell. Mr. Tauke.
    Mr. Tauke. Mr. Chairman, we would be paying less to some 
carriers obviously for special access services, but we would be 
receiving less on the other side, so I suspect it is something 
of a wash for us.
    Mr. Dingell. Ma'am.
    Ms. Herda. If the rates actually do go down below what we 
are paying today it would allow us to be more competitive and 
would also allow us to make more investment in adding fiber 
into more buildings across the country so that there actually 
are distinct, separate alternatives for the local exchange 
carriers.
    Mr. Dingell. Sir.
    Mr. Casto. AT&T is in much the same position as Verizon, as 
we are both a seller and a purchaser of special access so it 
depends. I think it probably would be a wash. I would be 
interested in making one observation and that is that the 
prices that all of these customers currently pay for special 
access with AT&T is going down. I would be interested if they 
would pass those on to the consumers.
    Mr. Dingell. All right. I guess that is the questions that 
I have. Mr. Chairman, thank you for your courtesy.
    Mr. Markey. The Chair recognizes the gentleman from 
Nebraska, Mr. Terry, for 8 minutes.
    Mr. Terry. Thank you, Mr. Chairman. I am going to start off 
with you, Tom. Actually, your opening statement piqued this 
question regarding the Universal Service Fund, and I appreciate 
your comments in bringing it up, and I simply say that I think 
I would agree with all of the principles that you brought up 
from prior conversations. We may have disagreements about 
details of how to implement those principles, though. But I did 
want to express my appreciation for you bringing up the 
Universal Service Fund. Now in comparison to the special access 
issue and the forbearance petitions, if Congress had to act on 
one thing this year, in your mind, in your opinion should we be 
focusing on the special access issue or the Universal Service 
Fund?
    Mr. Tauke. Well the special access issue has to deal with 
the high end of the marketplace, and we can discuss these 
statistics that have been offered, but the way I look at the 
marketplace it is highly competitive. We have seven or eight 
national carriers who are providing special access services. 
There is vast deployment of new capability every year. So we 
see this as a very highly competitive market that serves the 
high end of the market, and there the customers, by the way, 
are driving down prices because they have choices. I think the 
biggest area of concern that the Congress should address is 
this area of broadband deployment. While we have made great 
progress on broadband deployment the fact remains that we have 
some areas of the country that don't have broadband capability 
yet. And as several of the Members said in opening statements, 
this is the future. This is how you are connected to the world. 
This is how you grow your economy. This is how you are going to 
get health services and various other education services. So I 
think that is what is most important, and that is why we would 
like to see Congress move on these efforts to do mapping, to 
try to establish public/private partnerships to get this 
broadband deployed in the hard to serve areas.
    Ms. Herda. Congressman, may I just make one correction in 
what Mr. Tauke said when he said special access is.
    Mr. Terry. We will just allow you to make a correction to 
Mr. Tauke for the request.
    Ms. Herda. I just want to give you the names of a couple of 
businesses of the 25,000 or so that we have that are served via 
special access, and these are not the Fortune 500 companies of 
the world. Blue River Hardware.
    Mr. Terry. Before you start, would you endorse my USF bill? 
That is really where I was going with the question.
    Ms. Herda. You have Duke School for Children in Raleigh 
which is a preschool. You have Robert's Printing which is a 
printing company in Tampa. You have Amsterdam Family Practice 
which is a healthcare organization. You have Michael Willis 
Architect which is an architect firm. These are small business 
customers that are impacted by special access. This is not a 
big business issue. This is an all business issue.
    Mr. Terry. All right. Reclaiming my time. Mr. Evans you 
mentioned, I am not going to ask you a question but I do 
appreciate you bringing up my hometown, Omaha, Nebraska. It is 
interesting because the incumbent company there, Qwest, is the 
minority provider both of residential, and it is probably close 
to a 50-50 split on business, and you have Cox Cable that is 
now the Cox Communications, sorry, wrong name. Now as I am 
frequently corrected by them. Cox Communications has been very 
aggressive. They run commercials about their small business 
package. They brag about the Fortune 500 companies in Omaha 
that they provide service to, and as I understand in the 
special access, Cox Communications doesn't have to open up 
their systems to anybody but the incumbent, Qwest, does, is 
that an accurate understanding of the status quo?
    Mr. Evans. Yes, the Telecom Act was aimed at unbundling the 
copper network that rate payers had paid for over the last 100 
years. Cox being a private company didn't have the benefits of 
all the subsidization and the rate of return to build that 
copper network.
    Mr. Terry. All right. Would you agree with the level of 
competition in Omaha, Nebraska that forbearance should have 
been granted?
    Mr. Evans. No, I do not agree.
    Mr. Terry. All right.
    Mr. Evans. Forbearance didn't help Qwest compete. It just 
took out another competitor or multiple competitors, and if 
that happens everywhere there will just be Cox and the 
telephone company, and so all the smaller guys that really get 
innovative, really save consumers more money, it will be a 
duopoly, and that is what they want. They want to go back to a 
duopoly where they both can have a big share of the market and 
both can charge exorbitant rates.
    Mr. Terry. Well I would have to say that by observation the 
vicious competition between the two have driven down prices.
    Mr. Evans. Well if those two were so great in Richmond they 
will wipe us out anyway so we still find a way to have 25,000 
customers. When I compete in Virginia Beach with Cox, I compete 
with Verizon. We do not compete with Qwest.
    Mr. Terry. I understand the point, although I would 
somewhat disagree. Mr. Cheek, Embarq is in a unique position 
from all the other folks at this table today, for which I will 
have to compliment our chairman. Once again, this is a pretty 
blue ribbon panel for us to have this level of discussion with. 
But it seems my interpretation is that you agree with Verizon 
and AT&T on the forbearance and special access issues but you 
come at it from kind of a rural position, or thought process, 
or philosophy versus theirs. And I just want you to go through 
for me, as kind of the rural protector, of why your position is 
different. Your position is different from the other companies 
on forbearance.
    Mr. Cheek. From forbearance we did file a forbearance 
petition that is very similar to the forbearance that was 
granted to Verizon and the other petitions that are filed. It 
only applies to the higher capacity broadband services that is 
above the DS3 level. So in our case the answer to the 
Congressman's question earlier this morning, DS1 and DS3, we 
are not seeking forbearance for those regulatory services. We 
are different than Verizon and AT&T in that we are not an 
integrated carrier. All right. We don't own a long distance 
company. We buy long distance minutes from Sprint. We also are 
not a wireless company. We have to buy every minute that we 
sell through our wireless company that we have formed. We have 
to sell every minute that we purchase from another provider as 
an MVNO provider. So we are different in those regards. We do 
operate in rural territories as I said. USF is extremely 
important to us, and to answer your previous question, we 
believe that should take front, and center attention by this 
subcommittee and, frankly, by the FCC.
    Mr. Terry. I appreciate it. Now, well my time is almost up 
so I will yield back my 13 seconds.
    Mr. Doyle [presiding]. Thank the gentleman. The Chair now 
recognizes himself. This question is for Mr. Tauke, Mr. Casto, 
Mr. Forsee, Mr. Evans, and Mr. Cheek, and very quickly just a 
yes or no answer. By Labor Day next year over 53 million 
numbers will be automatically removed from the Federal do-not-
call list. And since many of you have to report numbers that 
disconnect to scrub the do-not-call list clean, and since a few 
of you sitting there are responsible for calling me at 
dinnertime to ask me if I am happy with my long distance 
carrier, I just want to know will you support the bill that I 
introduced with my good friend, Chip Pickering, making the do-
not-call registry numbers permanent? It is just a quick yes or 
no, folks.
    Mr. Tauke. Yes.
    Mr. Casto. I am not familiar with the bill, but I will tell 
you that from a consumer standpoint I am on a do-not-call list, 
but that is about the extent of my expertise in that area.
    Mr. Doyle. I will take that as a yes.
    Mr. Forsee. Yes.
    Mr. Cheek. Yes.
    Mr. Doyle. OK. Very good. Mr. Evans.
    Mr. Evans. Yes.
    Mr. Doyle. Now I understand Cavalier is launching service 
in the Pittsburgh area next week. Can you tell me where you are 
offering service?
    Mr. Evans. Yes, we just built a new switching center, 
deployed fiber to 18 Verizon central offices throughout the 
Greater Pittsburgh area from downtown to East Liberty to 
Northside, Oakland, Squirrel Hill, Perrysville, Sharpsburg, 
Robinson, and Wilkinsburg. So we build very big networks so we 
can offer services to all the consumers in that region. Once we 
get established and start getting successful then we typically 
expand out to even more offices to provide greater coverage.
    Mr. Doyle. And you are going to be able to do that by what 
date?
    Mr. Evans. We are turning on the service the 10th of 
October.
    Mr. Doyle. The 10th of October. Mr. Tauke, can you pledge 
on behalf of Verizon, that you will roll out FiOS to all those 
areas that Mr. Evans just described in my district by, what is 
it, October what, Mr. Evans?
    Mr. Evans. Tenth.
    Mr. Doyle. October 10.
    Mr. Tauke. We won't make it by October 10.
    Mr. Doyle. Well I see, well, listen I want you to know I 
appreciate the progress that Verizon is making. I saw your 
initial buildout plans in Allegheny County, and I sort of felt 
hurt that it seemed like all the FiOS was going north and south 
of me, but more recently I see a little bit more of my district 
is being included. But tell me, Mr. Tauke, how do I explain to 
my constituents and small and midsize business owners that I 
sit here on the Telecommunications and Internet Subcommittee 
and I sat back and saw Verizon kill their new Internet provider 
by playing games with these FCC rules on forbearance?
    Mr. Tauke. I am not sure what carrier we killed.
    Mr. Evans. If your forbearance is successful we will have 
to shut down Pittsburgh. Without the last mile loops we have 
nothing to offer.
    Mr. Doyle. So how do I explain that back home to the folks?
    Mr. Tauke. Mr. Chairman, let us just be clear here. Just 
because there is forbearance doesn't mean that we aren't 
selling services to our carriers. We have had forbearance, and 
we have had removal of rules of selling services----
    Mr. Doyle. So you negotiate rates with Cavalier.
    Mr. Tauke. We have negotiated contracts. When the UNE-P 
went away the view was, oh, the world is going to collapse 
because there will be no UNE-P. We negotiated contracts with 
all of the carriers who were using UNE-P, and we still have 
four or five.
    Mr. Doyle. But you are the only game in town so if they 
can't pay your rates they have got to walk, don't they?
    Mr. Evans. I can give you a great example of that. We just 
bought a company in December of last year that was one of the 
largest UNE-P providers. They had contracts with Verizon. It 
basically put them in a negative cash flow so they had to be 
sold. They were a public company. Cavalier bought them, and the 
rates for UNE-P went from around $18 on average before Verizon 
did their commercial agreement to around $35 per customer. 
There is no economic model that we can pay a cost of $35 and 
recover that in the chart. That is just for a plain phone 
service. So we are harvesting those customers. They are going 
away. We are not adding new customers or marketing new 
customers. It is not a viable business when Verizon does their 
commercial agreement.
    Ms. Herda. We have had the same experience. We recently 
bought a company that had UNE-Ps, and we have had to let those 
customers go because you just can't make any money on it, in 
fact, it is a money loser.
    Mr. Forsee. Just to go back to the time UNE-P rates were 
changed both Sprint, AT&T, and MCI were the largest providers 
of UNE-P services, and all three of those companies 
dramatically exited that business as soon as that rule changed 
because it wasn't economical to stay in it.
    Mr. Tauke. If I might point out, Mr. Chairman, all of those 
companies went under or were forced to sell at a time when the 
rates were heavily regulated by the FCC and the State 
Commissions. Rate regulation was not the problem with the UNE-
P. It was that the business model was a faulty business model.
    Mr. Doyle. Yes, thank you, Mr. Tauke. I have a little bit 
of time left, and I don't want Mr. Casto to feel left out. Mr. 
Casto, in your testimony I saw where you said that you are 
``not aware of any significant commercial area where AT&T does 
not face facilities based special access competition today.'' 
And I think that is great because I love competition but I am 
confused. Could you describe to me what you mean by the term 
significant commercial area?
    Mr. Casto. Sure, they are generally the MSAs within our 22 
State footprint. You can look at our pricing flexibility 
record, and we have been granted pricing flexibility in a 
number of these MSAs and, in fact, in areas where we haven't 
been granted pricing flexibility we run into competition and 
were unable to respond because we haven't been granted 
flexibility pursuant to the----
    Mr. Doyle. But within an MSA would you concede that there 
are some areas where there is obviously some places where you 
don't have significant conversations?
    Mr. Casto. If you mean is there a building that is not lit 
or something like that?
    Mr. Doyle. Yes.
    Mr. Casto. Absolutely, there are instances like that.
    Mr. Doyle. OK. So there are some areas obviously where AT&T 
is indeed the only supplier of special access, right?
    Mr. Casto. Consequently there are areas where we are not 
the supplier within our territory.
    Mr. Doyle. There are some areas where you are the only 
provider, is that correct?
    Mr. Casto. In a particular building that may be the case.
    Mr. Doyle. So in cases where AT&T is the only game in town, 
do you use that to leverage other areas where you do face 
competition?
    Mr. Casto. It actually works quite the opposite. When 
customers come in and negotiate broad master agreements with us 
they utilize that to get us to extend prices across the entire 
MSA or across the entire region, including favorable terms and 
conditions across every area. And that is traditional practice 
that is occurring in the negotiations, and in fact, the way the 
pricing flexibility rules work we are not allowed to price down 
to a building level. We, in fact, have to extend this pricing 
either to an MSA level or broader on a State or regional level.
    Mr. Doyle. Thank you. Ms. Herda and Mr. Forsee, isn't this 
really one of the most important parts of this special access 
debate, that the big guys can sort of leverage where they are 
the only game in town to take business in areas where there is 
competition?
    Mr. Forsee. We sent out in February of this year a request 
to 77 supposed alternative access providers for our 52,000 cell 
sites. We had a response from 16 of the 77 that could cover 1 
percent of our 52,000 cell sites. The market has not developed 
with all the efforts of this committee, of the Commission, of 
competitors around the table, the market has not developed, 
52,000 cell sites, 16 responses covering 1 percent of our cell 
sites. The market has not developed.
    Mr. Doyle. Ms. Herda.
    Ms. Herda. Yes, sir, it is all about the buildings. At the 
end of the day if there is not another provider who actually 
has a physical infrastructure into a building there are no 
other alternatives than the incumbents. Even the Department of 
Justice as part of the Verizon/MCI case indicated that the vast 
majority, and this is after getting all the data that they got 
from everybody through subpoenas, the vast majority of 
commercial buildings in its territory that they were the only 
last mile provider. That they controlled the access, and that 
is really the key to competition not a central office. It 
actually amazes me that the FCC used the central office co-
locations as a means to determine that there was competition. 
The only reason why companies build into central offices is to 
use the loops that the local exchange carriers have out of the 
central offices. So when you deregulate them you have 
essentially killed competition because now they can no longer 
get reasonable prices on those loops.
    Mr. Doyle. OK. Thank you, Ms. Herda. I am well past my 
time. The Chair recognizes the gentleman from Florida.
    Mr. Stearns. Thank you, Mr. Chairman. And perhaps you might 
be willing to offer some more time as we go along here, to 
others on this side.
    Mr. Doyle. We will see.
    Mr. Stearns. OK.
    Mr. Doyle. Depends on the questions you are asking.
    Mr. Stearns. Mr. Forsee, if you don't mind I wouldn't mind 
you putting your charts up again. If you could have your staff 
put your charts up.
    Mr. Forsee. I would be pleased to.
    Mr. Stearns. The beauty about this situation is that you 
have offered your charts, and you have made some pretty 
charges. And in an open forum like this I think people like 
myself are actually, honest to goodness, we are trying to 
understand this and also see who is right. And I think it is an 
opportunity. Keep moving the charts down. Keep the next one. 
Get to the one where they say they are paying 10 times the 
rate, yes. Yes, this is the one, that you make these claims, 
and I think most members are looking at this and saying is this 
true? So I was going to give Mr. Tauke and Mr. Casto an 
opportunity to respond to these charts. You have made these 
claims, and I think, judging from sitting up here it is a 
pretty dramatic chart, and what you are indicating in this 
chart is you are paying 10 times what AT&T and Verizon FiOS is 
paying, and so I want to give Mr. Casto an opportunity to 
respond to that.
    Mr. Casto. Sure, thank you.
    Mr. Stearns. And not a lot but I mean just----
    Mr. Casto. Let me just offer a couple observations.
    Mr. Stearns. Yes, maybe you could tell us first of all, do 
you agree with the chart?
    Mr. Casto. I disagree with the number completely.
    Mr. Stearns. OK.
    Mr. Casto. Looking at that number, and I have done an 
analysis personally and had my team do an analysis of the 
rates, Mr. Forsee and his company paid AT&T, and that is not 
the rates. In fact, they are much lower than that. I know that 
is a representative example. I would also take exception with 
the example that it is not characteristic of the way the 
network is actually architected or purchased from AT&T, in 
fact, there is not generally two channel terminations, there is 
one. The average distance is shorter, so I think it is a 
mischaracterization of the facts. And, in fact, the rates are 
much lower than that.
    Mr. Stearns. Is there a discrepancy instead of 10 times? Is 
there a three times or one time or what is your opinion? If we 
used your figures.
    Mr. Casto. Right. They may be half.
    Mr. Stearns. Half, so instead of $390 it would be roughly 
$200.
    Mr. Casto. The other point that I need to make is it is not 
really an apples to apples comparison example.
    Mr. Stearns. One is fiber, one is copper, you are saying.
    Mr. Casto. Not necessarily, but one is a best effort. 
Ethernet broadband service that is servicing consumers, Mr. 
Forsee's business has very sophisticated needs in terms of 
carrying both data and voice, and he needs services that are 
more a dedicated nature and therefore, they are more reliable, 
and there are different characteristics to the provisioning of 
the services that drive.
    Mr. Stearns. But I hear you characterizing the graph as 
incorrect but the proportion would be half of that. OK. Mr. 
Forsee, I am going to let you respond after Mr. Tauke. So I 
will let Mr. Tauke, your response.
    Mr. Tauke. The chart is meaningless in my view.
    Mr. Stearns. OK.
    Mr. Tauke. It is like saying that well, we have Chevys and 
we have John Deere tractors and comparing the prices for them. 
I mean they perform different services. They perform different 
functions. One is to a residential customer that has much less 
usage then for a business customer that has larger usage. But 
the biggest factor is that there are quality of service 
requirements that are much tighter on a DS1 than it is for a 
residential customer, and the second is that it is 
asymmetrical, while the residential customer is symmetrical. So 
they are just different services, and suggesting that there is 
a comparison between the two is wrong.
    Mr. Stearns. So in your opinion the chart is not only wrong 
but the information is being used improperly because they are 
comparing apples, and oranges.
    Mr. Tauke. Right. It is like the John Deere tractor and the 
Chevy. They are used for different purposes and different 
functions, and, yes, the John Deere tractor costs a whole lot 
more than that.
    Mr. Stearns. OK. But Mr. Casto says that the chart 
approximately makes the argument that instead of $390 it is 
roughly twice or $200. So he is at least giving.
    Mr. Tauke. I would stipulate the price is squarely more for 
a DS1 because it is a totally different service then it is for 
broadband connection to the home.
    Mr. Stearns. OK. Mr. Forsee, your opportunity to respond.
    Mr. Forsee. Yes, I will try to follow the tractor analogy. 
I think we are talking a different kind of tractors here than 
we are tractors and sedans. We are talking about broadband 
pipes. And we are talking about services that on the end that 
I----
    Mr. Stearns. But aren't these broadband pipes that these 
folks have put in?
    Mr. Forsee. Absolutely, and they put them in over 100 years 
of infrastructure and switches and all of the participation and 
the regulatory framework, but the pipes at the end of the day, 
as you can see by how much traffic is being carried, it is the 
same technology. It is the same stuff that is going out there, 
and the fact that they acknowledge, Verizon has acknowledged in 
their filings that FiOS represents similar services which is a 
term I used in my testimony, it is similar services using the 
same technology bandwidth going out to consumers and business 
customers. It is the same stuff and to be charged 10 times as 
much in one case because it is their competitive market that is 
special access that is still, again, being dealt with in a 
different environment where competition hasn't developed. That 
is the issue.
    Mr. Stearns. On one of your charts I think you talked about 
the profits to competitors. You folks made a profit too, didn't 
you?
    Mr. Forsee. Yes, and my margins are 100 basis points less 
than AT&T and Verizon's today, part of which is the result of 
the $6 billion of special access profits that they enjoy beyond 
the rate of return that would otherwise be calculated. That is 
the difference.
    Mr. Stearns. OK. Thank you, Mr. Chairman. I wonder if I 
have forbearance here just to ask one more question?
    Mr. Doyle. We are not granting any forbearance petitions 
here on this committee. Yes, one more, Mr. Stearns, and make it 
quick.
    Mr. Stearns. This question is for the entire panel. Have 
special access rates gone up or down? Is the market keeping 
rates competitive or is it the regulation? Just left to right.
    Mr. Doyle. Very quickly left to right.
    Mr. Stearns. Yes, very quickly, and have special access 
rates gone up or down? Is the market keeping the rates 
competitive or is it the regulation?
    Mr. Casto. Special access rates are dramatically down, and 
it is the result of the competition we face in the marketplace. 
Period.
    Mr. Stearns. OK. Ms. Herda.
    Ms. Herda. Our special access rates are down, but the 
incumbent rates are significantly up.
    Mr. Stearns. Mr. Tauke.
    Mr. Tauke. That is interesting because the rates where we 
are saving are going dramatically down; the payments have been 
averaging over 5 percent reduction a year in real terms.
    Mr. Forsee. Retail customers and a filing to the FCC 
earlier this year estimated that in 2007-09 that special access 
pricing could cost as much as 234,000 jobs and $66 billion in 
economic profit. That was filed by the Ad Hoc 
Telecommunications Users Committee earlier this year.
    Mr. Cheek. As I said in my testimony our special access 
rates for DS3 have gone done 35 percent since price flexibility 
was implemented. And also, our DS1 prices are actually below 
cost as we also have testified to today.
    Mr. Evans. They have gone down slightly and more so in 
competitive buildings, but the technology cost, the capital 
cost to provide DS1 now is so much lower than it was 3 years 
ago. It is a fraction of what it was. So it should be down much 
greater if there was true competition in all buildings.
    Mr. Rosenbalm. We do not operate in that market, so I can't 
answer your question.
    Mr. Stearns. Thank you.
    Mr. Doyle. The gentleman's time has expired. The Chair now 
recognizes the gentlelady from California, Ms. Harman.
    Ms. Harman. Thank you, Mr. Chairman. I am impressed to see 
you in the Chair and appreciate your good humor. This is a 
fascinating hearing. It is good to take this kind of broad look 
at where the industry is, but it also offers some lessons, at 
least it does to me for a short-term issue or a shorter term 
issue, which is the 700 MHz band auction. I think a lot of the 
issues we are talking about now, what is happening with 
competition and innovation, what is happening with access are 
playing out there, and in fact, at least one of the companies 
sitting here is also playing a big role there. So since at 
least for this member that auction is absolutely critical 
because it will either make us have an interoperability 
solution for public service agencies or it won't, I am paying 
close attention to what you are saying here. And let me say 
while I am at it that I hope the FCC is paying close attention 
to what is being said here because I think the FCC rulemaking 
is highly innovative and highly significant. And I worry that 
because of lawsuits and other actions that some companies are 
taking that highly innovative proposal may be changed, and 
changed so significantly that we don't have a chance to have 
the innovation and have the access for our first responders 
that I think their situation requires. So having said that let 
me just ask if anybody has a comment on this 700 MHz auction. 
Any of the witnesses. I am surprised that Verizon wouldn't have 
a comment.
    Mr. Tauke. I presume your comments were directed my way so 
I do want to at least offer a couple of observations. One 
instance that we have filed suit against the provisions 
relating to the C-block, that did not do anything on the 
provisions relating to the segment of the block that dealt with 
public safety. We have asked the court to expedite the 
proceeding because we, too, want the auction to go forward as 
rapidly as possible.
    Ms. Harman. Well, I hope your lawsuit, whatever its merits 
are, does not delay this auction. It has already been delayed 
by Congress at the request of many outside once, and I don't 
think we can wait for an inoperability solution. But let me 
just ask you about access, the subject of access. I just 
recently changed my carrier for my BlackBerry, and I am an 
addicted crack berry operator, but I am not the most skilled 
operator, and I am struggling with the features of this new 
device. And every time I ask somebody a lot smarter than I, who 
could be almost anyone who works for me, ``why do I have to do 
this?'' The answer is because that is what you have to do if 
you want this device, and if you want to do what you did with 
your other device then you got to go back to the other device. 
So I feel trapped in this piece of technology that I would like 
to change to be more friendly to me. And I think a lot of 
people feel the same way. My access to features that I would 
prefer is denied, and I am not accusing any of your companies. 
I am saying I think that this is generally true. So, again, 
taking that, and applying back to trying to have these first 
responders structure a solution that would work best for them. 
Would anyone like to comment on the subject of access? Again, 
practices that you have. My understanding, well, let me ask 
Verizon. Is it true that for the foreseeable future your 
customers will not be able to access your network with any 
device or run any application over it? For Sprint Nextel, you 
are building a new WiMax network which will bring a fourth 
generation broadband Internet technology to a hundred million 
American consumers. Are you going to let consumers use devices 
of their choosing, such as computers and all kinds of cell 
phones to access your WiMax network?
    Mr. Tauke. Well first on the relating to Verizon and the 
open access, two things. One is that yesterday, in fact, we 
issued a news release announcing a new policy related to 
changing devices which if you happen to have your BlackBerry 
from us maybe you can use because you can change your devices 
without doing a new contract. So that may be something that 
part of the ongoing effort I think to try to facilitate more 
consumer movement in the marketplace. We, also, by the way have 
a phase out system for our early termination fees. In response 
to the second issue of open access, in most cases the blocking 
of access is contained in the device, not in networks. Our 
issue, not to get into too much detail here, but our issue with 
the FCC on the open access provisions relating to the C-block 
is that they do not accommodate devices that are manufactured 
by other companies and that block access to certain things on 
the Internet. And we didn't believe that because we had a 
customer base that has devices that we don't make that deny 
access to certain services on the Internet that that should 
preclude us from being able to bid, and use that spectrum.
    Mr. Doyle. The gentlelady's time has expired.
    Ms. Harman. Mr. Chairman, could I just get the Sprint 
Nextel witness to respond to the question?
    Mr. Doyle. Sure.
    Ms. Harman. I appreciate it.
    Mr. Forsee. There is a lot of good news coming as we begin 
the deployment of our WiMax which is a mobile broadband 
network. We will start turning up markets as early as the first 
part of next year, and that will allow, again, for the first 
time in this country and actually worldwide a mobile broadband 
network. That model is a different model. It will allow open 
access for those chip sets that are deployed and embedded in 
computers and in devices because the network and the technology 
will be unique. So they will be able to be bought by service, 
be able to be activated on occasion as opposed to contracted 
force. It will be a different model, and I think will be very 
much in tune with the line of your questions.
    Ms. Harman. Thank you, Mr. Chairman, for indulging me. I do 
worry though about the 700 MHz auction, and I hope we will all 
pay careful attention. Thank you.
    Mr. Doyle. I thank the gentlelady. Thank you. The Chair now 
recognizes my friend from Mississippi, Mr. Pickering, for 8 
minutes.
    Mr. Pickering. Mr. Chairman, thank you. Please forgive me 
if I reminisce. When I first came to Washington at the young 
age of 26, I was working for the first President Bush, and 
working on East European and Soviet programs, and reforms for 
economic, and political freedom, and as I came to the Hill in 
1991 to begin working on telecommunications reform, hoping to 
take monopoly telecom policy to an economic policy of freedom 
choice competition. And as you look at the parallels between 
the two, we see across Eastern Europe and in the former Soviet 
Union primarily success, more freedom, more political freedom, 
stronger democracies. You look at the Ukraine, you look at 
Eastern Europe. But if you look at Russia we can probably say 
that we have seen some setbacks or rollbacks. And so just like 
in economic policy or political policy you can have success and 
progress or you can have failures, rollbacks, setbacks. And so 
as we look at telecommunications competition and the state of 
where the industry is today I think we can see a number of 
successes. If we look at the IP applications and market 
increasing competition towards freedom. You look at wireless, a 
fairly strong, healthy, vibrant competitive sector. But as we 
go forward, how do we assure or guarantee that we don't have 
rollbacks or setbacks as far as economic freedom, 
telecommunications and competition and choice. And before us we 
have some key policy areas that I think will assure that we go 
forward in the right direction and path and continuing to see 
greater competition and choice. But we can also have setbacks 
and failures if we choose wrongly or poorly. I think on the 
forbearance petitions that are before the FCC right now, if we 
take away the access the competitors now have for the last mile 
and for the last loops then we could see, just like we lost in 
the early part of 2000 an entire sector of telecommunications 
long distance, we could see the loss of C-sector that gives 
very important competition and choice to competitors.
    In 1999 when special access was granted those reforms, you 
had AT&T and MCI. You had hundreds of other long distance 
providers, and facilities based competition in special access. 
Well since that time all those companies have either 
disappeared or been acquired, and four regional Bells are now 
two national carriers of consolidation and concentration, 
local, and long. And so if you look at that market we could say 
there is actually less choice today then we had when the reform 
was adopted in 1999. And what do we need to do to make sure 
that special access stays competitive and economically priced?
    As the FCC looks at forbearance I would like to ask the 
political dissidents at the table, Mr. Evans, and Ms. Herda, 
what would happen if the FCC granted the current forbearance 
petitions to your business model and your ability to compete?
    Mr. Evans. Our business model would be decimated. Without 
the local loops we cannot offer service. There are no other 
alternatives. We are paying Verizon $11 a month just to rent a 
pair of wires. For every wire, we have over 500,000 loops that 
we are paying. We pay Verizon alone $72 million dollars a year. 
So it is just to eliminate competition. We have no other 
choices. We tried wireless. We tried WiMax. We have been 
working with broadband over power. There is no other solution. 
The copper network is the best network available to give us the 
lowest prices.
    Ms. Herda. We are primarily concerned with the forbearance 
of Ethernet services and OCN services. In the case of Ethernet 
services today we have been unable to get any agreements with 
the various different incumbents, large incumbent carriers to 
be able to buy wholesale Ethernet services and in fact, the 
prices that they are charging which were on the slides that I 
showed earlier are higher than the retail prices that we are 
seeing them charge to retail customers in the market. So it is 
very uneconomic for us to buy those services. We can't be 
everywhere. We have spent billions of dollars building 
infrastructure in 75 markets across the country. We have 8,000 
buildings connected with fiber. We are feverishly making 
investments every single day to build more fiber into more 
buildings, but our customers want us to be able to serve them 
where they want us to be. Wherever their services they have a 
need. If it is in Fargo, ND or if it is in Boise or whatever 
markets. If we are not in that particular building we have to 
acquire the service from someone, and that someone is 
inevitably always the incumbent carrier. So the problem with 
forbearance particularly of Ethernet services is that we will 
not be able to have a discussion about that pricing of Ethernet 
services during the special access proceedings, which is 
critical to the future of telecommunications service.
    Mr. Pickering. Mr. Tauke, one of the points of your 
testimony was on broadband deployment and how USF can either be 
used to help that or hurt that. You also talked about wireless 
broadband as a competitive force in the market and as a 
substitute for the incumbent Y-line capability. But you support 
a cap or a reverse auction. Wouldn't that actually restrict 
wireless broadband, especially in the small and rural markets, 
eliminating competition and choice in broadband deployment 
especially as we get ready for the 700 auction. So how do you 
reconcile your USF position with broadband objectives of 
increasing that across the country?
    Mr. Tauke. Here is the problem that we face today. You have 
in many areas of the country now 4 or 5, 6, in some cases 9 and 
10 carriers who are receiving universal service support to 
serve hard-to-serve areas. OK. Generally the amount that each 
carrier receives is based on the cost to the wireline carrier. 
So let us say there is a community with 500 homes. The wireline 
carrier when it had 500 homes maybe was receiving $10 a month 
in subsidy. As other carriers come in and take customers from 
the wireline carrier maybe now they have 250 homes. So then 
they get a subsidy of $20 a month because their costs haven't 
declined. Not only do they get $20 a month but the other five 
carriers all get $20 a month, and this is driving up the amount 
of money that is going into the community. The community 
obviously isn't that hard to serve because it has multiple 
carriers, and these multiple carriers are getting ever larger 
amounts of money to serve the community. This system is broken. 
Our suggestion has been a reverse auction. I am not saying it 
is the only one, by the way. And I think that you raise a point 
that should be taken into consideration when we look at a 
reverse auction.
    Mr. Pickering. A reverse auction could go to just one 
carrier. Would you agree that the only thing worse then 
subsidizing competition would be subsidizing monopoly?
    Mr. Tauke. Well I think that this is an important public 
policy decision for the Congress. If you have a hard-to-serve 
area, how many carriers do you want to serve? How many carriers 
do you want to support to serve that area? I would argue that 
in the past the position of the objective of universal service 
has been to provide service to areas. I don't know how many 
carriers you think would be sufficient. But I do think that in 
that town of 500 people or many of the communities that we are 
familiar with in our native States that four, five, six, seven 
carriers in the community makes no sense. Economically it only 
is supported by the strangeness of the Universal Service Fund.
    Mr. Pickering. Mr. Chairman, my time is up, but I do hope 
that as a panel that we work. I don't think the outcome of two 
to three competitors in a market is a good outcome, and I do 
hope that we look to have policies that promote multiple 
choices for the greatest degree of economic freedom in 
telecommunications. Thank you, Mr. Chairman.
    Mr. Doyle. I thank my friend. The Chair now recognizes Mr. 
Inslee for, Jay did you have an opening statement or did you 
wait?
    Mr. Inslee. I had a brief opening statement.
    Mr. Doyle. For 5 minutes.
    Mr. Inslee. Thank you. I wonder if someone could help me 
put that chart up again that we were looking at because I 
wanted to make sure that I understood everybody's position on 
it. I understood Mr. Casto, Mr. Tauke basically you were saying 
this is an apples and oranges or Cadillacs and John Deeres, and 
I wanted to ask them both is there a comparison actually it was 
the other one. We were looking at the bar graph showing the 
various costs, the various services. Is there a non-Cadillac to 
John Deere comparison associated with this type of matrix that 
we should be familiar with, Chevy as, excuse me.
    Mr. Casto. Not that I am aware of. I really do think it is, 
again, it is the Cadillac and the John Deere, they are 
completely different services and serve different purposes, and 
they are provisioned differently, architected differently, and 
purchased differently.
    Mr. Tauke. It seems to me that we have to recognize that a 
company like Verizon is a major purchaser of special access 
services, as well as a seller of special access services. So 
our Verizon Wireless company in 75 percent of the country is in 
the same boat as Mr. Forsee's company. We have to go and buy 
special access services from other carriers. So what do we do? 
Well first in many instances we use microwave in order to not 
have to go with any of the incumbent carriers. Then we look at 
the carriers that are available in that marketplace, and 
usually there are several, and we bargain with them to try to 
figure out what is the best price we can get. But we are in the 
same boat as a wireless company that he is in 75 percent of the 
country because we don't have wireline facilities, special 
access facilities in all of those areas. And so I guess the 
point that I want to make is that our wireless company figures 
out how to compete, and we do it by buying services from a wide 
variety of people, and there are a wide variety of people who 
offer those services. I have sheets of names if you would like 
me to put them in the record. And we don't see that this is a 
market where as a wireless company we have few choices.
    Mr. Inslee. Mr. Forsee, do you want to comment on their 
responses?
    Mr. Forsee. I would reiterate what I said earlier that we 
put out a request to 77 providers, probably most of the same 
names that were on that list. We got 16 responses that covered 
1 percent of our cell sites. There is no alternative except to 
go the incumbent local exchange companies. They built out these 
networks over 100 years. They are dispersed. They are deployed 
where cell sites have to be located in order to serve and 
provide better service to municipalities. That is the fact. And 
our WiMax network plan which is now being launched, we put out 
a request for microwave support because we want an alternative. 
But at the end of the day we will move the needle ever so 
slightly. We will move that needle from 98 percent over 3 years 
or 4 years to 93 or 94 percent. That is the fact. There is no 
other alternative except to rely on the regional Bells, now the 
ILECs, for that type of service.
    Mr. Casto. I would just like to extend an offer to Mr. 
Forsee that if he is interested we would certainly be 
interested in talking about providing special access in the New 
York and Boston area. And in the Verizon territories, as I am 
sure Verizon would be willing to extend that same offer in 
Chicago, and other markets where they provide service.
    Ms. Herda. I think the difference here, and when you look 
at that chart and forget about the numbers for a second and 
think of the difference in the prices, and even if that is $100 
under the DS1 line, I know in the 8,000 buildings that we have 
connected with fiber we sell special access in those buildings. 
But in every single one of those buildings we have a 
competitor, and it is the incumbent local exchange carrier. In 
all the buildings that were buying services if we had another 
alternative than the incumbent carrier, I could tell you right 
now I would love to buy from someone else. We try to buy from 
someone else. We have gone to other competitive carriers. We 
have gone to the cable companies. The problem is that we are in 
more buildings than they are, and they can't really help us. We 
continue to look for alternatives in those buildings but in 
order to even get the kinds of rates that are on those charts 
you have to make big commitments and ever-growing commitments 
to the local exchange carriers to get the discount.
    Mr. Tauke. Mr. Inslee, we get the impression here that all 
these prices are deregulated. Let me just make this simple 
point. If there is any failure in the FCC process it is that 
the last mile prices for special access remain heavily 
regulated under price caps. In Boston, New York, Washington, 
DC, Baltimore, Philadelphia, five of the most competitive 
places in the country we are still under price cap for the last 
mile for special access, DS1s and DS3s. We still have all our 
rates regulated by the FCC. This is when Cablevision is 
advertising in New York they have more fiber than any phone 
company reaching more buildings then any phone company. Time 
Warner says to Wall Street they have access to 900,000 
buildings. Now how can it be that she says 8,000, and they say 
to Wall Street 900,000? Well it is because the issue is not 
whether you have lit a building, the issue is do you have 
access to that building?
    Ms. Herda. And you are providing the access.
    Mr. Tauke. No. What happens is if what you are telling 
others, and what is the story that the investment community is 
told and what the Department of Justice uses in its assessments 
is you put on a fiber ring. And when you put on a fiber ring 
you don't go light a building if there is no customer there to 
order the services. But once a customer comes to order the 
services you split off fiber from that ring and you go to the 
building. If I have a 50 square foot building and three tenants 
in that building, and nobody is choosing Time Warner as a 
carrier, of course they are not going to take fiber to the 
building. They aren't going to light the building. But if it is 
close to their fiber ring, are they going to light the building 
when a customer wants service? Of course. So I think that you 
have to understand that there is a lot of competition in these 
urban areas in particular. The rates are still capped by the 
FCC. The failure has been that the process used at the FCC has 
been so slow in freeing this market.
    Ms. Herda. I think it is important to understand. We are 
physically in around, a little less than 8,000 buildings with 
our network. If we have a building right here, and our fiber is 
going right by the building right next to it, we may never be 
able to economically go into that building. We have to get a 
return on our investment. When we go into a building we have to 
have a customer contract, and it can cost anywhere on the low 
end of say $50,000 to build fiber into a building even if the 
fiber is going right down the street. And it can cost as much 
as $300,000, and so you have to be able to get enough revenue 
in that building. And I can tell you if we can't build into the 
building with as big as our networks are that do go in so many 
different places, nobody else is going to be building. The 
capital markets are not going to fund another competitive 
player to do that.
    Mr. Markey [presiding]. The gentleman's time has expired. 
The Chair recognizes the gentleman from Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. I am going to ask Ms. 
Herda if she will respond to questions that I pose to her and 
not jump in on questions that I don't pose to her. I have seen 
that frequently this morning, and I find that troubling and 
disconcerting. And I would like to start with Mr. Tauke, 
another problem which really troubled me with Mr. Markey was 
his comment about who owns what. So Mr. Tauke, assume my friend 
rents an apartment, and he has been paying rent for multiple 
years. A lot like many Members here. Does he own that apartment 
any more than your customers who rent part of your network or 
the last mile as Mr. Markey made the assumption?
    Mr. Tauke. I notice we pay the taxes on the network.
    Mr. Shimkus. It is a very real problem. This is the keyhole 
of telecommunications. If you pay rent on an item do you own 
it? And I am not for takings. And the chairman of this 
committee has talked numerous times about when the Federal 
Government takes things the Federal Government has to 
compensate. Just because you pay rent doesn't mean you own it. 
Now there may be other ways to address this concern, but 
assuming that someone who pays rent owns the property, that 
obviously struck a tough cord in a personal property rights 
Member like I like to be. But let me go to Mr. Tauke, Mr. 
Casto, and Mr. Cheek, and you tried to identify this before. 
When you sell special access services to business customers how 
much leverage do these customers have, and Mr. Casto why don't 
you go first. If you go briefly I have a couple of other 
questions.
    Mr. Casto. They are really carrying the cards given the 
environment that we operate in today, and they are very 
sophisticated customers, are well aware of their options, and 
they utilize those options, including the customers the 
representatives at this table when they purchase special access 
from us.
    Mr. Shimkus. Thank you, Mr. Tauke.
    Mr. Tauke. I will simply repeat what he said.
    Mr. Shimkus. And Mr. Cheek.
    Mr. Cheek. Along the same lines, if you look at our 
territory in Florida alone, we have in excess of 24 active 
competitors. I should say all of our Florida markets, the 
majority of our Florida markets. So there is plenty of leverage 
in the marketplace because it is a competitive marketplace.
    Mr. Shimkus. And I appreciate, you have been pretty quiet 
on the panel compared to the opening statements and stuff, and 
I think the frustrating thing is if we were in the old days of 
a monopoly instead of seven people sitting up here we would 
have one. Now comments have been made during the break. I 
walked off the floor. I met with some constituents, and I kind 
of told them over the TV what we were doing. And he says, boy, 
I yearn for those old Ma Bell days. Talking about the 
frustration of dealing with the billing, and for consumers to 
have choices, and I said but if we were in the old Ma Bell days 
what would we have? We would have no cell phones. We would have 
no broadband. We would have no competition. And my fear is that 
people who yearn for the old days of a monopoly provider, you 
all are perfect examples of the competitive market trying to 
deal in the arena that we have obviously there is some 
regulations still there. Regulations that Mr. Tauke has 
mentioned. Regulations that Mr. Forsee has mentioned. And so my 
final point based upon these questions, Mr. Evans you talked 
about your triple play option. How much do you charge for that?
    Mr. Evans. Seventy-nine dollars.
    Mr. Shimkus. Mr. Rosenbalm, and I appreciate because you 
are a provider by the local municipality, correct?
    Mr. Rosenbalm. Correct.
    Mr. Shimkus. What does yours cost?
    Mr. Rosenbalm. Around $80.
    Mr. Shimkus. Around $80. I need you all to deploy to my 
area. I have the triple play, the one thing about this 
committee, too, is we all deal with these services that we are 
fighting about, right? And right now mine is $99.97 for my 
phone, voice, my video broadband, and home phone services, but 
I have other options, too. AT&T is trying to roll out to get in 
my neighborhood. So I would ask Mr. Rosenbalm because if it is 
a utility does the other aspects of the utility help subsidize 
or roll out or was there any Government real development or 
State development loans that helped you do this?
    Mr. Rosenbalm. There were no loans from the State. We 
launched our network in Bristol itself with bond issue back 
from the venture. Since then we have received some EDA grant 
funding to expand in southwest Virginia, as well as the 
Virginia Tobacco Commission has extended funding.
    Mr. Shimkus. I just want to applaud that. I have 30 
counties in southern Illinois, and I think going that direction 
where it is more difficult for other people to provide is a 
good answer. Thank you, Mr. Chairman.
    Mr. Markey. Thank you. The gentleman's time has expired. 
And, of course, the reason Mr. Rosenbalm is here is that many 
States are now, well at the behest of large incumbent companies 
trying to prohibit municipalities like Mr. Rosenbalm from 
deploying their broadband which gives an extra option for the 
community, and that is something that Mr. Boucher and myself 
and many others here are going to try to make sure it doesn't 
happen. Up until the 1992 Cable Act it was most of the local 
cable contracts actually prohibited the municipality from 
allowing another company to come into that community, which the 
1992 Act voided so that communities could bring in other 
competitors to compete against the incumbent cable companies. 
So this is not a new phenomenon. It is something that this 
committee has had to deal with over the years. I have a letter 
here from the Consumers Union addressed to the subcommittee on 
the issues before us today which by unanimous consent I would 
like to have it included in the record and turn and recognize 
the gentlelady from the State of California, from Silicon 
Valley, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman. And thank you to all 
the witnesses. I have had the advantage of being here since 
9:30 this morning and having heard the give and the take 
certainly the testimony, and I think it has been highly 
instructive. I can't help but think of something that my father 
used to say, and it is the following. That it is a great deal 
if you are willing to buy back what you are offering. And so I 
think that for everyone at the table that is a consideration to 
make. I doubt that most frankly the incumbents would do that. 
Honestly, I think that there is a tilted case here. It is 
somewhat rigged for a variety of reasons, but I come down on 
that side as I have for sometime, not because I don't have any 
friends that work with the incumbents. I respect the American 
companies but there is not a fairness to this. And I think that 
it really is American to have competition, and when you look at 
the numbers it is not there. Do we have a proliferation of 
services in our country? We do, and I welcome that, and I want 
to see more of it. But I don't think there should be only two 
or three that get to have a leg-up on it. So I want to ask Mr. 
Casto, you are in the business marketing end of your company, 
and I learned something that is in section 5 of your terms of 
service. There are a couple of things in it that I don't have 
any problem with, but part of it says that AT&T may immediately 
terminate or suspend all or a portion of your service, this 
means the consumer, any member ID, electronic mail address, IP 
address, universal resource locator or domain name used by you, 
again the consumer, without notice for conduct that AT&T 
believes tends to damage the name or reputation of AT&T or its 
parents, affiliates, and subsidiaries. Now my question to you: 
have you booted anyone's service as a result of this policy in 
your terms of service? I think it is really disturbing. I 
thought that people can pretty much say and write their 
opinions even if they are harsh. Have you booted anyone's 
service?
    Mr. Casto. I will apologize in advance. This is not my area 
of expertise.
    Ms. Eshoo. OK. Whose is it?
    Mr. Casto. I am in the marketing side of special access, 
but I would be glad to take this back and find out.
    Ms. Eshoo. I would really, I think we need an answer to 
that. It is menacing I think to have a stated policy like that. 
To Mr. Forsee, according to the GAO report on special access in 
a particular case in San Jose, CA, while that is not in my 
district, it is in my region, competitors only have access to 
only 6.2 percent of all buildings. That is a paltry percentage 
I think by anyone's measure. To put it another way, the 
incumbent provider is the only provider of access in 93.8 
percent of all the buildings. How would you reverse this?
    Mr. Forsee. I think the policy opportunity before this 
committee and before Congress to understand forbearance, 
understand what it means to this very specific area. We talked 
earlier about competition has developed. Developed very 
robustly across a wide range of services. In this particular 
case in special access it hasn't developed. It is an 
opportunity to ensure that competition can develop by ensuring 
that the right balance of rate structure, and competition as a 
result of FCC action takes place.
    Ms. Eshoo. OK. To Mr. Tauke, those who are forced to buy 
special access services from you claim that in order to receive 
the deep discounts, because there are discounts, that they have 
to sign long-term contracts that lock them into revenue 
guarantees and requirements for shifting business away from 
competitors and severe termination penalties. Can you tell us 
how these practices encourage competitive investment? Or do you 
just not agree with the terminology that describes these 
practices?
    Mr. Tauke. There is no question but that if you are willing 
to sign a long-term contract and if you are willing to give 
assurances as to the volume that you will purchase from Verizon 
that you get a lower price than if you are purchasing a smaller 
volume. No question about that or for a shorter term.
    Ms. Eshoo. What is considered short term, what is 
considered long term?
    Mr. Tauke. I think we are talking 1 to 3 years.
    Ms. Eshoo. Short term?
    Mr. Tauke. No, I mean that would be the range of these 
contracts.
    Ms. Eshoo. I see.
    Mr. Casto. Can I comment on this point? At least with 
AT&T's experience since the advent of pricing flexibility back 
in 1999 we filed between three and four hundred contracts. We 
have more than half of those do not have any kinds of those 
terms that are required in terms of a spend commitment. They 
are very circuit specific. These agreements are really tailored 
based on the negotiations on a business to business basis 
between the parties. The other comment I wanted to make was 
that over the last 6 months AT&T has received roughly 700 RFPs 
or bid responses for special access. You can look at the public 
record. We filed about 90 to 95 contract tariffs which are the 
vehicle to effectuate the pricing and the terms and conditions 
associated with those contracts which is a very low win rate.
    Ms. Eshoo. OK. Mr. Chairman, just 10 seconds to say 
something. I just want to say to Ms. Herda that if there are 
any young people that are tuned in to this hearing today, I 
think it is very powerful for girls and young women to see a 
woman testifying as a president, as a CEO, and a chairman. 
Thank you. Thank you, Mr. Chairman.
    Mr. Markey. And to be questioned by a woman who represents 
the Silicon Valley I think is especially because of that. Let 
me turn and recognize the gentleman from California, Mr. 
Radanovich.
    Mr. Radanovich. Thank you, Mr. Chairman for holding this 
hearing, and I do have a couple of questions of some of the 
folks. Mr. Tauke, thank you for being here today. I wanted to 
ask that even under the current pricing flexibility regime 
can't competing carriers file complaints if there is a problem, 
and if so how many have been filed?
    Mr. Tauke. I don't know how many have been filed. 
Complaints can be filed, but I don't know how many of them, I 
guess I am not aware of any at the current time.
    Mr. Radanovich. Can you, there is time for a written 
comment on this, can you respond, I believe, that regular time 
is within 10 days or so with a written response to that 
question?
    Mr. Tauke. I would be happy to.
    Mr. Radanovich. If you would that would be most helpful. 
Also, I have a question for Ms. Herda, Mr. Forsee, and Mr. 
Evans. Mr. Casto states in his testimony that AT&T has lowered 
its prices for DS1 and DS3 circuits and that rates are lower 
today then they were when the FCC established its pricing 
flexibility regime. Did you agree with that statement?
    Ms. Herda. Specifically, with AT&T's rates, no, they have 
their wholesale rates, and they have been locked out. They have 
had their restrictions as a result of the acquisitions that 
they've made on increasing rates. We have seen carriers like 
Qwest for instance who raised their rates in 2004, 17 to 18 
percent across their entire region. So we have seen a slow 
rise, or actually in that case that was a rather large rise. It 
was quite expensive to our business that we couldn't do 
anything about it because they were allowed to make those 
changes.
    Mr. Radanovich. Thank you. Mr. Forsee.
    Mr. Forsee. We try to distinguish between rates, in fact, 
may have come down. I can't speak specifically to the rates of 
return that the companies are earning as a result of the rates 
that remain in place. So while the cost of providing that 
service has come down more dramatically as was represented 
earlier, more dramatically, yet the rates may have come down 
disproportionately not as much.
    Mr. Radanovich. All right. Thank you. Mr. Evans, please.
    Mr. Evans. Yes, I am not personally familiar with whether 
they have gone up or down. They are lower in AT&T's region then 
they are in Verizon's region.
    Mr. Radanovich. Thank you very much. One last question. Mr. 
Forsee, your company used to own what is now Embarq, and is it 
true that you sold off the special access facilities in a spin 
off?
    Mr. Forsee. Yes, we spun off Embarq to our shareholders. 
Embarq represented about 6 percent of the access lines in the 
country and was a small footprint on a national company, and 
again, it wasn't sufficient to have made a difference in our 
overall special access pricing on that particular question.
    Mr. Radanovich. OK. Because my question is if you do need 
special access as you had stated in your testimony, why would 
you sell off Embarq?
    Mr. Forsee. It was a small 6 percent of our total 
requirements of 100 percent of the country.
    Mr. Radanovich. OK. All right.
    Mr. Forsee. It wasn't large enough.
    Mr. Radanovich. Thank you very much, and I yield back my 
time, Mr. Chairman.
    Mr. Markey. I thank you, Mr. Radanovich, very much. And we 
thank, oh let me turn and recognize the gentleman from San 
Antonio, Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman, and I will 
start off and probably start and end with my questioning of Mr. 
Forsee because I think your testimony has been very forceful. 
When you view what is going on here, and I really think when 
you have a contest among AT&T, Verizon, and Sprint, there are 
no little guys involved in this one. And my general 
understanding is that they usually can take care of themselves 
pretty well. There are a lot of other people that can't, and 
that is when I think Government needs to come in. But, Mr. 
Forsee, you seem to indicate that special access fees could 
almost spell doom for Sprint. I don't think you really intend 
to say that, but if you read your testimony it is pretty dire. 
But is it to the extent where maybe Google and Clearwire should 
reconsider the partnership they have formed with you in rolling 
out this whole new system in which I really sincerely wish you 
great success. I venture to guess when the smart guys from 
Google and the brilliant guys from Clearwire got together with 
you they looked at pretty much what special access fees 
constituted and said guess what? You are still going to do 
well. We are going to do well together. I think you understand 
the concept that if someone uses someone else's infrastructure 
or system there should be some fair compensation. I don't think 
that the issue here truly is then one of what is fair.
    In San Antonio I had a little tier-two provider, Cricket, 
come to me complaining about roaming charges that AT&T, 
Verizon, and Sprint charge. Now they don't think those are 
fair, just as you don't think the special access fees are fair. 
They also alluded to, were not complaining at this point about 
what they pay to rent or lease space on a cell tower. My 
understanding is that you lease them, you got them, and then 
you can sublease or you own them, and you can lease space on 
those things. But I am not sure they think that is a fair 
arrangement but they are not much in a position to contest a 
lot of this. And I think sooner or later we are going to go and 
talk about the Crickets and the Pockets of this world, but 
today I am just trying to establish conceptually you understand 
that AT&T and Verizon are due something. And what is that? What 
determines what is fair, and what you charge someone like 
Cricket for roaming? Or what you charge someone like Cricket 
for renting space on a cell tower that you may own? Is there 
regulation out there that establishes some parameters? Because 
this is what you state in your testimony about the access fees. 
This figure is at least twice what it should be if special 
access prices were even remotely related to the cost of 
providing special access.
    So I want you to apply your same standard and test to what 
you charge for roaming fees and what you charge for basically 
rent on cell towers. Should it really be any more than what is 
the cost of providing that particular service or access? It is 
very interesting because I think Cricket and others would say, 
no, it is not related at all. And they would mimic pretty much 
what you are saying about AT&T and Verizon here today. I am 
going to stop there because I am using up most of my time. If 
you can go ahead and just respond.
    The other thing is it is interesting when we had the chart 
up there, are you saying that you would like to be treated and 
placed in the same shoes as an AT&T or Verizon customer of a 
particular service rather than being charged, it is contested, 
$390. Maybe it is $200. Because if you adopt that reasoning 
then why don't you treat the Cricket customer in the same way? 
In other words don't charge them any more, piecemeal it out, 
than you would charge someone that you provide that service 
for. Why charge Cricket any more or their customers for that 
cell tower. I am just saying let us just go in and apply all 
the same reasoning that you wish for us to apply today to AT&T 
and Verizon, and remember Cricket is complaining about all 
three of you. But I am just saying today do you have one 
philosophy in how you deal with a Cricket and another 
philosophy or business model when you deal with Verizon and 
AT&T?
    Mr. Forsee. What we know today is that 100 percent rate of 
return is what is being applied to this market called special 
access. And as you mentioned we are, in fact, going to deploy a 
WiMax network that will rely on the special access, and our 
ability to deploy that network could, in fact, and the speed of 
that deployment could be impacted by the rates that we are 
being charged. So what we are looking for is fair and 
reasonable. A 100 percent rate of return is not fair and 
reasonable.
    Mr. Casto. May I comment? I want to comment on the returns 
comment made by Mr. Forsee in the chart placed up there. 
Similar to the special access pricing that was placed up there, 
there are serious flaws with the margin analysis presented. My 
assumption is that is based on ARMIS, and ARMIS basically has 
frozen the cost allocations associated with the inputs while 
the revenues have not been frozen. Albeit the revenues have 
increased, demand has greatly outpaced the revenues, which is a 
direct result of pricing coming down. Also, based on my 
experience with the competitive opportunities across my desk, I 
talked about 700 of them, the returns do not get anywhere near 
the returns presented on those charts.
    Mr. Radanovich. Thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired, and all time 
for questions from the subcommittee members has expired. I 
think everyone will agree that this has been a fascinating 
hearing or as fascinating as a hearing on special access and 
forbearance can be to anyone.
    But I thought that I would note that a lot has changed 
since 1999 when pricing flexibility went into place. And at 
that time we still had the seven Bell companies that had been 
born out of Ma Bell. When it was broken up Pac Bell, 
Southwestern Bell, BellSouth, U.S. West, Ameritech, Bell 
Atlantic, Nynex, and we had an incredible battle going on 
against AT&T, MCI, Sprint, and dozens of other companies. But 
today to quote Paul Simon, and his famous song we have seen a 
mother and child reunion with Ma Bell bringing the children 
back together, and while they were doing it, gobbling up AT&T 
and MCI, and then SBC changing its name to AT&T. As Sergeant 
Joe Friday would say to protect someone. And so AT&T is now 
over SBC so a lot has changed, and I think the FCC obviously 
has to recalibrate its rules in order to deal with that change 
in the marketplace.
    We can't be looking at the future in a rearview mirror, and 
I think what we are seeing here is that this examination of key 
building blocks in our competition policy is vital so that we 
can ensure that as time goes on that we have enough people at 
the table to have a real conversation about competition in the 
telecommunications marketplace. And so it is not right for the 
FCC to forbear without giving real justification. It is not 
right to allow incumbents to modify their petitions without 
allowing the other competitors a right to be able to respond in 
a timely fashion. It is not right to have special access fees 
that aren't allowing for competitors to be able to buildout 
their own competitive systems. These are all central questions 
in terms of the long term marketplace in the United States.
    And the reason it is important is that we are in an 
international competition. We are actually becoming the Notre 
Dame of international broadband policy where we are dropping 
like a rock, and our goal has to be to find a way to become No. 
1 again looking over our shoulders at Nos. 2, 3, and 4 in 
pricing, in access, and in the power of the broadband which we 
are providing. And this hearing today, I think, has gone a long 
way in helping to illuminate those somewhat arcane and obscure 
issues but in a way that makes it quite clear that all 
Americans have a stake in its outcome.
    I know that at 7 Towson Street in Malden, Massachusetts, we 
have paid thousands and thousands of dollars to New England 
Telephone and its successors to have that copper wire coming 
down our street. And we didn't really have a choice because 
that is all there was, was New England Telephone. So we didn't 
have any competitors that we could have given our money to, and 
so we did kind of have a feeling that we owned it too. And I 
for one don't like the idea that it can just be ripped up and 
so limits my ability to have other competitors that my family 
and other families can choose.
    And so these are all very important debates about what the 
relationship between competition and consumers and innovation 
is. We are going to continue in this series as the months go 
by.
    We couldn't have had a better panel. We thank you all for 
coming, especially you Tom Tauke returning to our committee 
once again. Thank you. This hearing is adjourned.
    [Whereupon at 12:37 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
   
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