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





 THE FUTURE OF UNIVERSAL SERVICE: TO WHOM, BY WHOM, FOR WHAT, AND HOW 
                                 MUCH?

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

                                HEARING

                               BEFORE THE

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 24, 2008

                               __________

                           Serial No. 110-131


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


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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               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey         CLIFF STEARNS, Florida
BART GORDON, Tennessee                 NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois                ED WHITFIELD, Kentucky
ANNA G. ESHOO, California              BARBARA CUBIN, Wyoming
BART STUPAK, Michigan                  JOHN SHIMKUS, Illinois
ELIOT L. ENGEL, New York               HEATHER WILSON, New Mexico
GENE GREEN, Texas                      JOHN SHADEGG, Arizona
DIANA DeGETTE, Colorado                CHARLES W. ``CHIP'' PICKERING, 
    Vice Chairman                          Mississippi
LOIS CAPPS, California                 VITO FOSSELLA, New York
MIKE DOYLE, Pennsylvania               ROY BLUNT, Missouri
JANE HARMAN, California                STEVE BUYER, Indiana
TOM ALLEN, Maine                       GEORGE RADANOVICH, California
JAN SCHAKOWSKY, Illinois               JOSEPH R. PITTS, Pennsylvania
HILDA L. SOLIS, California             MARY BONO MACK, California
CHARLES A. GONZALEZ, Texas             GREG WALDEN, Oregon
JAY INSLEE, Washington                 LEE TERRY, Nebraska
TAMMY BALDWIN, Wisconsin               MIKE FERGUSON, New Jersey
MIKE ROSS, Arkansas                    MIKE ROGERS, Michigan
DARLENE HOOLEY, Oregon                 SUE WILKINS MYRICK, North Carolina
ANTHONY D. WEINER, New York            JOHN SULLIVAN, Oklahoma
JIM MATHESON, Utah                     TIM MURPHY, Pennsylvania
G.K. BUTTERFIELD, North Carolina       MICHAEL C. BURGESS, Texas
CHARLIE MELANCON, Louisiana            MARSHA BLACKBURN, Tennessee
JOHN BARROW, Georgia
DORIS O. MATSUI, California          

                           Professional Staff

                   Dennis B. Fitzgibbons, Chief of Staff 
                    Gregg A. Rothschild, Chief Counsel
                       Sharon E. Davis, Chief Clerk
                 David L. Cavicke, Minority Staff Director

                                  (ii)






          Subcommittee on Telecommunications and the Internet

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









                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     3
Hon. Mike Doyle, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     4
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................     5
Hon. Rick Boucher, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     6
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     7
Hon. Bart Stupak, a Representative in Congress from the State of 
  Michigan, opening statement....................................     8
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     9
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    10
Hon. Heather Wilson, a Representative in Congress from the State 
  of New Mexico, opening statement...............................    11
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................    11
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................    13
Hon. Baron P. Hill, a Representative in Congress from the State 
  of Indiana, prepared statement.................................    13

                               Witnesses

Randolph J. May, President, The Free State Foundation............    14
    Prepared statement...........................................    16
Rey Ramsey, Chief Executive Officer, One Economy.................    18
    Prepared statement...........................................    20
George Lucas, Chairman, The George Lucas Educational Foundation..    33
    Prepared statement...........................................    35
Jane Smith Patterson, Executive Director, The E-NC Authority.....    44
    Prepared statement...........................................    46
Charles Sullivan, Executive Director, International Citizens 
  United for the Rehabilitation of Errants (C.U.R.E.)............    58
    Prepared statement...........................................    61

                           Submitted Material

National Tribal Telecommunications Association, statement to 
  committee......................................................    83
    Comments to the Federal Communications Commission............    94
Willard R. Nichols, president of American Public Communications 
  Council, Inc., statement to committee..........................   111
Chart entitled ``USF High Cost Fund and its Impact on Telephone 
  Take-Rates''...................................................   118

 
 THE FUTURE OF UNIVERSAL SERVICE: TO WHOM, BY WHOM, FOR WHAT, AND HOW 
                                 MUCH?

                              ----------                              


                         TUESDAY, JUNE 24, 2008

              House of Representatives,    
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:35 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Edward J. 
Markey (chairman) presiding.
    Members present: Representatives Markey, Doyle, Inslee, 
Hill, Boucher, Stupak, Green, Dingell (ex officio), Stearns, 
Upton, Cubin, Shimkus, Wilson, Pickering, Walden, Terry, and 
Barton (ex officio).
    Staff present: Amy Levine, Tim Powderly, Mark Seifert, 
Colin Crowell, David Vogel, Philip Murphy, Neil Fried, Ian 
Dillner, and Garrett Golding.

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

    Mr. Markey. Good morning, and welcome to the Subcommittee 
on Telecommunications and the Internet.
    Today we are going to have among the most important 
hearings which we can have, because today's hearing will focus 
on the principle of universal service. That principle along 
with diversity and localism has been a hallmark of 
telecommunications policy for decades.
    The commission has a variety of tools to achieve universal 
service. It can be achieved and promoted through competition 
policy, franchising policy and wireless policy, through both 
options designed to spur competition on mandated build out of 
networks. And universal service can also be advanced through 
mechanisms developed under the law to support subsidies for 
various universal service funds.
    These funds are currently in four major baskets: for rural 
high cost, for the E-Rate program for K through 12 schools and 
libraries, for the Lifeline and Link-Up programs for low income 
consumers, or for rural healthcare purposes. In analyzing the 
principle of universal service for the future, I believe it is 
important to take a step backward and to assess what objectives 
universal service should now encompass and analyze how existing 
programs achieve these objectives or how they fail to meet 
them.
    Rather than getting right into detailed debates about how 
to divvy up the existing subsidy pool, question who qualifies 
for so-called ETC status, or tackle the pros and cons of the 
identical support rule or reverse auctions, policymakers should 
first discuss why we do any of this at all and examine 
questions as to why, for whom, for what, by whom, and at what 
expense. Right now the four universal service programs spend 
approximately $7 billion a year, and more than half of it, 
roughly $4 billion, goes to rural high-cost, followed by the E-
Rate Program, which is currently capped at $2.25 billion per 
year. Consumers pay approximately an 11 percent surcharge on 
their interstate and international calls to fund all of this. 
This is more than double the percentage consumers paid a decade 
ago. Yet, as we look at how to recalibrate the funding 
mechanisms to more equitably garner funding among industry 
participants, it is vital that we provoke a conversation about 
what we believe universal service should be in the 21st 
century. This will allow us to effectively manage both the 
imposition of fees as well as justify the eligibility and 
purpose of disbursements.
    There are a host of questions to tackle in various areas. 
For example, what level of service should be supported for 
rural consumers? Should the supported services include just 
plain old telephone service or broadband, wireline, or wireless 
service, too? If competition fails to achieve affordability for 
a particular service in a rural community, should extremely 
wealthy rural consumers be subsidized, or should the program be 
targeted to assure affordability for non-wealthy consumers in 
some way? For low-income consumers in non-rural areas, should 
their supported service or services be comparable to the level 
of service provided to rural consumers? Today, for example, it 
is not. A rural consumer in a high-cost area can get multiple 
lines subsidized, including wireless service. But a low-income 
consumer in Boston can only obtain one subsidized line.
    How should Congress or the FCC adjust the program for rural 
healthcare? This program has never worked well and its current 
statutory construct no longer makes any sense.
    And what about the future of the schools and libraries 
program for which I coined the term E-Rate to emphasize the 
education rate or educational mission of the program? This is a 
vital program that George Lucas and I first discussed back in 
August of 1993. Our conversation directly led me to fight to 
include a provision for discounted rates for schools and 
libraries in the 1994 Telecommunications bill, which I 
successfully passed through the House but which died in the 
Senate that year. The E-Rate became law when Congress enacted 
it in the succeeding Congress as part of the Telecommunications 
Act, and we have defended it with political light sabers ever 
since.
    Given the fact that requests for E-Rate funding outpaced 
the current cap, should the cap now be lifted? Should the 
nature of supported services be upgraded to include truly high-
speed connectivity to schools? Should certain supported 
services to schools become free of charge to ensure that all 
schools keep pace in preparing the next generation for the 
fiercely competitive global economy we now face?
    Today we face the challenge of how to achieve universal 
broadband for our Nation. Any overarching policy blueprint for 
universal broadband will be by necessity inclusive of universal 
service as a component. We must look at this task, however, 
cognizant of the cost consumers will be willing to bear but 
also mindful of the cost of not acting to upgrade our national 
telecommunications infrastructure and bringing all Americans 
along. That must be a critical part of that debate. These are 
costs to education, healthcare, job creation, and innovation if 
the United States fails to develop a plan for our digital 
broadband future.
    I look forward to hearing from our truly excellent 
witnesses today, and I thank them for their willingness to be 
with us today.
    Mr. Markey. And I turn now to recognize the ranking member 
of the subcommittee, the gentleman from Florida, Mr. Stearns.

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

    Mr. Stearns. Good morning, and thank you, Mr. Chairman for 
holding this hearing. It has been a long time since we have had 
a hearing on universal service, and I think all of us look 
forward to hearing from our witnesses, and we welcome all of 
them. I also want to commend the Ranking Member, Joe Barton, 
for his efforts to make this hearing and for making universal 
service a high priority for this side of the aisle.
    Obviously, all of us believe that the universal service 
needs to be reformed. I think we can all agree upon that point. 
The system is fraught with overpayment to a lot of companies in 
the rural areas, as well as the Chairman pointed out to the 
customers who have an 11 percent surcharge, which is double a 
decade ago. So a major overhaul is necessary.
    The question before us this morning is what is the 
appropriate way to do this and how do we best achieve these 
aims through this legislation, perhaps. The 1996 Telecom Act 
codified universal service, but the concept goes back decades 
earlier to a time when there was only one phone company. Now 
the landscape obviously has changed, and the fund is still 
administered by these outdated rules. The entire country has 
access to phone service. We have more competition, better 
technology then ever before.
    Yet, the Universal Service Fund continues to grow and grow. 
As of last year, the annual cost of the Fund was $7 billion, 
more than $4 billion of which came from the high-cost fund. 
Universal service fees, as mentioned earlier, now represent 11 
percent of the consumers' monthly bill. That is 11 percent.
    Now is not the time to expand the Fund but rather to reform 
it. For example, we should impose a firm cap to prevent 
uncontrolled growth in the Fund. With a limitless pool of 
money, carriers have no incentive to operate more efficiently. 
This subsidy chills innovation by propping up older 
technologies and carriers and making it harder for new 
innovators to compete. So throwing additional money at this 
crumbling program perhaps is not the best way to do it.
    Moreover, performance measures are needed to ensure that we 
are getting results. Let us have accountability from the $51 
billion we have spent over the last 10 years. That is $51 
billion has been spent over the last 10 years. What impact are 
these funds having when everyone already has access to a phone? 
This type of transparency and accountability goes a long way, I 
think, to prevent abuse.
    To really add competitive pressure, we also need to move to 
market-based mechanisms such as reverse auctions that are 
technologically neutral and fund only the carrier that can 
provide the most efficient service in that particular area. 
Today we charge even middle- and lower-income Americans in 
urban areas to pay incumbent and wireline phone companies in 
places like Aspen, Colorado. What is worse, the incumbent 
receives the same amount of money even when it loses 
subscribers to competition. The amount of subsidy per line just 
goes up. Moreover, the company that wins the subscriber then 
gets the subsidy at the higher per line rate, even if it can 
provide service more efficiently. Rather than subsidizing 
multiple carriers in what is by definition an area that is 
uneconomic to serve, we should be focusing support just on the 
carrier that can provide quality service most efficiently, 
regardless of that technology.
    As this subcommittee considers universal service reform, we 
must also examine the FCC's performance in managing the E-Rate 
program. How much has been lost to waste, fraud and abuse? The 
FCC's Inspector General found error rates of 12 percent in the 
E-Rate program, which calls into question ratepayer amounts of 
approximately $250 million a year. We need to take a hard look 
at this program and institute real reform.
    So, Mr. Chairman, I think this is a very appropriate 
hearing. We welcome all the witnesses, and obviously we welcome 
George Lucas who has a long history of supporting an increased 
role of technology and education, and we are all very 
respectful of that. We also all of us in this room need to 
support this goal, and I hope this hearing brings us into a 
better understanding of universal access and how we can reform 
it to help the consumers and bring the cost down.
    Thank you, Mr. Chairman.
    Mr. Markey. I thank the gentleman. 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. I do want to thank you 
for holding this hearing and for encouraging us not to get 
bogged down in details today but to keep things very general.
    So generally speaking, Mr. Chairman, I think the Universal 
Service Fund needs to be blown up like the Death Star. We need 
to reevaluate this program's goals and establish new 
priorities. We need to completely reform the Fund by moving 
away from subsidizing telephone service and instead put our 
money toward the broadband future.
    For the meantime, I will call this needed reform Universal 
Service 2.0. I will bet the residents of rural Pennsylvania 
don't know what the Universal Service Fund has done for their 
ability to get affordable telephone service during the 
program's 10 years. And that is too bad, because the Fund has 
also probably helped their school get high-speed access to the 
Internet. And it has helped their library link up to other 
sources of information around the world. And if they are 
struggling to get by, it might have helped them afford to keep 
connected to their community. Those parts of the Universal 
Service Fund haven't grown too much. What also hasn't grown is 
the percentage of American households who have a telephone.
    Can we get the chart that I have prepared on the screen? 
Now, what has grown up nearly 300 percent from where it first 
started 10 years ago is the high-cost fund for local telephone 
service in rural America. That growth is the columns you see on 
the screen, but the top line of that chart shows telephone 
rates that are staying relatively flat.
    As those red bars have grown exponentially, the impact on 
my constituency has grown, too. Pittsburghers are paying more, 
regardless of their ability to pay, to provide basic telephone 
service to rural America regardless of the economic need. A 
single mom in my district with a wireline and a wireless phone 
is paying roughly $55 a year into the Universal Service Fund 
when she might not even have broadband in her own home that is 
essential to further her career or her children's education.
    Perhaps that single mom's $55 a year investment into our 
infrastructure into Universal Service 2.0 would be worth it if 
it paid off in economic growth through the Nation and better 
opportunities for her children. Perhaps it would be worth it if 
it helped her wire her affordable housing project with 
broadband, or if broadband in her parent's home helped her dad 
manage his diabetes, or if a portion of her investment went 
toward broadband in a community far away where her son will 
take a promotion to manage a plant years from now.
    Mr. Chairman, 1996 can be remembered for many things: the 
Telecommunications Act, the Macarena, one witness today was 
working on digitizing the Star Wars Trilogy. I won my first 
battle for reelection in 1996, so I remember 1996. Some things 
are timeless, like the Trilogy. Some things are better left to 
that time never to be heard of again, like the Macarena. And 
some things need to be completely revamped, like the Universal 
Service Fund.
    Thanks for holding this hearing on universal service, Mr. 
Chairman. I yield back my time.
    Mr. Markey. I thank the gentleman. 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. Thank you for the 
hearing.
    I represent parts of 30 counties in deep southern Illinois. 
Illinois has 102 counties, so you can imagine that most of the 
people who have had access in the rural parts of my district 
benefited from the Universal Service Fund. They may be small 
mom and pop telephone companies like Home Tel Phone Company of 
Saint Jacob, Illinois, or Madison Telephone Company, or it 
could be rural co-ops like Adams Phone Co-Op. Ways in which 
people were able to bring out telephone service to rural 
communities when the business model was not there for major 
companies to do that. The Universal Service Fund stepped in to 
help do that.
    The question that, hopefully, you will help us and those in 
the industry when we hear from them later will help us is how 
do we bring transparency to a funding issue and where do we put 
our money to best serve, I still believe, rural America. And I 
think most of us who service rural America know that there are 
still areas that have no cell connectivity.
    And with enhanced 911 and location-finding, many of us 
really focused on 911 emergency issues, when you are traveling 
down rural Illinois Highway 127 and something happens, you are 
off in a ditch, you cannot be found. And that is why enhanced 
911 is so critical, but you have to have the cell towers up. So 
that the 911, the Universal Service Fund has moved into helping 
place cell towers where it really is not the business model 
doesn't really justify it as much.
    Secondly would be broadband deployment and everything that 
people talked about before, whether it is telemedicine, the 
distances that rural Americans have to drive to really get 
experts in the field of radiology or in the specialties through 
telemedicine, great benefits can be had. And also the ability 
of education and the quality of life in rural America is 
something that people really desire. And in light of 
specialties now, if you have access to broadband you can live 
anywhere in the world as long as you have that access.
    So I appreciate the debate. I understand the importance of 
it. And we will work hard in the competing bills as we move 
through this Congress and in the next Congress to strike that 
balance to protect it but reform it.
    And with that, Mr. Chairman, I yield back my time.
    Mr. Markey. I thank the gentleman, and we now turn and 
recognize 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.
    As we focus on the Federal Universal Service program, I 
think three key points should be kept in mind. First, it is 
appropriate to think beyond the confines of the existing four-
component program and consider how reform legislation can be 
written in order to meet the new realities of the 
telecommunications marketplace. Service providers are rapidly 
shifting from circuit-switched architectures to Internet 
protocol-based platforms which enable a large expansion of the 
services they are able to provide. The convergent services of 
voice, multi-channel video and data are frequently now offered 
by the same service provider. We should ask whether these 
dramatic technological changes are well-accommodated within the 
existing Universal Service program.
    Second, broadband is the essential new infrastructure, as 
important to commerce in the 21st century as canals, railroads 
and highways were in earlier eras. In many of its components, 
the Universal Service program must be modified in order to 
encourage broadband deployment in rural and underserved areas. 
That goal also, in part, can be met by the committee approving 
legislation to remove the barriers to the provision of 
broadband services by local governments, who in many small 
communities can fill the gaps that have been left by the 
commercial broadband providers.
    And third, our most urgent need is for a comprehensive 
statutory reform of the high-cost program. It is by far the 
largest of the four programs, and it is under financial 
pressures caused by long outdated, statutory provisions that 
are rapidly leading to its unsustainability. It is also 
relatively easy to fix.
    In fact, I have introduced, along with Mr. Terry, a 
comprehensive reform measure which both fixes the obvious 
problems and enjoys broad support. It has been endorsed by the 
rural local exchange carriers who are the beneficiaries of the 
fund and also by the large regional carriers such as AT&T, 
Qwest and Embarq who are net contributors into the fund. We 
have provisions to promote broadband deployment, and by 
addressing both revenues into the Fund and expenditures by the 
Fund, the bill creates a financially sustainable program for 
the long term.
    As we consider Federal universal service support, it is 
important to keep in mind that the high-cost Fund, by enabling 
every home in the nation to have affordable local telephone 
service, has made our country the most connected in the world, 
with more than 96 percent of Americans having local telephone 
service. All Americans benefit from all of us being connected, 
and a financially-stable high-cost Universal Service Fund is as 
essential in the future as it has been to that past high level 
of connectivity. Rural telephone companies need that support to 
buy and modernize the equipment that keeps all of America 
connected. And so as we look to the future of services that 
should also be offered in addition to what the Fund has 
supported in the past, we need to keep that key point in mind.
    Thank you, Mr. Chairman. I yield back.
    Mr. Markey. I thank the gentleman. The Chair recognizes 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. I appreciate, Mr. Chairman, you 
holding an important hearing on universal service and how it 
could be improved and is it still relevant today. And I 
certainly think it is. And I feel like Rick Boucher and I are 
the Luke Skywalkers riding in to save the Universal Service 
Fund from those who want to destroy it, the Darth Vaders. And 
when you look at this from 40,000 feet, why didn't we develop 
universal service back in the 1930s? And that is because we 
felt it was important that all of America be connected to the 
plain old telephone service, because then it was only the urban 
areas that had telephones. And that perhaps because of safety 
reasons and commerce and others we thought that grandparents 
out on the farm should have that type of service as well. And 
maybe those that moved into the city could actually call their 
relatives. But a traditional commercial model didn't work. In 
order for a telephone company to roll out 60 miles of line to 
get to one customer, perhaps they needed some government help 
and such Universal Service Fund.
    Today, as we look at that basic premise of providing basic 
services to high-cost areas, now just basic rural. That same 
farmhouse 60 miles away from the town of 1,500 people still 
exists today and is being served rather well because of 
universal service help. It doesn't provide 100 percent of the 
cost. In fact, it provides about one-third of the subsidy 
necessary to supply telephone service.
    Does this Fund need to be modernized? Absolutely. The 1930s 
model does not work well in the 21st century. Where basic 
services have changed or perhaps the methodology of providing 
those services have changed in a digital world, USF for high-
cost areas is trapped in that 1930s model. When someone 
receives the subsidy under USF, they only get to use it to 
maintain. They are forbidden to modernize with it. And that is 
what the Boucher-Terry Bill does, is allows them to use those 
dollars to modernize into the 21st century, so that they have 
the equal services that we do in suburban and urban America.
    And that is what I think universal service should be about.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes 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. Markey. I will be in and out 
today because I am the third bill on the floor today, and so I 
will be down on the floor. But I did want to be here because of 
very important legislation we are considering, or at least the 
Universal Service Fund. And for my district it is critically 
important that we have the Universal Service Fund. Every time I 
go home to my district, I am reminded how far we have come in 
real telecommunications, but I am also reminded how far we have 
to go.
    When Congress enacted the Telecommunications Act in 1996, 
we committed ourselves to a goal of providing affordable access 
to the telecommunications network for all Americans through the 
creation of the Universal Service Fund. Since its 
establishment, over $43.5 billion has been distributed to 
improve telecommunications access, and almost every American 
today has access to phone service. According to the U.S. Census 
Bureau, the national telephone penetration rate is 97.6 
percent. While the program has been very successful, parts of 
my district represent the 2.4 percent that do not have phone 
service at all. In total, I have 17 areas that lack service in 
my district due to geographic challenges.
    While the Universal Service Fund has been successful in 
expanding access, the program does need some reforms. First, 
funding should be prioritized to areas that need it most. The 
recently-passed farm bill contains changes to the Rural 
Utilities Service broadband program to focus funding to the 
rural areas that need it most. I believe a similar emphasis 
should be placed on the universal services funding.
    Second, the universal service concept should include 
affordable broadband access. Universal broadband access is 
vitally important for the rural economy to remain competitive 
in today's global market. While broadband access may be a 
matter of economics to the industry, to my constituents it is a 
matter of necessity.
    And third, the funding mechanisms needed to be expanded and 
diversified to strengthen the future for the Fund. Expanding 
broadband service cannot be done on the cheap. One of the 
biggest challenges facing the Universal Service Fund is that 
those footing the bill are becoming fewer and fewer, while our 
needs continue to grow.
    Mr. Chairman, thanks for holding today's hearing. I look 
forward to the testimony of our witnesses and discussing with 
them how we should modernize and reform the Universal Service 
Fund.
    Mr. Markey. I thank the gentleman, and I wish the gentleman 
good luck on his bill out on the House floor to get the fraud 
out of the energy futures marketplace. The Chair now recognizes 
the gentleman from Oregon, Mr. Walden.

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

    Mr. Walden. Thank you, Mr. Chairman. I am glad you are 
holding this hearing.
    We have already heard a lot about the issues involving the 
Universal Service Fund. And I remember well the hearings that 
we had a few years back on some of the waste, fraud and abuse 
in the E-Rate program, and I hope that that situation is being 
cleared up, because it is long overdue. And there are a lot of 
good entities out there that need the funding, and we do not 
need those that are there that are hoarding equipment in 
warehouses in Puerto Rico and elsewhere and ripping off the 
system.
    My district--you have heard a lot about different 
districts--mine is 70,000 square miles, and it is Mr. Ramsey 
who spent his best years in the great State of Oregon. Seventy 
thousand square miles, one of the first things I did get 
involved in after being elected to Congress in 1998 was help 
the little town of Granite get its first phone service, period, 
first phone service. I think there are still areas in my 
district where you do not have phone lines all the way to the 
houses. And next week I will be out in the metropolis of 
Fossil, Oregon, in Wheeler County, and we will be dedicating 
the first cellular service for that community.
    And so in many of these western large areas where it makes 
little economic sense for companies to come in, the Universal 
Service Fund has played a key role, and new technologies are 
allowing access where it never existed before. So it is time to 
look at this program, review it, and refine it, and reform it, 
and make sure that those who are paying for it are getting 
treated properly and that the money is being spent properly.
    So, Mr. Chairman, thanks for the hearing. I will look 
forward to working with you on this issue, and I want to thank 
our witnesses.
    Mr. Markey. I thank the gentleman. 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 want to thank you for 
holding the hearing on the future of universal service, and I 
particularly appreciate our panel and thank you for listening 
to us while we give our opening statements. Like everyone, I 
want to welcome Mr. Lucas here, but also I want to welcome 
Charles Sullivan who--Charles and Pauline Sullivan--I worked 
with for many years in the Texas legislature on prison rights 
and try and make it much easier, since we incarcerate so many 
people in Texas compared to other countries in the world. But 
thank you for being here.
    And I hope this may be the last, Mr. Chairman, of analogies 
to your Star Wars, but I would hope those of us who really want 
to reform E-Rate and who would like to have better broadband 
penetration in our urban district would be really the wise man 
Obi-Wan Kenobi, and Darth Vader would be the ones who are 
trying to keep the status quo in the empire. But the state of 
communications in our country is significant since Congress 
made the last changes, major changes in universal service in 
1996, and it is significantly different today. With 95 percent 
of the U.S. population having a telephone but funding support 
still increasing at an unsustainable level, it is time we look 
at what return is being made on this investment and what the 
future of universal service would look like.
    The future of telecommunications, I believe the future of 
universal service should be broadband. This is especially true 
with schools and libraries program, or E-Rate. Despite the 
proven benefits of having schools connected, the E-Rate program 
is capped, while the high-cost program has continued to 
balloon. Twice as many funds are requested through E-Rate then 
are available, but we have capped this program while allowing 
the high-cost fund to continue to balloon with inefficient 
spending under the identical support rule and rate-of-return 
regulation. This does not have to be the case, and it is 
important that voice and broadband service be universal, but 
the current system is unsustainable because of the structure 
the USF creates such strong disincentives to consolidate and 
reduce cost in the high-cost fund. Meanwhile, hundreds of 
children are waiting to use computers connected to broadband 
connection in many of our Nation's schools.
    In our district, we do not have a high Internet penetration 
at home, because while people may not qualify for low-income 
phone support, they work hard to make ends meet, and they may 
not be able to afford a computer or a monthly broadband 
payment. Schools and libraries are often the only places 
children have to access the Internet, and the universal service 
fees that come out of our constituents' phone bills are needed 
at the school across the street or around the block as much as 
anywhere else.
    Mr. Chairman, the future of universal service should focus 
on making efficient use of the funds that provide broadband, 
especially in our schools and libraries.
    And I want to again thank the witnesses here, and I thank 
you for holding this hearing.
    Mr. Markey. The Chair now recognizes the gentlelady from 
New Mexico, Ms. Wilson.

 OPENING STATEMENT OF HON. HEATHER WILSON, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW MEXICO

    Ms. Wilson. Thank you, Mr. Chairman.
    I listen to folks comment about the access to telephone 
service in their states, and the idea that everyone in the 
country has access to phone service, I think, is a myth. In my 
State of New Mexico the Navajo Nation is the size of the State 
of West Virginia, and there are far too many people who live in 
Indian country who do not even have any access to plain old 
telephone service, let alone some of the high-end services that 
we would all like to see our constituents have.
    Because of the Universal Service Fund, consumers in rural 
New Mexico actually had DSL and broadband before a lot of 
people in Albuquerque. In Des Moines, New Mexico, beautiful 
downtown Des Moines, New Mexico, a thriving metropolis, you 
have to go three and a half hours north of Albuquerque to Raton 
and then about an hour east. This is the part of the country 
where you can scan your entire radio dial and keep scanning for 
several hours as you drive and not come up with a radio 
station. They had access to DSL in Des Moines, New Mexico, 
because of the telephone co-op in the Universal Service Fund 
earlier than Albuquerque, New Mexico, did.
    This is a fund that has helped rural areas substantially, 
and I do not think that we should lose sight of the access that 
this Fund has brought. I also want to make sure as we move 
forward in making changes to universal service and improving it 
that we do not and we should not lose sight of the ultimate 
goal, which is to make sure that Americans wherever they live 
have access to technologies that can change their lives.
    Just a few weeks ago, my son was sitting on the computer, 
and I said what are you looking at? And he said oh, this is the 
valve that Dad needs to fix the ozonater. My husband and I 
never would have thought to go on the Internet to figure out 
what the valve was that Dad needed to fix the ozonater. That 
kind of approach to learning and information is something that 
our children have while our generation is still thinking about 
finding the manual that is somewhere in the kitchen drawer or 
looking at it and going down to the hardware store and saying 
to the guy, do you know what this is and where I can get a 
replacement?
    Thank you for being here. I look forward to your testimony.
    Mr. Markey. The gentlelady's time has expired. The Chair 
recognizes 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, I thank you for your courtesy, 
and I commend you for this hearing.
    It begins a valuable discussion about universal service and 
telecommunications. I very much look forward to this dialogue 
because I strongly believe universal service is a fundamental 
American value. Universal service opens the door of opportunity 
to all, without regard to one's address or economic status. It 
provides educational opportunities and makes advances in 
healthcare widely available. It allows those with disabilities 
a greater chance to be fully vested members of our society. It 
allows everyone to take part in the national dialogue that 
strengthens our democracy, whether one lives on a reservation, 
in the inner city, in the Great Plains, or in Appalachia.
    I want to thank our panel members for helping us to 
understand the real benefits of a robust and effective 
universal service policy.
    I believe it is both wise and proper that we should start 
this examination of universal service, by focusing on core 
principles. And I commend you for your leadership in this 
matter.
    I would offer the following for our consideration. First, 
universal service is about consumers, not carriers. As we delve 
deeper into the intricacies of universal service we must ask 
what is best for consumers. That should also be the central 
question.
    Broadband is the communications platform of the future. Any 
successful universal service program for the future must 
account for this reality. Universal service is about access and 
affordability. A proper universal service program should ensure 
access and affordability in places and situations where the 
market forces cannot or do not do so. And that is the reason 
both for universal service and for the Universal Service Fund.
    Properly targeting universal service support must ensure 
consistency, efficiency and fairness. And we must protect the 
Fund against raids and unwise use. Because everyone benefits 
from universal service, everyone should participate. Spreading 
the cost of the universal service program as widely as possible 
reduces the impact on each individual and assures a fair 
situation for all, which will achieve greater and broader 
support.
    The program should be forward-looking, and it should be 
flexible enough to accommodate new technologies and service 
providers in a sensible way, so that we can create incentives 
for innovations and better service at lower prices. A critical 
examination of universal service must examine regulatory 
disparities between different types of providers. If all types 
of providers are going to participate, that participation 
should be in as equal terms as possible.
    Similarly, we should also examine whether the benefits of 
universal service are being fairly distributed. Fundamental 
changes in universal service are going to mean transition. It 
is important that we not allow transition issues, however, to 
bury the fundamental changes we seek.
    Finally, the Congress, not the FCC, is better suited to 
make the tough political choices on how best to reform the 
system. But we must be properly informed in the Congress, and 
we must understand the basic policy of providing universal 
service to all of our people, a principle which goes back to 
the 1927 Act and to the 1934 Act, something which was put in 
place to assure that every American should have full access to 
the telecommunications network that is so important to our 
national success. By focusing on consumers and principles 
rather than winners and losers, we stand a greater chance of 
creating a viable, successful universal service mechanism for 
the future.
    I welcome this discussion, and I look forward to working 
with you, Mr. Chairman, and with my colleagues to accomplish 
this great purpose. Thank you.
    Mr. Markey. We thank the Chairman, and now we turn and 
recognize 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.
    There is an old saying that if it ain't broke, don't fix 
it. Well, the opposite is true here. There is something 
seriously broken about the Universal Service Fund, and it does 
need to be fixed. We have spent some $51 billion over the last 
10 years on this program. This last year we spent about, or we 
collected about, $7 billion, b as in big. So it is not a small 
program. We need oversight, and we need to identify how we can 
fix it, and we need to fix it in a bipartisan way. And I happen 
to believe that both the Barton-Stearns Bill or is it the 
Stearns-Barton Bill? Barton is not here so it is the Stearns-
Barton Bill and probably the Boucher-Terry Bill or the Terry-
Boucher Bill, in fact, provides some good starts, so that we 
can begin to communicate together on a bipartisan basis.
    I have a particular focus on the E-Rate program, a program 
that I support. And I would note that after the tragedies at 
Virginia Tech and Northern Illinois University in the last year 
and a half or so, we looked at all the different issues at K 
through 12 schools. As well, it would be nice for parents of 
any junior high student or middle school or a high school 
student to be able to hear from the school if there is trouble, 
whether it be a bus delay, whether it be a snow or weather 
delay, whether it be a water shortage or heaven forbid 
something involving violence. So you could communicate with a 
parent or a guardian about their child's safety and welfare 
either during the school day or perhaps even before it starts. 
And I would note that Mr. Rush has authored with me a bill that 
would allow the E-Rate to in fact tap funds or allow the 
schools to tap funds to develop a program like many of our 
universities already have done as a worthy experience.
    So I look forward to this hearing and the testimony that we 
have. And, Mr. Chairman, I yield back my time.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes 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, first of all for holding 
this hearing and also to the panel witnesses for the 
opportunity to discuss the future of the Universal Service 
Fund.
    The Universal Service Fund has supported the development 
and provided telephone service to approximately 96 percent of 
Americans. However, a continued integration of more advanced 
communications technology in our daily lives leads me to ask: 
should we refocus the Universal Service Fund deployment to 
focus on advanced services?
    I represent a rural community. I have constituents that are 
still connecting to DSL or have no Internet connections at all. 
Their daily communications are through wireline services. They 
lack the technologies available to develop the skills to 
compete in today's digital world.
    I see the digital divide daily in small Hoosier 
communities. The Universal Service Fund should undergo reforms 
that will make the deployment of broadband more viable for all 
communities that are targeted under the current program. High-
speed communications technologies are the future of our nation. 
Transforming the Universal Service Fund into a program that 
will bring the latest technologies to communities least likely 
to see competition is one step we can take to ensure the 
educational needs of children and attract businesses to rural 
markets.
    And, Mr. Chairman, I yield back the balance of my time.
    Mr. Markey. Great, and we thank the gentleman for that, and 
all time for opening statement by members has been completed, 
so now we are going to turn to our expert panel, and we are 
going to begin with Randolph May. He is the President of The 
Free State Foundation, an independent, non-profit, Maryland-
based, free-market-oriented think tank. The Foundation promotes 
through research and educational activities understanding a 
free market, limited government and rule of law principles in 
Maryland and throughout the United States. We welcome you, Mr. 
May, and whenever you are ready, please begin.

    STATEMENT OF RANDOLPH J. MAY, PRESIDENT, THE FREE STATE 
                           FOUNDATION

    Mr. May. Thank you very much, Mr. Chairman and Members of 
the Committee. When I got the call to come down here on 
Thursday, I thought it was because you wanted some star power 
in this hearing, but all of the photos seem to be directed in 
the other direction. But I am happy to be with you.
    Since passage of the 1996 Telecom Act, the landscape has 
changed dramatically as a result of vastly increased 
competition. This increase in competition is due in large part 
to technological developments and in part due to the reduction 
of some legacy regulations. The upshot, as has already been 
acknowledged this morning, is that the existing universal 
service reform, the universal service regime, needs serious 
reform if telecommunications services are going to be provided 
in the most cost effective and economical manner for the 
benefit of all consumers. New entrants and new technologies 
have rendered the existing system wasteful, inefficient and 
competition-distorting.
    I was going to cite a whole bunch of figures and facts at 
this point, but I think all I want to do now is mention once 
again that currently all consumers pay 11.4 percent surtax on 
their interstate calls. This is in effect a tax which 
suppresses telecommunications demand and reduces overall 
consumer welfare. And as has been already noted, currently the 
telephone penetration rate is about 94 percent, and it has 
remained steady at that same rate for the past 10 years. The 
data shown from the Census Bureau is that the income level is 
the key independent variable driving penetration.
    The basic questions to be asked about the future of 
universal service are the ones the Chairman identified. Before 
providing my thoughts on these questions, I want to state two 
policy principles that should guide reform. First, market 
forces rather than subsidies should be relied on to the 
greatest extent possible to achieve the identified objective. 
This is more important than ever because increasing competition 
and new technology should drive down the cost in making 
communication services widely available. Second, if there are 
to be subsidies they should be targeted narrowly and financed 
broadly. The current system is at odds with these principles.
    Without elaborating the specifics here I will simply point 
out that the first principle is disregarded when subsidies are 
provided to carriers serving geographic areas in which market 
forces already have resulted in existing service and when 
subsidies are provided to persons who require none to obtain 
service. The second principle is disregarded because the 
current system targets subsidies broadly to areas and persons 
who don't need them, and finances narrowly raising 
contributions from limited kinds of communication service.
    So what should be done? Recognizing that the goal of 
universal service as originally conceived to make voice service 
ubiquitously available has been generally achieved, declare 
victory, cap the high-cost fund. If the penetration level is to 
be increased at all it almost certainly will be by virtue of 
more vigorous effort to target low-income persons to sign up 
for service.
    Now, I understand that the question of whether a reform or 
a regime should be extended explicitly to include subsidies for 
broadband services is front and center. In considering this 
question, have in mind the principles that I enunciated and the 
lessons that we have learned from the existing regime. We can 
have a lot of debate about how rapid the progress has already 
been in this country, and perhaps we will have some of that but 
it is my contention that due to market forces principally, and 
not due to government services, there has been rapid dispersion 
of broadband service thus far. But if policymakers determine 
that some subsidies are nevertheless desirable they should be 
narrowly focused on selected high cost geographic areas where 
service is unavailable or on low-income persons.
    In keeping with the principle of financing broadly, funding 
for any such subsidies should come from general Treasury 
appropriations. The targeted subsidies should be awarded 
through some form of competitive bidding process to determine 
which operator consistent with meeting defined service 
parameters is the least cost provider. Any broadband subsidies 
deemed necessary should not be dispersed or financed through an 
unreformed universal service regime that resembles the existing 
one. This would perpetuate a system that is inefficient, 
wasteful, and competition suppressing.
    A last note of caution in considering whether broadband 
needs any universal subsidies is that we must have in mind the 
distinction between availability of service and use. There are 
many different demand-side reasons that people may not 
subscribe to broadband service. The nature of unmet demand has 
many dimensions and price often plays a minimal role. The point 
here is that there are different demand-side reasons why people 
do not take broadband service where it is available and they 
will not be addressed by supply-side subsidies directed towards 
availability.
    Thank you for giving me the opportunity to testify today 
and I will be pleased to answer any questions, Mr. Chairman.
    [The prepared statement of Mr. May follows:]

                      Statement of Randolph J. May

    Mr. Chairman and Members of the Committee, thank you very 
much for inviting me to testify. I am President of The Free 
State Foundation, a non-profit, nonpartisan research and 
educational foundation located in Potomac, Maryland. FSF is a 
free market-oriented think tank that, among other things, does 
research in the communications law and policy and Internet 
areas.
    It is appropriate to hold a hearing to reexamine the 
existing universal service regime. In the twelve years since 
passage of the Telecommunications Act of 1996, the 
communications landscape has changed dramatically as a result 
of vastly increased facilities-based competition. This increase 
in competition--for example, with mobile phones becoming nearly 
ubiquitous and cable companies already providing digital voice 
service to over 16 million customers--is due in large part to 
technological developments enabled by the transition from 
analog to digital technologies. It is also due in part to the 
removal or reduction of some legacy regulations.
    The upshot is that the existing universal regime needs 
serious reform if telecommunications services are going to be 
provided in the most cost-effective and economical manner so 
that overall consumer welfare is enhanced. The fact of the 
matter is that new competitive entrants and new technologies 
have rendered the existing system wasteful, inefficient, and 
competition-distorting.
    Just a few basic figures up front to provide perspective 
for my contention that the current system needs a substantial 
overhaul. In order to finance the various universal service 
subsidies, consumers now pay a surcharge, in effect a ``tax,'' 
of 11.4% on all their interstate and international calls. In 
contrast, in 2000 the surcharge was 5.5%. The doubling of the 
USF tax burden in such a short period is an easy-to-understand 
measure of how fast the subsidies funded by the surcharge have 
grown under the existing system. Much of the increase, of 
course, is attributable to the rapid growth in the high-cost 
fund, and my testimony today focuses mainly on that fund. The 
subsidies to support providers in high-cost areas grew from 
$2.2 billion in 2000 to $4.5 billion today. A final significant 
figure: Since the passage of the 1996 Act, Census Bureau data 
show that the percentage of households with a telephone has 
hovered close to 94%, give or take a percentage increase or 
decrease due to what appears to be routine fluctuation. 
Examination of the Census data shows that income level is the 
key independent variable driving penetration. Lower income 
households tend to fall below the national average penetration 
rate.
    As I transition from highlighting these few but 
nevertheless key data points to a future-oriented discussion of 
the principles that should guide reform of the current regime, 
I want to make clear I support the notion that government has 
an appropriate role to play in helping ensure that 
communications services are available to all Americans. Of 
course, such role may vary over time, so that what may have 
been appropriate 50, 25, or even 10 years ago, may not be 
appropriate now. The basic questions to be asked and answered 
in thinking about the future of universal service are the ones 
identified in the hearing's subtitle, which might be rephrased 
as follows: What is the mission? If the mission requires 
subsidies to achieve its objective, who should receive them? 
And how should any subsidies be financed?
    Before providing thoughts on these questions, I want to set 
forth two interrelated fundamental public policy principles 
that should guide reform of the system. First, market forces, 
rather than subsidies, should be relied on to the greatest 
extent possible to achieve the identified objective. This is 
more important today than ever because, under a properly 
constructed regime, increasing competition and new technologies 
should drive down the cost of making communications services 
widely available. Second, as John Mayo, a member of the Free 
State Foundation's Board of Academic Advisors and Professor of 
Economics and former Dean of Georgetown University's Business 
School likes to say: If there are to be subsidies, they should 
be targeted narrowly and financed broadly. Anyone familiar with 
the current universal service system knows it is at odds with 
these fundamental principles.
    Without elaborating all the specific ``at odds'' here, I 
will simply point out the first principle is disregarded when 
subsidies are provided to carriers serving geographic areas in 
which market forces already have resulted in existing service 
and when subsidies are provided to persons who require no 
subsidy, but who would in any event acquire service at market 
prices. The second, related principle is disregarded because 
rather than targeting subsidies narrowly and contributions 
broadly, the current system targets subsidies broadly (to areas 
and persons who don't need them) and funding narrowly 
(contributions from only one kind of communications service).
    Ignoring these sound principles is the reason that the 
current USF surcharge is 11.4% per interstate call. Like any 
tax, the surcharge distorts economic behavior. Here the effect 
is to suppress demand for the relatively price-elastic calls 
subject to the surcharge. Economists have estimated the 
consumer welfare losses from the suppression of this demand for 
telephone services in the billions of dollars. The adverse 
impact on consumers negatively impacts the entire economy.
    So what should be done? Congress should recognize that the 
goal of ``universal service'' as originally conceived--to make 
voice service ubiquitously available--has generally been 
achieved. While the extent to which the existing universal 
service regime is responsible for such achievement is 
debatable, no matter. Once in a while victory should be 
declared, the cannons silenced, and the bugles triumphantly 
sounded. The high-cost fund should be permanently capped at its 
current level. As I pointed out earlier, approximately 94% of 
American households have voice telephone service, and this 
figure has remained steady for more than a decade. This may 
well be the ``natural'' high mark for telephone penetration at 
any one time. But if the penetration level is to be increased 
at all, almost certainly it will be by virtue of even more 
vigorous efforts to target low-income persons to sign up for 
the existing Lifeline and Link-up programs, not because 
unfocused subsidies continue to be disbursed.
    To the extent there are identifiable remaining high-cost 
areas without any affordable service, I would rely on 
competitive mechanisms, such as reverse auctions, to select a 
provider of last resort. This is the most efficient and most 
technologically and competitively-neutral way to make service 
available in those areas. In my view, Representative Barton's 
Staff Discussion Draft does a good job of envisioning how such 
a reverse auction system would work to drive costs down over 
time or to at least halt the steady growth in costs experienced 
under the current regime. Consistent with the principle 
enunciated earlier, I would finance the remaining subsidies 
through a telephone numbers-based contribution system. This 
broad-based financing system, which is also adopted in the 
Barton Staff Draft, by taxing relatively price-inelastic access 
(with exceptions for low-income subscribers) rather than much 
more price-elastic usage, is a more economically efficient 
funding method. It would have less adverse impact on consumer 
welfare and the overall economy.
    Now I understand the question whether a reformed regime 
should be extended explicitly to include subsidies for 
broadband services is front-and-center. In light of the 
importance of the widespread broadband availability to the 
Nation's economic and social well-being, this is entirely 
appropriate. In considering the question, it is very important 
to have in mind the principles I have enunciated and the 
lessons we have learned--or should have learned--from the 
existing regime. To the maximum extent possible, market forces 
should be relied upon to make broadband service widely 
available. If any subsidies are deemed necessary, they should 
be focused narrowly and funded broadly.
    I know there is controversy, depending upon one's 
perspective, concerning how well we are doing in this country 
regarding broadband deployment and how well we are doing vis-a-
vis other nations. There have been separate hearings on this 
subject, and it may well be useful to have more. From my 
perspective, I want here simply to point out that, by most 
measures, the nation has witnessed remarkable progress in a 
short time. The FCC's most recent broadband data, now almost a 
year old, show that more than 99% of the Nation's zip codes 
have at least one in-service high-speed provider, and more than 
99% of the nation's population lives in those zip codes. There 
are over 100 million high-speed lines in service, and over 65 
million of these serve primarily residential end users. This 
represents a rapid dispersion of broadband availability. This 
success is attributable primarily to the private sector 
responding to market forces, with more than $100 billion--and 
still counting--of investment. The success is not attributable 
in any significant way to government subsidies. And it is 
important to understand that market forces have spurred this 
rapid deployment in large part because broadband providers have 
not been subject to traditional common carrier regulation that 
prevailed in an earlier monopolistic era. In furtherance of 
promoting any ``universal service'' policy regarding broadband, 
policymakers should retain this minimally regulated environment 
that has encouraged so much private sector broadband investment 
in a relatively short time.
    If policymakers determine that, despite the progress 
already achieved through market forces, some subsidies 
nevertheless are desirable to achieve more ubiquitous 
deployment at a faster rate, such subsidies should be narrowly 
focused on selected high-cost geographic areas where service is 
unavailable or on low-income persons who otherwise cannot 
afford service. In keeping with the principle of financing 
broadly, funding for any such subsidies should come from 
general Treasury appropriations. Carefully targeted subsidies 
should be awarded through some form of competitive bidding 
process to determine which provider, consistent with meeting 
defined service parameters, is the least cost provider. Any 
broadband subsidies deemed necessary should not be disbursed or 
financed through an unreformed universal service regime that 
resembles the existing one. To do so would perpetuate a system 
that is economically inefficient, wasteful, and competition-
suppressing. It would saddle the broadband world--and the 
American public--with an outdated relic of the narrowband 
world.
    A last note of caution in considering whether broadband 
needs any ``universal service'' subsidies. Policymakers should 
have in mind the distinction between availability and use. As 
shown above, broadband service is now available to most of the 
Nation's consumers. But there are many different ``demand-
side'' reasons that people may not subscribe. John Horrigan at 
the Pew Internet & American Life Project has done much good 
work in this area. His research shows that the nature of unmet 
demand has many dimensions and that price often plays a minimal 
role in acquisition decisions. Factors include lack of 
computers at home and concerns relating to usability of 
computers and the Internet; security of online information; and 
relevance of online content. The point here is that there are 
different demand-side reasons why people do not take broadband 
service where it is available. These reasons will not be 
addressed by subsidies directed towards increasing broadband 
deployment. This is another way of saying that, before adopting 
any new subsidies, policymakers must carefully consider the 
costs and benefits of such expenditures.
    Thank you for giving me the opportunity to testify today. I 
will be pleased to answer any questions.
                              ----------                              

    Mr. Markey. Thank you, Mr. May, very much. Our second 
witness, Rey Ramsey, is the Chief Executive Officer of One 
Economy Corporation. Under his leadership, One Economy, which 
he co-founded in 2000, has emerged as one of the Nation's 
leading nonprofit organizations in the field of technology. One 
Economy Corporation is a global nonprofit organization that 
uses innovative approaches to deliver the power of technology 
and information to low-income people, giving them valuable 
tools for building better lives. We welcome you, sir. When you 
are ready, please begin.

 STATEMENT OF REY RAMSEY, CHIEF EXECUTIVE OFFICER, ONE ECONOMY

    Mr. Ramsey. Chairman Markey, Ranking Member Stearns and 
special recognition to Congressman Walden, who I had the 
pleasure of working with as a fellow Oregonian, it is a great 
opportunity to be here.
    I am Rey Ramsey, Chief Executive Officer of One Economy 
Corporation, and we got started about 8 years ago, and I want 
to talk a little bit about why we got started, because I think 
it is very relevant to the subject at hand. I have been working 
in affordable housing as the chairman of Habitat for Humanity 
and working in housing in Oregon and doing anti-poverty work, 
and in the 1990s people started talking about something called 
the digital divide. And we still have a digital divide, but my 
focus and my choice was to focus on what I call the digital 
opportunity. And a lot of what I look at is that we have an 
enormous opportunity to use digital technology to solve some 
very vexing problems in the country. And what I want to say to 
this committee is that time is of the essence in terms of 
whatever we choose to do in terms of reform.
    It is not my role today to tell you how exactly to reform. 
I think that your wisdom and many others will have their 
different viewpoints on reform. We certainly support reform, 
and in addition to the submitted remarks that I have, I would 
like to just lay out a couple of key points that I think are 
important. Obviously, in looking at universal service we need 
to think about supply and demand, and when we are thinking 
about those issues I have two basic points to make.
    The first is that we need to think about three basic 
issues. One is the issue of connectivity, and when we think 
about connectivity, we have to think about it more broadly. Not 
only should we be talking about is the technology available and 
I call this the three As: the technology should be available, 
it should be affordable, but we also have to focus on is it 
being adopted and why is it not being adopted, so available, 
affordable and adopted.
    The second issue on the demand-side is that we have an 
opportunity to use technology in remarkable ways, and it is one 
I call public purpose content, that there are reasons why 
individuals are not online or using broadband, and that is 
because we haven't developed some of the applications in health 
and in education and in other areas. And in my written remarks 
I refer to some of the things that are being done. We, this 
past year, in a partnership with E-Trade and H&R Block, have 
been able to focus on helping low-income individuals with 
applications online to be able to get money back in the Earned 
Income Tax Credit. In this year, $10 million were returned to 
individuals by using our service for free, working in 
partnership with the private sector.
    And then the last issue that gets very little attention is 
human capital, and that is digital literacy. There are a lot of 
people who would like to use technology but have no idea how to 
use it and do not understand the applications. And so to that 
end we have launched a program in the country called Digital 
Connectors, where we bring young people to work 
intergenerationally to help people use the technology, working 
in elderly centers and other places.
    Those are the three basic points--the connectivity, the 
public purpose media, and the human capital--that I think we 
have got to expand our notion of thinking about universal 
service to meet the needs and the opportunity of the digital 
age.
    You know, there are lots of things that are being done on 
the ground. We are working in rural areas, Native American 
communities, as well as in urban areas where there are low-
income individuals. And I started my remarks by saying time is 
of the essence. When you think about this time of year in the 
spring, people graduate, and I think about every time there is 
a graduating class where there are individuals in that class, 
students and children who do not have access to technology not 
only in their school but in their home, which is where it is 
most important now to bring the technology into the home, it is 
a shame. And every time there is a graduation where we can look 
up and see one group of children who have access and those who 
do not, it reminds me that there still is a divide and that 
time is of the essence.
    We can do this. I am encouraged by again the partnerships 
on the ground. We have been able to work with local governments 
whether they are from Oregon to Texas to North Carolina or to 
Massachusetts. But we are also able to work with the private 
sector by always remembering that we are dealing with consumers 
who have the same aspirations as anybody else. They just happen 
to earn a little less money.
    So I submit my remarks and my testimony today, and I 
appreciate this opportunity on behalf of all the hardworking 
people at One Economy Corporation.
    [The prepared statement of Mr. Ramsey follows:]




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    Mr. Markey. Thank you, Mr. Ramsey, very much. We all know 
our next witness through his epic stories captured in the movie 
series Star Wars and Indiana Jones. But George Lucas is not 
only a storyteller, movie industry visionary, and innovator, he 
is also the Chairman of The George Lucas Educational 
Foundation. The Educational Foundation's goals are to create a 
space where children become lifelong learners and develop the 
technical, cultural, and interpersonal skills to succeed in the 
21st century. It is our honor to have you here, sir. Whenever 
you feel comfortable, please begin.

     STATEMENT OF GEORGE LUCAS, CHAIRMAN, THE GEORGE LUCAS 
                     EDUCATIONAL FOUNDATION

    Mr. Lucas. Thank you. My name is George Lucas, and as 
founder and chairman of The George Lucas Educational 
Foundation, I am pleased to appear before you again.
    And I appeared here in March of 1994 and outlined my vision 
for education in our schools. It was called ``Edutopia'' to 
signify a more ideal learning environment. Fifteen years ago 
that vision could have been considered futuristic and 
unattainable, a pipe dream that could never come to pass. But 
now, especially with the growth of the Internet, this vision of 
Edutopia has become a movement.
    Across the globe, ministries of education in many nations, 
including Singapore, China, Australia and the United Kingdom, 
are all moving ahead with plans to recreate their schools for 
the 21st century skills. They are investing substantially in 
Internet access, hardware and software for schools, and 
training for teachers to enable their students to achieve at 
the highest levels and fuel the economic growth of their 
countries. According to a recent report from the Organization 
of Economic Cooperation and Development in Paris, the U.S. 
ranks fifteenth in broadband Internet access and is outpaced by 
Denmark, the Netherlands, Finland, Korea, France, and Canada.
    There have been two revolutionary changes in 
telecommunications in recent years: broadband and wireless 
technologies. The processing speed and memory of computers has 
continued to double roughly every 2 years, following Moore's 
famous law. In just the past 4 years, we have seen an explosive 
growth of multimedia on the Web.
    The narrow goal of universal service must be redefined to 
include much faster broadband access to current multimedia 
content and address the next generation of broadband 
technologies to come. I encourage the subcommittee to 
anticipate broadband speeds that enable current applications 
and plan for the much higher speed networks that are currently 
available only in universities and research centers.
    The other transformation in Internet access has been 
wireless networks and mobile computing. Now it is possible for 
students to access the world's knowledge without being tethered 
to a wire at school and libraries. Teachers tell the staff at 
my foundation of students who sit in their cars in high school 
parking lots in order to access the wireless Internet hub 
inside. While the school doors are closed, their minds are 
still open.
    In order to support this vision of 21st century schools, it 
is very important that we not rest on the accomplishments of 
the E-Rate funding and the Telecommunications Act of 1996. We 
should not simply declare that the program has been a success. 
Instead, we must recognize the even greater possibilities made 
possible by broadband and wireless and expand the program to 
keep pace with technology.
    I urge the subcommittee to go beyond the current E-Rate 
discounts for public schools and libraries. Our goal should be 
to extend the definition of universal service to include modern 
broadband connectivity. We also need to define speed and 
bandwidth in terms of what a student sees on their computer, 
not just one connection to a school or library that must be 
divided among many users.
    The current cap on E-Rate needs to be increased. I note as 
reported in the Education and Library Networks Coalition, the 
administrator for the E-Rate program, E-Rate discount requests 
for 2008 total $4.3 billion but were at $2.25 billion. So we 
still have work to do to achieve the goal of universal access. 
I agree with the 2005 statement of the Education and Library 
Networks Coalition that ``all students, educators, and library 
patrons should have high-speed Internet connectivity to fully 
participate and learn in an information-dominated economy and 
world.''
    I applaud the program of E-Rate discounts to schools and 
libraries, ranging from 20 percent to 90 percent based on the 
economic status of communities. But I believe that the eventual 
goal should be to make these connections free, free for all 
schools and libraries. This goal is ambitious and as important 
as the coalition of free public schools and libraries 
themselves, free and open to all.
    Telecommunications provides the new learning platform of 
this century and is replacing the textbook as the medium 
through which modern education is provided. The world's 
knowledge is now available online, far beyond what books and 
materials can provide in schools and libraries themselves.
    Just as access to quality education is a civil right, 
access to modern telecommunications tools for education should 
be viewed as a digital civil right. We should seek to guarantee 
that right to every student, regardless of their ability to 
pay.
    Thank you.
    [The prepared statement of Mr. Lucas follows:]



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    Mr. Markey. Thank you, Mr. Lucas, very much. Our next 
witness is Jane Smith Patterson, who is the Executive Director 
of the E-NC Authority. The E-NC Authority was created by the 
North Carolina legislature for the purpose of improving 
broadband Internet access across the State by encouraging North 
Carolinians to use the Internet in providing opportunities to 
gain new skills. E-NC is building connected communities in a 
more economically competitive State. We welcome you.

STATEMENT OF JANE SMITH PATTERSON, EXECUTIVE DIRECTOR, THE E-NC 
                           AUTHORITY

    Ms. Patterson. Thank you, Mr. Chairman. Chairman Markey and 
Ranking Member Mr. Stearns and other members of the House, I am 
pleased to be here today to talk with you about our opinion 
about universal service.
    Let me say we have submitted remarks, and I will be briefer 
in my comments. You should read my remarks to get the full 
report of my remarks.
    The E-NC Authority has been working for 7 years to try to 
make certain that every citizen in North Carolina has access to 
the Internet, knows how to use a computer and knows how to 
access the applications that are there.
    Today 82 percent of our households in North Carolina can 
receive if they wish and can pay for broadband access in the 
State. We are not yet at one gig to the home but we would like 
to see ultimately 100 megabits to the home, in North Carolina. 
We have worked very hard with all of the various companies in 
the State, both wireline and wireless, and cable and telephone 
co-ops, even electric co-ops, to try to make certain that 
access on the supply-side is there for everyone in North 
Carolina.
    Recently, we worked also to say how can we go back out on a 
second go around to our citizens to work with and to explain to 
them why it is important for them to learn and to get online. 
So we have developed Capturing the Promise of Broadband for 
North Carolina and America. We released that yesterday, and we 
hope that you will have a chance to look at that. We think that 
it is the best compilation of what is going on in this country 
and the applications that are there for the citizens of the 
United States.
    Let me say to you I am going to skip and say a couple 
things about universal services. Number one, universal service 
is important to all of the United States. It is important the 
we move forward to and move to broadband as a central part of 
universal service. A 2.0 plus, as Mr. Doyle said, 2.0, I would 
say shoot for the puck for where it should be and to be very 
flexible in moving broadband services across the country.
    It is important to, I think, understand that all persons 
who use this should pay into the USF. All companies should be 
eligible to receive. I believe that in the E-Rate that everyone 
should be able to pay in and receive. And I think that except 
for wiring contractors. I won't get into that, but you might 
ask about that later.
    I think it is important to also assist nonprofits and 
private and also the public. When it is important when you 
cannot get the companies to go into areas and local governments 
need to step up, we should support that as well.
    I would like to just extend a couple of comments about 
Lifeline Link-Up. I think this is the finest part of the 
universal services area, and I believe that Lifeline should be 
changed and morphed into a situation where we support low-
income individuals who are having trouble economically and that 
we should, in fact, make it so that we could have that for 
broadband access. I think it is important to realize that we 
have come to a point where telephones are ubiquitous and that 
perhaps now that you can use voice if you wish to call, and you 
have access in the Lifeline/Link-Up program. This program is a 
State-Federal program, so the State is sharing with the Federal 
Government on this, and I think that is important that the 
State share with this in the Federal Government in this aspect. 
So I would encourage you to look at Lifeline/Link-Up as a 
special issue and a very important one for this.
    On the E-rate, we feel strongly in North Carolina now we 
have 1 gig to the local education agency. One hundred megabits 
to every school is because of E-Rate that we have that. And 
with the E-Rate, the State is paying a share of this for the 
schools, and then the Feds are also picking up a share.
    I think the hospital program is in its second go around now 
in 15 years. The health program needs some additional 
assistance in listening to some of the people who have to 
implement that out at the local level.
    I would also say that I do not know how much. I think the 
Benton Foundation has done an excellent job in looking at this, 
and we would certainly bow to them with their knowledge of how 
much should be in the Universal Service Fund.
    The investment in broadband will pay off immeasurably for 
us in this country. You can look at the fact that economically 
we have now an estimated $500 billion in economic growth and an 
additional $1.2 million high wage jobs if in fact broadband is 
ubiquitous.
    Those are the remarks that I would like to submit to you, 
and I would encourage any kind of questions about our efforts 
in North Carolina.
    [The prepared statement of Ms. Patterson follows:]




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    Mr. Markey. Thank you, Ms. Patterson, very much. There is a 
roll call on the House floor. There is only 5 minutes left to 
go for the members to go over and to make that vote. So what I 
would recommend is that we briefly adjourn for 10 minutes. We 
will return, and we will hear from Mr. Sullivan, and then we 
will begin the questioning of the panel by the subcommittee 
members. This hearing is in brief recess.
    [Recess.]
    Mr. Markey. The Subcommittee on Telecommunications and the 
Internet is called to order once again so that we may recognize 
for his opening statement our final opening witness. His name 
is Charles Sullivan. My mother was a Sullivan, and she said 
they were very intelligent people, and so I am looking forward 
to his testimony. He is the Executive Director of International 
CURE, Citizens United for the Rehabilitation of Errants. CURE 
works to ensure that prisoners have all the rehabilitative 
opportunities they need to turn their lives around. CURE was 
founded in 1972 by Charles and Pauline Sullivan as a membership 
organization of families of prisoners, former prisoners and 
other concerned citizens who work to reduce crime through the 
criminal justice reform movement. We thank you, sir. Whenever 
you are ready, please begin.

      STATEMENT OF CHARLES SULLIVAN, EXECUTIVE DIRECTOR, 
INTERNATIONAL CITIZENS UNITED FOR THE REHABILITATION OF ERRANTS 
                           (C.U.R.E.)

    Mr. Sullivan. Mr. Chairman, I would like to especially 
thank you for this hearing and also Congressman Inslee, we have 
met at Congressman Strickland's functions. Thank you for this 
opportunity to talk with you.
    My name as you said is Charlie Sullivan. I am Executive 
Director and cofounder with my wife, Pauline, of CURE. We are a 
grassroots prison reform organization that began in San 
Antonio, Texas, in 1972 and expanded to a national organization 
in 1985. Our members come from every State in the Union. They 
are for the most part people incarcerated and their loved ones. 
A strong argument could be made that they are unfortunately the 
most economically disadvantaged segment in our society today.
    The number of people affected by the prison experience is 
staggering. Although we only have 5 percent of the world's 
population, we incarcerate 25 percent of the world's prisoner 
population. A recent study points out that one in a hundred 
persons in our country is now in prison.
    Thus, it would not surprise you that CURE was one of the 
many organizations that celebrated this year's passage of the 
Second Chance Act. This Act is an acknowledgement of just how 
important after-prison support is and how it must begin in 
prison. Our members understand this need on a very personal 
level. People being released know they need crucial social 
support, which loved ones in the free world often provide. In 
fact, studies show that if persons stay connected to their 
families while in prison, they have a six times better chance 
of not recidivating.
    But, Mr. Chairman, sustaining these vital family ties is 
not easy. Visiting is not always possible because of the cost 
of travel, especially now with such high gas prices. Although 
letter writing is important, phone calls are the main method 
used to sustain this all-important connection.
    And this leads to the issue I wish to discuss. The high 
cost of prison phone calls. For more than 10 years, CURE has 
been working to reduce these costs. In 2000, we organized a 
nationwide campaign, the Equitable Telephone Charges Campaign, 
to mobilize family members of prisoners and other concerned 
citizens to advocate for changes, and this campaign continues 
today. It has been a long campaign, but we are proud of the 
fact that we have seen substantial progress. When we started, 
only six states offered a reduced rate debit calling system as 
an option to the expensive collect calls. Now 20 states have a 
debit or prepaid option at reduced rates.
    Despite the progress in many areas, there is one area that 
continues to be very troubling, and that is the high cost of 
interstate phone calls from many state prison systems. The 
reason these calls are so expensive is because the contracted 
phone company pays the prison system a commission for each 
call. These commissions can be as high as 60 percent.
    But there are some states that have made pro-family 
decisions to make interstate phone systems much less costly. 
For example, family-friendly systems like Florida charge only 
$1.80 for a collect and $1.62 for debit or prepaid. In 
contrast, Washington State charges $17.41 for a 15-minute 
interstate call with no reduction in debit or prepaid. The 
handout that I have attached to my statement shows the latest 
information we have compiled on these interstate rates. Keep in 
mind that all of these systems have similar security features. 
Thus, there is no logical explanation for these significant 
differences.
    We have not been alone in our efforts and want to take this 
opportunity to thank Congressman Bobby Rush for his leadership 
on trying to solve this problem by assuring affordability to 
those families who have loved ones in prisons. He introduced 
The Family Telephone Connection Protection Act last Congress 
and again this Congress, which is H.R. 555 on the table. We 
have a brochure on this piece of legislation. This legislation 
would authorize the Federal Communications Commission to one, 
prescribe maximum rates; two, require both collect and debit 
calling; three, prohibit commissions; four, require 
competition; and five, prohibit call blocking solely because 
there is not a billing agreement in place.
    In closing, I want to express again how vital it is for 
prisoners and their families to be able to communicate with 
each other.
    I would like to end with a very moving example of an 
extremely moving study that involved Walter Lomax, who spent 39 
years in prison and was found innocent. His family stayed in 
contact with him by visiting, writing, and phone calls. And 
also he even in a way walked his daughter down the aisle when 
she married. At her wedding a relative held up a cell phone 
switched to speaker mode. Mr. Lomax listened on the other end 
from a phone in a Maryland prison. When the minister asked who 
was there to give his daughter, Wanda, away, it was Mr. Lomax 
who answered I do.
    Needless to say we would be happy to work with the 
subcommittee to explore any and all possible solutions to 
making all interstate phone calls affordable for families of 
prisoners.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Sullivan follows:]

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    Mr. Markey. Thank you, Mr. Sullivan. And thank you to your 
wife as well, and we do want to work with you. Absolutely 
something that cannot continue.
    The Chair will now recognize himself for a round of 
questions and I want to begin with you, Mr. Lucas. Could you 
please elaborate, talk about what higher-speed broadband can do 
for the classroom by way of course content, collaboration by 
students, and new applications?
    Mr. Lucas. Well, some of the things that we have 
experienced in the foundation are the fact that using the 
Internet in order to teach the children to find information, 
assess that information, and find out what is true and what is 
not true and then use that information creatively becomes the 
basis of sort of the 21st century school. It is a matter--it is 
very difficult now to teach all children all the facts, all the 
knowledge, everything they need to know.
    But what we can do is teach them how to learn and how to 
find information. The Internet is absolutely crucial for that. 
We have had situations where people have been able to use the 
Internet to get to universities, the K through 12 students to 
look through microtelescopes to learn things, to help with 
their studies, to watch surgery in progress and to watch NASA 
launch spaceships. It brings a whole wealth of information into 
the classroom. It also allows the students to collaborate with 
kids from other countries. And it also means that we can bring 
in experts from all kinds of institutions, be it from the 
Library of Congress or the NFL, into the classroom to help the 
students to understand what they are learning.
    Mr. Markey. And could you talk to us a little bit more 
about this concept of free in terms of the service which you 
propose be made available to children as the great equalizer in 
American society?
    Mr. Lucas. Well, again, we are moving ahead very fast, and 
wireless is the wave of the future, and if we are going to 
wireless then you are assigning and or giving away or however 
you want to describe it, frequencies to the phone companies and 
to the people who are using, you know, I mean providing the 
service. My feeling is that as a part of that access to the 
public airways, that a certain amount of the service be 
restricted, and say this is only allowed for educational 
institutions. Part of it I feel that we have a--there is an 
example of a system in Glasgow, Scotland, that has an Internet 
built through their schools and their whole educational system 
which works for free to all the schools and all the students. 
It is a very powerful system, and I think that possibly an 
educational Internet, a third Internet that is only for 
education and that is not charged and that the carriers cannot 
charge, would be a rather simple way to solve the problem. The 
idea of taxing people and taking the money away and then giving 
it back seems like a very cumbersome way to do something that 
you are already--you are charging people to use the system as 
it is. So if you are making people pay for the right to have 
the frequencies, why don't you just say well you can have it 
for a little bit less but you have to give the schools 
something for free.
    Mr. Markey. Thank you, Mr. Lucas. Mr. Ramsey, you say that 
low-income citizens adopt broadband at a much lower rate then 
higher incomes. Can you talk about the adoption part of the A 
trilogy which you laid out here for us in terms of how that 
impacts the low-income community now and into the long term?
    Mr. Ramsey. Thank you, Mr. Chairman. On the adoption side, 
when you look at the statistics and you look at behavior, low-
income individuals will adopt at the same rate as other 
individuals. The question is what applications are available 
and are we doing anything particularly on the literacy side, on 
the human capital side, helping individuals who might have some 
literacy or language barriers to be able to adapt to using the 
Internet. But in terms of the aspiration, the goals, it is 
there for everybody, and it is just as strong with that 
population. There isn't any inherent inhibition to wanting to 
use broadband or the Internet in terms of that population.
    Mr. Markey. I thank the gentleman, and I thank him for his 
work in that area.
    To the gentleman from Florida, I have a bit of a problem 
right now. I have not made this roll call, so I have to run 
over to make the roll call, and is the gentlelady going to go 
over and make the roll call as well? OK. Well, then we won't 
have a member and majority to chair. I was hoping that was the 
case. So we will again, we will take a brief 10-minute recess, 
and the first Democrat that arrives who has made the roll call, 
we will ask them to reconvene the hearing and recognize the 
gentleman from Florida, Mr. Stearns. We will take another brief 
recess.
    [Recess.]
    Mr. Markey. The Subcommittee on Telecommunications and the 
Internet is reconvened. We apologize again to our witnesses. 
Congressional efficiency is an oxymoron, like jumbo shrimp or 
Salt Lake City nightlife, there is no such thing, and so this 
delay is something that is unavoidable but a part of, an 
integral part of, our system. Let me turn and recognize the 
gentleman from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. I don't know if Utah 
is going to appreciate your comments, but before I start I want 
to--I didn't hear Mr. Sullivan's opening statement, but I did 
look through it during the break, and I just want to commend 
him for what he is doing for the prisoners and working with the 
facilities there to get the support so that prisoners can 
actually talk to their families. And I notice as he pointed out 
that Florida is number one in terms of providing support for 
the prisoners so they can speak to their families and also in 
some ways help their children through that connection.
    Mr. May, I am going to start out my question for you, which 
is, Mr. Barton and I are dropping a bill dealing with the 
universal service. As all the members know it is $7 billion a 
year, which most of the fraud, waste, and abuse that we have 
talked about is in the high-cost portion of that. The other 
portion is the low-cost as well as the rural healthcare and 
then the E-Rate, which Mr. Lucas has talked about. But if you 
would tell me just briefly why the Barton bill would--what it 
would do to solve this problem, and maybe that would help all 
of us.
    Mr. May. Thank you, Mr. Stearns, and in my written 
testimony I did point out some very good features concerning 
the Barton bill that I didn't have a chance to address earlier. 
But basically the Barton bill does these things which I think 
are very important in terms of actually furthering the 
principles that I talked about in our oral testimony. Number 
one, it caps the size of the funds, which is important to 
staunch the growth that everyone has talked about that has led 
to the 11 percent surtax that everyone pays now.
    Number two, the Barton bill relies on a competitive bidding 
mechanism to affect the distribution of funds over time and 
this competitive mechanism is frequently referred to as reverse 
auctions. They have been talked about now for several years. 
There have been studies on this type of mechanism, but what it 
would do, would be over time it should ratchet down the 
subsidies to these high-cost areas as providers of last resort. 
There would be one provider that would be awarded the subsidy 
under the reverse auction and because of the technology 
continuing to improve and so forth, competition, the subsidy 
should go down. And then finally, and this is important on the 
financing side, it adopts a broad-based type of approach, 
largely a numbers--an assessment on numbers, which is broader 
than the current regime, and that is a good thing as well. So 
it does those things, which are very important.
    Mr. Stearns. You heard Mr. Lucas say he would recommend 
raising the $2.25 billion cap on the E-Rate program, extending 
it to provide free broadband for schools. Do you recommend 
that, yes or no, just yes or no?
    Mr. May. No.
    Mr. Stearns. OK.
    Mr. May. There are no free lunches.
    Mr. Stearns. All right. Mr. Lucas, as I pointed out or you 
pointed out, you want to provide free broadband to schools. 
Right now under the universal service and the E-Rate, some of 
the most wealthy communities in the country, for example, 
Greenwich, Connecticut, gets a subsidy of about $248 million a 
year, and in Berkeley Hills, their library gets $75 million a 
year. So this is being funded some of the most expensive 
libraries in the country, and perhaps they don't need it. Do 
you think perhaps we could do this without raising the rate, 
perhaps just try to find some way in the E-Rate program to 
maybe find some efficiency here?
    Mr. Lucas. Can I just say that when you meant thousand, not 
million.
    Mr. Stearns. Yes, thousands, excuse me, thousands. I am 
sorry, $248,000 for Greenwich, Connecticut.
    Mr. Lucas. OK. Thank you.
    Mr. Stearns. $75,000 for Berkeley Hills, yes.
    Mr. Lucas. What I am suggesting is as we move into the 
future most everything is going to end up wireless and as it 
ends up wireless you are going to be auctioning off bandwidth 
and as you auction this off all I am saying is why don't you 
just hold some back for schools and libraries. It doesn't cost 
you anything. You don't have this cumbersome system of taking 
money and then giving it back. You simply say this is an area 
you can't exploit and that is the price you pay to get this 
bandwidth or get these frequencies.
    Mr. Stearns. Would you consider going into the high cost 
part of the Universal Fund where most of us all talk about. Not 
all of the members agree here as you could here but in the high 
cost portion do you think there is a possibility of eliminating 
waste and the fraud that is in that program and transferring it 
over to the E-Rate instead of using your language of raising 
the cap on the E-Rate program?
    Mr. Lucas. Well, I mean raising the cap is a short-term 
solution. You are going to have to ask yourself again in all of 
these, I think we all agree that having this service is 
extremely important to our country. It is extremely important 
to the educational system. It is extremely important to the 
people that have been left behind and to bring them back into 
society. And arguing about who is going to pay and how it is 
going to work, that is basically the job of you guys to figure 
that out.
    Mr. Stearns. All right.
    Mr. Lucas. If I had an answer I would give you, I would say 
this is the way you can do this. The service is necessary. It 
needs a lot of really bright minds and clever people to figure 
out how to solve that problem. I am not advocating--I haven't 
read the bill--but anything that works. I am a taxpayer too. I 
think that the cheaper you can do it, the better, but the 
service has to be provided.
    Mr. Stearns. So, Mr. Chairman, I assume that Mr. Lucas is 
endorsing the Barton Bill today, is that what you hear?
    Mr. Lucas. No, I am just saying yes, as a taxpayer I am 
saying do it the most inexpensive way possible.
    Mr. Markey. All right.
    Mr. Lucas. Cut the waste, and as somebody that is 
advocating schools or whether it is prisons or whether it is 
the Internet or whether it is Internet access to the 
underserved, that has to happen somehow. So you have to figure 
out how to do that.
    Mr. Markey. All right.
    Mr. Lucas. It is just like roads. Why don't we just get rid 
of all the roads and replace it with the Internet because, we 
got gas problems, we got car problems, we got everything. Why 
don't you just take all the money you spend on roads and spend 
it on the Internet? Because hey, 150 years ago that is what 
they would have done. They spent it on roads.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Markey. The Chair recognizes the gentleman from 
Washington State, Mr. Inslee.
    Mr. Inslee. Thank you. Mr. Sullivan, first I want to thank 
you. There is a certain governor who will be real proud of your 
testimony and confirm his belief you are the most compassionate 
guy in Washington, D.C., and I will report your comments to 
him.
    I want to ask just a question for the whole panel about a 
particular group that is seriously underserved, not for 
broadband but for any band. They don't even have a phone 
connection, and that is our tribal community and many 
reservations, many of which are geographically isolated. And 
the numbers just blew me away when I saw them this morning. We 
have 98 percent coverage for the rest of Americans. For the 
original Americans we have just maybe two-thirds just having a 
phone connection. We haven't even gotten to that level yet. And 
I just wonder if any of you have any thoughts specifically 
about the best way to address that issue for that particular 
group of Americans or just having a little brainstorming 
session here for free advice.
    Mr. Ramsey. If I might, Rey Ramsey here, with One Economy 
we are working on several tribal lands in Oregon, the Warm 
Springs and Umatilla and several other tribal organizations. 
The issue is, I think, in order for it to be successful, and 
what I have seen in terms of success, it is making sure that 
programs address not only just saying, oh is it available? And 
it gets back to the three-part test that I mentioned earlier 
but that it is more comprehensive in scope. Some of the tribes 
I have seen have been ripped off by folks who have come in and 
said, we are going to put this wireless mesh over the 
reservation, but there is no adoption. There are no 
applications for people that are culturally appropriate. Folks 
want to have content in some cases that speaks to them. Some of 
it is language-based. Some of it is cultural-based. There has 
to be a focus on the human capacity side in terms of digital 
literacy, getting young people involved. So in Warm Springs we 
are working with them on getting the young folks involved and 
trained so that they can train elders. There is content that we 
are producing that is culturally appropriate and in some of the 
native languages, as well as deploying wireless to make it work 
just given the geographic expanse to many of the places. So we 
have written grants we have gotten and supported by foundations 
and other entities. So there are gaps in the way we look at 
tribal access, affordability and adoption. So I would say that 
it has to be more comprehensive then just saying here is the 
conduit or money for switching or things like that. That is not 
going to ultimately when you step back and say are we 
successful. You aren't going to be successful if you are just 
putting money in narrow bands.
    Mr. Inslee. Well, that brings up kind of a broader 
question, too. As we have gone forward, we have always focused 
just on connectivity, and if it doesn't get used because 
someone can't afford the machine to connect to it or for some 
other reason we are not doing. Does this whole thing need 
reevaluation between our investment in connectivity and our 
investment in what it takes to actually get people to utilize 
broadband services? Is there a whole new issue discussion we 
should be having in that regard?
    Mr. Ramsey. If I just might and then I will stop. I would 
say that in terms of when we talk about digital divide, the 
definition now has changed. It would only be measured in the 
past in terms of do you have access or not. We now have a 
divide that deals with content. There is a content divide, 
which is the applications of technology. And I think we have to 
expand the way we are thinking about these divides, or the flip 
side the opportunity, and we have to look at the human capacity 
side. And I would just say one other thing in terms of 
``digital divide efforts'' is that if you look at it in the 
United States, we have focused a lot on building centers, 
community centers, and E-Rate, which I support, which is a good 
program that still needs some tweaking but it is a very good 
program. But I would posit to you that the learning environment 
of the future extends beyond the school and that the learning 
environment is a full learning environment which includes the 
home. There is no place more powerful to bring technology then 
bringing it into the home. We have housing authorities in this 
country where we are building and subsidizing affordable 
housing, and we do nothing to make sure that connectivity goes 
to housing authorities. There are 3,600 housing authorities in 
America, and I would say start there.
    Mr. Inslee. I want to make sure Mr. May can get a comment 
here.
    Mr. May. Thank you very much. Two things, and I think Mr. 
Ramsey has illustrated these. Number one, on the question of 
availability, which was part of your original question in terms 
of the reservations or areas, again the important thing is 
where there are unserved areas, we need to do a much better job 
of targeting the subsidies narrowly if we are going to have 
subsidies. And you can do that through mechanisms that are 
being used now. Secondly, everything that Mr. Ramsey has said 
today, I appreciate it a lot, because he is emphasizing that 
the issue that we ought to be discussing is not just the 
availability of service, but also part of the focus should be 
on adoption and reasons why people don't have broadband. 
Because the fact of the matter is there are a lot of pockets, 
but we have made extremely rapid progress in this Nation 
actually in dispersing the availability of broadband. And there 
are ways when you talk about people not having computers or 
some of the cultural things he is talking about, they are much 
harder to get at through throwing money at, I believe, and 
subsidies.
    Mr. Inslee. Thank you.
    Mr. Markey. I thank the gentleman very much. The 
gentleman's time has expired. The Chair recognizes the 
gentleman from Nebraska, Mr. Terry.
    Mr. Terry. Thank you. I appreciate that, Mr. Chairman. Mr. 
May, have you also read the Terry-Boucher or Boucher-Terry 
bill, as well?
    Mr. May. Last year I know I did. It has been awhile.
    Mr. Terry. Very good. You do remember that it had caps in 
it as well, capping it at its current state.
    Mr. May. That is good.
    Mr. Terry. That is OK. I will remind you of that. That also 
in the side of the reform that we include phone numbers but we 
also put in IP addresses and other things that we just don't 
imagine today may be the moniker of defining the communication, 
so we give that type of breadth that you complimented the other 
bill, so we share that. Also, in the Terry-Boucher bill you 
raise the issue of competitive bidding through reverse auctions 
to be more like the carrier of last resort. And in our bill we 
kind of worked through that issue and decided what we would do 
is just define that to be eligible for the funds that you have 
to walk like a duck and actually be a carrier of last resort, 
as opposed to just come in and picking off some of the bigger 
population areas. But keep in mind bigger population areas and 
the high-cost area may be 1,500 or 2,500 people. So keeping 
that in mind, do you think that is an admirable goal that we 
keep it to the universal service funding whether through 
reverse auction or actual distribution of funds to people or to 
an entity that is a carrier of last resort?
    Mr. May. Yes, Mr. Terry, I think those are admirable goals, 
and I guess the only thing I would just emphasize again, and 
your bill goes a ways towards this in the ways that you 
suggested. But I think ultimately the competitive--the 
distribution method is important to achieve greater efficiency, 
and I would urge the use of a mechanism like the reverse 
auction to make sure that we are continuing to ramp down the 
cost of these programs to take advantage of the lower cost from 
new technology.
    Mr. Terry. Well, and one of the things that I would like to 
stress here, and we could get into this at the next hearing, 
and maybe you could be at that one as well, but the explosion 
in the high-cost fund is because now there are areas that one 
area of 2,500 people has three entities or more getting 
Universal Service funding, which to me defies the logic of its 
original intent.
    Now, with my last 2 minutes here I would like to start with 
Mr. May and go on down to Mr. Sullivan, if they think the 
other, probably the more controversial, item of the Boucher-
Terry bill is that we say if you are going to get universal 
service monies that you should now in the 21st century combine 
plain old telephone service with broadband. We equate that 
today those are pretty much one and the same or equally as 
necessary in a 21st century. Do you think if we are going to 
subsidize either through the traditional means of universal 
service checks or through a reverse auction that you should 
also have to supply broadband?
    Mr. May. The preference would be to make a cleaner break 
with the existing regime in the past and recognizing the 
importance of broadband as I did in my testimony, and in 
recognizing that there may be a need for some subsidies, I 
would prefer actually to do it separately and have broadband 
funded through general appropriations.
    Mr. Ramsey. Yes, I would add that I probably concur closely 
with Mr. May but with a heavy preference on more subsidy for 
broadband, recognizing there are pockets in terms of phone, 
particularly tribal lands and a few other rural places, which 
shouldn't be ignored but much more preference for broadband-
related subsidy.
    Mr. Terry. Actually, I think your answer would probably 
agree with my statement more.
    Mr. Ramsey. Yes, if we are going to spend a dollar on 
upgrading a system, it should also include broadband in it too, 
yes.
    Mr. Terry. Mr. Lucas.
    Mr. Lucas. Well, obviously broadband is essential now to 
schools and that is the sort of the key application that we 
have been pushing for the last 15 years, because once you get 
to be able to move video back and forth and to telecommute and 
that sort of thing with schools, it makes it a whole different 
ballgame.
    Mr. Terry. Ms. Patterson.
    Ms. Patterson. I would make sure that we move more towards 
the broadband side and look at the technology to enable you to 
be able to get the plain old telephone service. I would also 
say that I think it is important for us to move forward to the 
100 megabit nation, which is still below others, and the 
resolution in the House that is out there is very important 
between Markey, Doyle, and Eshoo.
    Mr. Markey. I thank you very much, and the gentleman's time 
has expired. We now recognize the gentlelady from California, 
Ms. Harman.
    Ms. Harman. Thank you, Mr. Chairman. First, let me commend 
you for holding this hearing. We have held a lot of hearings in 
this subcommittee. Some of them have landed you and me in the--
to be quoted by comedians late at night--but others have been 
on topics very significant. This is probably up there in terms 
of the most significant topic we could address. And I want to 
quote something you said during the Telecom Act of 1996 debate 
in support of the E-Rate program. You said we must bring all 
kids along to the future. And I think the key is what we are 
talking about today. There is no question in my mind that if we 
don't provide resources to schools and libraries, especially 
schools, to give our kids 21st century learning tools, those 
kids won't come along to the future, and they will be left 
behind by kids in other countries whose schools and libraries 
will have those tools. We are behind already, and there are 
really no excuses for this country to be behind in this area. 
And so I want to salute everyone, every witness here, for the 
efforts you are all making to help us move faster, whether that 
be in terms of federal funding, charitable giving, pushing the 
private sector, all those efforts are going to be necessary so 
we don't leave any child out of the future.
    I want to imagine what our schools will look like in 10 
years if we do this right. My three grandchildren are 2, 6, and 
5 months, and they are all geniuses, and I am sure that the 
grandchildren that are children of other members of this 
committee and of all of you are geniuses as well, or potential 
geniuses, and a lot of kids in a lot of inner city 
neighborhoods are, too. So I want to start with you, Mr. Lucas, 
you have imagined the future in many creative ways for many 
years, and you are passionate about this subject, and I think 
you are a father and possibly grandfather yourself. What could 
you imagine our schools will be capable of doing in 10 years?
    Mr. Lucas. The advantages of the Internet in the school 
system is just--completely it is going to revolutionize our 
educational system, because it can get information in the 
schools much faster and much cheaper, and it gives access to 
the students to unlimited amounts of information and training 
and tutoring. The issue really comes down now which is to help 
the schools. I know that is not the part of this committee's 
worries, but the educational, part of the educational thing 
that has to happen here is the teachers need to be trained to 
use the technology, need to be trained to use the Internet. And 
that is a big facet of all of this, and it would be great if 
this committee and the education committee could work together 
to try to make sure that there are some kinds of programs put 
in place that if we do get broadband visibility in the schools 
that the teachers have the availability to learn how to use 
them. We have come a long way, and when I was here before, we 
had only 4 percent of the schools that were connected to the 
Internet, and now 94 percent is connected to the Internet. 
Except according to the Department of Commerce, out of 55 
industries, education is dead last in its use of technology. 
Now, education is the one that is training the people to work 
in these 55 industries, and unless students know how to use the 
Internet, and how to use the computers, and how to use the 
technology, and have access to information, and know how to use 
that information, they are not going to be viable for the 
industries that are the future.
    Ms. Harman. Well, thank you. Let me ask other witnesses as 
well. I really was asking about the creative possibilities for 
students, and I would just observe regardless of the 
jurisdiction of this committee, which is quite broad, shame on 
us as parents and grandparents if as members of Congress we 
don't do everything we can to make certain that every kid has 
the maximum opportunity to be creative and to be a constructive 
citizen of the world. Do others have comments on what the 
educational workplace could look like 10 years from now if we 
do our best not just with the E-Rate but with broadband 
deployment?
    Ms. Patterson. I would like to make a comment if I could. I 
think that 10 years from now if broadband is ubiquitous to the 
schools and to the students at home, whether they are 
wirelessly connected or whether they are connected through 
wires, that you will find that the schoolplace is not just in 
the school. It is a school without walls and that they are 
learning at night and on weekends. And I think yesterday 
Educause made a statement about a very small percentage of time 
of students today are actually spent inside the schools 
learning, and it is important to realize that students train 
the teachers today. The teachers are not trained to be able to 
work with the broadband, and it takes 5 years for a teacher to 
be trained and to use that technology to be able to do the kind 
of learning that Mr. Lucas speaks about. But I think it is 
important to note just for everyone here that the adoption in 
our State, it does not matter whether you are Indian, whether 
you are Latino, whether you are Caucasian, or whether you are 
African American in our State, if you have a computer in your 
home, and predominantly you will if you have students in 
schools. And that 89 percent of them are connected to the 
Internet. The issue you need to be concerned about is the 
ability of the folks to pay for this at home to be able to get 
access to that broadband, because they are learning at home at 
night and using it for all library searches, et cetera.
    Ms. Harman. Thank you, Mr. Chairman. My time has expired. I 
just would hope that 10 years from now there are a lot of 
little George Lucases running around who are as creative as you 
have been and have the tools in their schools, which I don't 
think you did, to dream big.
    Thank you. I yield back.
    Mr. Markey. The gentlelady's time has expired. The Chair 
now recognizes the gentlelady from Wyoming, Ms. Cubin.
    Ms. Cubin. Thank you, Mr. Chairman. As I sit here I fully 
appreciate the testimony from the panel, but I have to tell you 
that I am very, very worried about the future of the Universal 
Service Fund. Wyoming is the smallest populated State in the 
Union, and it covers about 100,000 square miles. And some of 
the small companies in Wyoming serve three people per square 
mile. And I just wonder, especially you Mr. May, if you have 
any concept of this kind of situation when you are talking 
about a market forced to deal with this. But we will get back 
to that in just a minute.
    I want to give a few examples of what the Universal Service 
Fund has done in Wyoming. A small co-op in Wyoming has been 
able to offer fiber-to-the-home technology in Ten Sleep, 
Wyoming, and as a result of that there is a business that has 
been set up to teach English to people in South Korea. It 
employs 170 people. Rural school districts--Ten Sleep, Wyoming, 
by the way, has a population of 304 people. Rural school 
districts in Dubois, Wyoming, a population of 983 people, and 
the Wind River Indian Reservation use the E-Rate program to 
ensure that students can connect to the University of Wyoming. 
These schools are located hundreds of miles away from the 
University. Cheyenne Medical Regional Center connects to drug 
treatment centers around the State, clinics around the State. 
And so those are wonderful things that the Universal Service 
Fund has done.
    But let me tell you what losing the universal service would 
do. There is a school in a town has a total enrollment in this 
school from grades 1 to 12 of 20 kids. And there is a really 
bright, bright boy in this school. He is a junior in high 
school. If you live in Casper or Cheyenne, you can take 
calculus when you are a junior or senior, but this boy can't. 
And that happens all over the State of Wyoming all the time.
    And our small providers are very willing to talk about any 
kind of solution to reforming the Universal Service Fund, but I 
have to speak frankly here. Many of these small businesses, and 
also I, see dark clouds on the horizon, because I am afraid 
that this reform of the inefficiencies is a veiled attempt to 
eliminate the Universal Service Fund. And I think that has to 
be dealt with right up front. And if people are committed to 
it, they need to be committed to it.
    But you have to realize it is not just Wyoming where those 
situations exist. Every State in the Union has situations like 
some that I have described where there is absolutely no 
service. If you, a rancher and you need to get your cattle to 
market, you need service. If you work in the oil fields or the 
energy fields, you have to be able to get in touch with 
customers and train your employees. And it is just not possible 
without the Universal Service Fund.
    So, Mr. May, you noted in your testimony that The Free 
State Foundation understands that government has a role to play 
in helping ensure communications services are available to 
everyone. I appreciate that. However, you go on to say that in 
terms of broadband deployment, market forces should be relied 
upon. That paradox that you laid out accurately describes the 
kind of dilemma that rural members like me face with regard to 
the USF. I am in general a believer in free markets, more so 
then most members of Congress, I can tell you that. But I can 
take you to places in my State where market principles simply 
do not meet our connectivity goals. How does the free market 
solve these problems, and how should the government respond to 
these kind of conditions?
    Mr. May. Thank you, congresswoman. In my testimony, I am 
pretty sure what I said was that to the greatest extent 
possible that we should rely on market forces. And I believe 
that is important, because the market, free market, is bringing 
service to most places through new technologies that develop 
wireless, and there are even, there are satellite phones, and 
we can talk about those. But I went on to say beyond that, that 
I understand there are places, and Wyoming would be a good 
example, where if the market, the free market forces haven't 
provided service to everywhere, that there may be a need for 
government subsidies. And I understand that. And then the 
important thing is that when you get to that point, you need to 
do it in a way that is different from the way that the current 
Universal Service Fund works, because I talked about the 
principle of targeting the distributions narrowly and funding 
it broadly. And the current system is totally at odds with 
those principles. It turns them on its head. So you can find a 
way to serve those pockets that need to be served, getting 
money to them but doing it in a much more focused way that is 
more efficient and less costly.
    Mr. Markey. The gentlelady's time has expired.
    Ms. Cubin. Thank you, Mr. Chairman. I will submit further 
questions to the panel.
    Mr. Markey. And we would ask in writing that that question 
be answered back to the committee. The Chair recognizes the 
gentleman from Illinois, Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. Thanks for the 
witnesses. Sorry that our schedule is such that we are coming 
and going and missing a lot of this. We appreciate you coming 
here.
    This is for the whole panel one after another. Is it your 
perspective that broadband today is as important to all 
Americans as telephone connectivity in the 1930s, when the USF 
was established? Mr. May, would you start?
    Mr. May. Yes, I think it is as important. Then the next 
question is what approaches do you take to make sure that it 
gets to as many Americans as possible on the least costly 
basis, because we all have to pay for these things, and that is 
the important question.
    Mr. Shimkus. And that is correct, and of course, from our 
side we understand that there is no free lunch for anything. 
Someone is going to have to bear the cost. Mr. Ramsey.
    Mr. Ramsey. I would probably say, Mr. Congressman, that it 
is more important today. For example, you have a plethora of 
companies that will require that you apply for the job online. 
So if you don't have that kind of access, you are out of luck 
for employment. And there are many other examples like that 
with E-government and other things the way we are moving, so it 
is more crucial.
    Mr. Shimkus. I think that is a good point. Mr. Lucas.
    Mr. Lucas. Yes, I agree that, especially in terms of 
education, broadband is really the backbone of the new 
educational system.
    Mr. Shimkus. I have young kids, so it is amazing what they 
do on their research versus what we did grabbing the old 
encyclopedia.
    Mr. Lucas. There is a generational thing. It is hard to sit 
here and have this discussion when there is a generation 
sitting there right now using broadband, using the Internet, 
using all of these things, and it is an integral part of their 
life. I mean absolutely crucial part of their life.
    Mr. Shimkus. Ms. Patterson.
    Ms. Patterson. Yes, and I would say that you just 
underscore what I hope everyone in the, on the panel will take 
as central to what I am saying is that economic development of 
this country, the creation of wealth in rural communities and 
the distressed areas of urban areas, it is critical to that. 
And I think we should remember that. It is critical to the 
education, but you have to have the creation of wealth in our 
country, and it is critical to that.
    Mr. Shimkus. And, Mr. Sullivan.
    Mr. Sullivan. Well, let me say, Congressman, that of course 
we are concerned about the telephone issue with families of 
prisoners being able to communicate with their loved ones and 
vice versa, where prisoners can communicate with their 
children. There are only three ways that prisoners can 
communicate. That is through visiting, through letter writing, 
and through the telephone. And we have learned through the 
telephone the concern of course is security. And I think this 
is an area that maybe we would--the question came about the 10 
years in the future--that we can begin to do this and hit the 
right note in regard to security where there would not be 
abuses. I think we could move in that direction. But, of 
course, what we are at now we are trying to do is, of course, 
the phone issue that I brought to the Committee's attention 
today.
    Mr. Shimkus. Thank you. And I don't want to make--I have 
been a johnny one-note on energy now for a long time, and I 
don't want to turn this into an energy debate, Mr. Chairman, 
but with the escalating costs of gas and diesel fuel, 
especially in rural America, can't you make the argument that 
you have to deploy broadband? I mentioned in my opening 
statement about telemedicine activities and driving multiple 
hours to get to specialists versus being able today. Isn't that 
another critical piece for--in reality we open up OCS. We go to 
quota liquid. We do all this stuff. Demand is going up. Prices 
are not going to go down to the consumer any time soon, so we 
need to find new ways to get information to rural America. Is 
that a safe segue as far as the benefits of broadband?
    Ms. Patterson. There are many studies, Mr. Shimkus, I am 
sorry, that show that telemedicine brings tremendous 
efficiencies into the healthcare system, and for individuals it 
means that they have a greater ability to get more quality care 
when they can interact directly with specialists from wherever 
they are. And they save the money from driving the car to get 
to the specialist, and they save the money from their company 
having to pay somebody else to take their place while they are 
driving to the specialist.
    Mr. Shimkus. And we have with the veterans issue in going 
to VA hospital if they have retired in rural America and they 
have a VA hospital like John Cochran in Saint Louis or Marion 
in Marion, Illinois. Many are driving two hours to have access 
to that care that is owed them by the government because of 
their service. So those are important things, but I think 
broadband is a critical part of this whole debate. Mr. 
Chairman, I yield back.
    Mr. Markey. I thank the gentleman, and as the gentleman 
knows I am an anyone-note on energy issues, taking the opposite 
position of the johnny one-note. But on this issue, you and I 
agree. This is a--even a blind squirrel anyway. And so we 
should work together on this.
    The Chair recognizes now the gentleman from Oregon, Mr. 
Walden.
    Mr. Walden. I want to follow up where my colleague from 
Illinois left off in terms of getting broadband out into the 
rural areas. As I mentioned, my district is about 70,000 square 
miles, and so if you want to talk about rural, we got it. And 
that is a big challenge. And, Ms. Patterson, you mentioned 
telemedicine. I visited a hospital out in John Day a few years 
ago that had just been able to hook up into broadband, and 
precisely what you outlined is the case. A gentleman who used 
to have to commute to Bend, and it was several hours drive, and 
if the roads were snowy and icy, which they frequently are from 
about oh, October until about oh, October he didn't have to do 
that for whatever the procedure was. He could sit in the 
hospital there in John Day. They communicate over broadband 
with Saint Charles. And it would be a 20-minute visit in the 
hospital, but he would have to drive several hours each way to 
achieve that. And so it strikes me that when it comes to our 
healthcare, Mr. Lucas, when it comes to our education and, Mr. 
Ramsey, when it comes to reaching out into Native American 
tribes, it is all about getting this wire or wireless 
communication. And so I am curious, Mr. Ramsey, in terms of the 
work you are doing with the Umatilla and the Warm Springs, how 
much of this is an issue there is no wire to the house, versus 
other socioeconomic issues? And can we trump all of that as Mr. 
Lucas has indicated by going wireless, which being an old radio 
broadcaster, we were sort of there before it was popular to do 
the wireless thing.
    Mr. Ramsey. Well, congressman, there is no question that 
wireless opens up a lot of possibilities, because you have 
always had the last mile issue. So when large rural areas, when 
you look at the promise of issues like WiMAX and what that 
might potentially do again, it opens up the opportunity to get 
people access. And we still have to make sure it is affordable. 
And then we still have to work on the application side of it so 
that we can make sure adoption occurs. In a lot of rural areas, 
one of the issues that comes up is the ability to age in place. 
And so technology gives you the ability to age in place, 
because it opens up opportunities. Intel is doing some amazing 
work around aging in place. You also have chronic disease 
management.
    Mr. Walden. Right.
    Mr. Ramsey. And there are more opportunities being opened 
up by using that. So these are all crucial issues, urban and 
rural, but clearly greater opportunities to take advantage of 
this in rural areas.
    Mr. Walden. Mr. Lucas, in terms of the wireless future, can 
we just sort of leapfrog from where we are with USF and do you 
think go into the wireless future that is broadband and get 
your phone and your Internet or not?
    Mr. Lucas. I work all over the world, and it is an 
interesting conundrum that in the United States in Wyoming we 
can't get wireless. But I work in the middle of Africa, in the 
middle of nowhere, and I can get wireless.
    Mr. Walden. Right.
    Mr. Lucas. I can get it in Eastern Europe, I can get 
wireless. I can get wireless almost any place in the world 
except in the United States. So something is not working, and 
that is what is important.
    Mr. Walden. And is that because we have the embedded cost 
structure with a wired system, and so you have sort of that 
cost everybody is trying to deal with where these other 
countries have leapfrogged to wireless? I woke up in the middle 
of the night, and I don't know, some show on about, is it the 
panacea where they are doing all of the with cell phones in 
India and elsewhere doing all their banking now, texting.
    Mr. Lucas. Well, in a lot of schools in Africa, they are 
using little cell phones to do their schoolwork. They are using 
them as computers. And they are getting their information.
    Mr. Walden. From each other, no.
    Mr. Lucas. From the Internet.
    Mr. Walden. Not during the test now.
    Mr. Lucas. The thing about wireless is that ultimately 
there is lots of technology and lots of ways of acquiring that. 
Then you break it up into a lot of different issues, which is 
what kind of unit do you have at the end of the system.
    Mr. Walden. Right.
    Mr. Lucas. And you can have a wide range of those. Some 
that are extremely inexpensive and you can give away. And some 
of them which are more complicated that cost money. And you 
also have local Internet wireless, and you have satellite 
wireless. So there is--it is much easier then actually running 
a wire someplace, which is a guy on a pole, which is a lot of 
work.
    Mr. Walden. Yes, and one of the places I mentioned earlier 
in Wheeler County is going to get its first cell service. The 
guy who used to run the electric co-op was on the board, told 
me that one person for every 9 miles of powerline. And so when 
you think about that and in terms of the telecommunications 
strategy, Ms. Patterson, you were sort of shaking your head 
about this leapfrog concept.
    Ms. Patterson. I think that far be it for me to disagree 
with Mr. Lucas, but I do feel that from my past experience in 
technology that wireless is appropriate. All technologies are 
appropriate. Wireless is very possible to be in Africa in many 
different small spaces. But ultimately you have to have a fiber 
connection. You don't have today the capability of wireless to 
carry the same bandwidth that the fiber carries. Nor does it 
have the capability to survive a lot of the weather conditions 
that you have with wireless, so I think you are going to have 
all technologies. And I would hate for the panel to begin to 
think that it is just going to be totally wireless, because 
fiber plays a very important part in this.
    Mr. Markey. The gentleman's time has expired.
    Mr. Walden. Thank you.
    Mr. Markey. Let me just note right now that Mr. Pickering, 
if no one else arrives, will be our final questioner. Then what 
I am going to do is ask each one of you to give us our final 1-
minute summation that you want the subcommittee to remember as 
we go forward, and then we will adjourn the hearing. So the 
Chair recognizes the gentleman from Mississippi, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, thank you, and I appreciate 
you having this very important hearing. I would like to put a 
few things in context. In 1934, our policy was universal and 
monopoly. In 1996, our policy changed to universal but 
competitive. Under the premise that there is only one thing 
worse then subsidizing, I mean there is only one thing worse 
then subsidizing competition, and that is subsidizing monopoly, 
that with competition you give choice in investment, innovation 
into all markets. And so what I am concerned, Mr. May, with 
reverse auctions, could reverse auctions take us back to 
subsidizing monopoly and simply locking in in a lot of markets, 
rural markets, one provider so that there is no choice in rural 
America? What is your belief if we went to reverse auctions? 
What would be the outcome in those types of markets, would we 
have competition or not?
    Mr. May. Well, I would only recommend, and I have 
recommended, that you do reverse auctions and that you provide 
subsidies in unserved areas. So we are talking about areas that 
are by definition presently unserved. I think the reverse 
auction is the way of identifying the least costly way to serve 
that area. It doesn't preclude others from coming in on top of 
the provider of last resort if they can provide a competitive 
service. And as part of the reverse auction mechanism, 
periodically over some period of time you re-bid and so if you 
have a lower bidder. But keep in mind that you are talking 
about areas in which you are assuming that there is no one who 
has come in to provide service. That is the way I think of 
using it.
    Mr. Pickering. But then there is no place in the country 
where we don't have service, because remember we are universal. 
So every market there is someone who is being subsidized. Now, 
right now we are subsidizing competition, both the incumbent 
wireline, new interest in wireless and independent wireless, if 
they come into a market they can receive those subsidies. And 
so we have multiple providers receiving subsidies but, and this 
is where I think it would be a better policy. Instead of going 
to reverse auction where the incumbents or the large companies, 
AT&T or others, would simply be able to underbid and low bid to 
eliminate competition, I think it would be better and based on 
right now it is on identical support, which is on the least 
efficient technology, the wireline cost. Should we move to a 
transition where we allow competition to continue but is based 
on the most efficient technology or the lowest cost technology 
over time, and that would be primarily wireless, would that be 
a better type of reform? Going to a declining cost, most 
efficient technology, but maintaining competition?
    Mr. May. The problem I have with the way you stated it, Mr. 
Pickering, is, and it is somewhat of the same mind when I was 
thinking about Mr. Lucas, I don't think it is useful or 
ultimately productive to identify, think that you can identify 
for policymakers in advance what the least cost technology over 
time will be. That is counter to the whole history of 
telecommunications.
    Mr. Pickering. Well, let me say this, Mr. May. I agree with 
you. It should be technology neutral, but I do think that it is 
fairly obvious that wireless is a more efficient technology. 
Now, I agree with Ms. Patterson that today wireless does not 
have the robustness, the reliability, the capacity as fiber. 
But we have just done the 700 auction, and we are about to see 
4G wireless, broadband wireless and over the next 10 years, 
wireless will be as robust, reliable and have the broadband 
capabilities that today wireline has, but it will be lower 
cost. And it can reach into geographic areas in smaller markets 
more efficiently and at a lower cost. I think what our policy 
should be, Mr. Chairman, is to look over a 10 year transition. 
How do we incentivize broadband? How do we get to the least 
cost, which is probably wireless, and how do we maintain 
competition? I don't think that two providers, a duopoly or a 
monopoly, is what our government's policy should be, and we 
should try to find the incentives to get us there in education, 
telemedicine, and in competition. Mr. Chairman, with that, I 
yield back.
    Mr. Markey. Great, the gentleman yields back, and without 
objection I move to enter into the record the following, the 
testimony for this hearing by the National Tribal 
Telecommunications Association including their comments, in the 
FCC's ongoing proceeding, and a statement by Willard Nichols, 
President of the American Public Communications Council.
    Now, we are going to recognize each of you for 1 minute. 
Tell us what you want us to know as we go forward looking at 
reforming the Universal Service Fund. What should our goals be? 
We will begin with you, Mr. May.
    Mr. May. Thank you, Mr. Markey, and thanks for holding the 
hearing. I think it is very important to focus on the future of 
universal service, and I think this has been a useful 
discussion.
    I think there is significant agreement that with respect to 
narrowband service, the original goals of universal service 
have been largely achieved, and that is why the focus has been 
on broadband today. I just want to reiterate that as we examine 
that issue, the basic principles that should guide us are 
really important.
    Number one, market forces should be relied on to the 
greatest extent possible in order to avoid the cost that we 
incur when we provide subsidies. In places where market forces 
aren't going to provide service or haven't provided service, 
then subsidies may be appropriate. And in distributing those 
subsidies, it is important that they be targeted as narrowly as 
possible to achieve the objective. And it is important the 
financing system for those subsidies be as broad as possible. 
And I would say that actually the subsidies should be financed 
through the general treasury if this is an important national 
goal, the promotion of broadband. But those principles are in 
my view very important to keep in mind as you think about how 
to get broadband dispersed to the country as widely as we want 
it to be without market forces.
    Mr. Markey. Thank you, Mr. May, very much. Mr. Ramsey.
    Mr. Ramsey. Mr. Chairman and committee, the key principle 
for me is that as we live in the 21st century, to reform the 
universal service to think not only in terms of supply but also 
demand. As I mentioned earlier, to not only look at the issue 
of access, but to make sure we are looking at affordability, as 
well as the applications, the adoption of that technology. And 
as we are thinking about education, to think about an expanded 
21st century-learning environment that is both the school, the 
home, as well as the community. And one very specific issue is 
again to think about, as we expand opportunities potentially 
for digital technology in thinking about the home, let us think 
about low-income people who live in public housing in every 
community in this country. We could do something very targeted, 
very focused, much like how we focused on schools, we could do 
that in housing for the poorest of the poor and really bring 
digital opportunity to every single person.
    Mr. Markey. I would like to work with you on that, Mr. 
Ramsey, as we are going forward. I think it is a very important 
problem. Mr. Lucas.
    Mr. Lucas. I think I want to move to Mississippi, because 
he seems to have the right idea about things.
    But it is extremely important to bring wireless and 
broadband into the schools as well as the rest of our country. 
What we are arguing here is to invest in the printing press. 
Abraham Lincoln couldn't read his books by the fire if we 
didn't have the printing press in rural Illinois. And at the 
same time we are also thinking about financing federal roads so 
that people that are lost out in the wilderness, people who 
need to get their products from market to homes and that sort 
of thing, have a way of doing it. That is what this is. This is 
the transportation system of the future. This is the printing 
press of the future. And our schools won't be able to exist 
without it.
    Mr. Markey. Thank you, Mr. Lucas, very much. Ms. Patterson.
    Ms. Patterson. Well, I would like to say that Abraham 
Lincoln probably could not have won the Civil War without the 
telegraph, so I would point out that technology is very 
important. We need to have a national commitment to broadband 
and as House members should, in fact, I think, support that. 
Secondly, we should revamp the Universal Service Fund and move 
it towards broadband. Third, it should be a partnership between 
State, Federal, and local government. And fourth, we should 
invite everyone to participate. The private sector should lead 
if at all possible, but if not, we should really provide the 
subsidies to bring about universal broadband.
    Mr. Markey. Thank you, Ms. Patterson. We will just wait 10 
seconds. Yes, you are recognized, Mr. Sullivan.
    Mr. Sullivan. Mr. Chairman, phone communication is the most 
important means of keeping people in prison together with their 
families and not recidivating. Our progress on reducing these 
high costs of these phone calls has been made in regard to 
intrastate calls but not in regard to interstate calls. I 
wanted to share with Mr. Terry, and maybe his staff is here, 
that Nebraska did a very good thing a few years ago. Because of 
the pro-family policy, they cut out the commissions that they 
were receiving from the phone company. Even though Florida has 
the best system right now, Nebraska is very close. And so it 
can be done. Passage of H.R. 555 by Congressman Bobby Rush of 
this committee would go a long way to reducing the high cost of 
these interstate phone calls. 555 is basically a resolution. It 
does not tie the hands of the FCC. It just encourages them to 
do something about the exorbitant rates that families are being 
charged to communicate with their loved ones.
    Mr. Markey. Thank you, Mr. Sullivan, for your testimony. We 
thank each of you.
    We can look back now at the 1996 Telecommunications Act and 
we can see that on the day that it passed, only 4 percent of 
schools had access to the Internet, and now 94 percent of 
schools have access. So that is a success. But as we analyze it 
today, we can see that there are problems with the rising of 
rural rates, that there are problems in the rural healthcare 
communications program, that there are 11 percent now fees on 
telephone calls. But at the same time, we can see this rapid 
pace of technological change as well, and we have to make sure 
that the poorest children are kept up to speed. You can't 
support NAFTA and GATT the way I did speeding up the economy 
and not simultaneously speed up the rate at which the young 
people in our country gain access to the skill sets for these 
new jobs, or else we will be continually besieged by high tech 
firms begging us to have more H1B visas that we can bring 
people in from around the world who are being given these 
skills. As Mr. Lucas says, we put our own young people at a 
disadvantage if we don't give them access to those skill sets.
    So in many respects what we did in 1996 seems like a galaxy 
far, far away in terms of these modern technologies. And it is 
our responsibility to focus not only on that but on the future 
and what we have to do while we are protecting ratepayers, 
making sure it is more efficient, but also making sure that we 
make our country a brighter, more prosperous place not just for 
the well-to-do but for everyone. We owe that to all of the 
young people in our country, and your testimony today helps us 
to focus upon that objective.
    With that and the thanks of this committee, this hearing is 
adjourned.
    [Whereupon, at 12:20 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]




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