[Senate Hearing 110-395]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-395
 
 IMPROVING INTERNET ACCESS TO HELP SMALL BUSINESS COMPETE IN A GLOBAL 
                                ECONOMY

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP



                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 26, 2007

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                 JOHN F. KERRY, Massachusetts, Chairman
CARL LEVIN, Michigan                 OLYMPIA J. SNOWE, Maine,
TOM HARKIN, Iowa                     CHRISTOPHER S. BOND, Missouri
JOSEPH I. LIEBERMAN, Connecticut     NORMAN COLEMAN, Minnesota
MARY LANDRIEU, Louisiana             DAVID VITTER, Louisiana
MARIA CANTWELL, Washington           ELIZABETH DOLE, North Carolina
EVAN BAYH, Indiana                   JOHN THUNE, South Dakota
MARK PRYOR, Arkansas                 BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         MICHAEL B. ENZI, Wyoming
JON TESTER, Montana                  JOHNNY ISAKSON, Georgia

                 Naomi Baum, Democratic Staff Director
                Wallace Hsueh, Republican Staff Director











































                            C O N T E N T S

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                                                                   Page

                           Opening Statements

Kerry, The Honorable John F., Chairman, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Massachusetts..................................................     1
Snowe, The Honorable Olympia J., a United States Senator from 
  Maine..........................................................     3

                               Testimony

Copps, The Honorable Michael J., Commissioner, Federal 
  Communications Commission, Washington, DC......................     5
Adelstein, The Honorable Jonathan Steven, Commissioner, Federal 
  Communications Commission, Washington, DC......................    11
Scott, Ben, policy Director, Free Press, Washington, DC..........    31
Mefford, Brian, president and chief executive officer, Connected 
  Nation, Bowling Green, Kentucky................................    50
Levin, Douglas A., president and chief executive officer, Black 
  Duck Software, Inc., Waltham, Massachusetts....................    58
Wallsten, Dr. Scott, senior fellow and director of Communications 
  Policy Studies, the Progress and Freedom Foundation, 
  Washington, DC.................................................    66

          Alphabetical Listing and Appendix Material Submitted

Adelstein, The Honorable Jonathan Steven
    Testimony....................................................    11
    Prepared statement...........................................    14
    Response to post-hearing questions from Senator Snowe........    98
Copps, The Honorable Michael J.
    Testimony....................................................     5
    Prepared statement...........................................     8
    Response to post-hearing questions from Senator Snowe........    88
Kerry, The Honorable John F.
    Opening statement............................................     1
    Public response from a guest blog post wherein Senator Kerry 
      ask the question: How can we connect America?..............   137
Levin, Douglas A.
    Testimony....................................................    58
    Prepared statement...........................................    60
Mefford, Brian
    Testimony....................................................    50
    Prepared statement...........................................    53
    Response to post-hearing questions from Senator Snowe........   119
Scott, Ben
    Testimony....................................................    31
    Prepared statement...........................................    34
    Response to post-hearing questions from Senator Snowe........   112
Snowe, The Honorable Olympia J.
    Post-hearing questions posed to Commissioner Copps and 
      subsequent responses.......................................    88
    Post-hearing questions posed to Commissioner Adelstein and 
      subsequent responses.......................................    98
    Post-hearing questions posed to Brian Mefford and subsequent 
      responses..................................................   119
    Post-hearing questions posed to Ben Scott and subsequent 
      responses..................................................   112
    Post-hearing questions posed to Dr. Scott Wallsten and 
      subsequent responses.......................................   127
Wallsten, Dr. Scott
    Testimony....................................................    66
    Prepared statement...........................................    69
    Response to post-hearing questions from Senator Snowe........   127

                        Comments for the Record

The Computing Technology Industry Association (CompTIA), Roger J. 
  Cochetti, group director-U.S. policy...........................   170
Cunningham, William Michael and Creative Investment Research, 
  Inc., Washington, DC...........................................   177


IMPROVING INTERNET ACCESS TO HELP SMALL BUSINESS COMPETE IN THE GLOBAL 
                                ECONOMY

                              ----------                              


                     WEDNESDAY, SEPTEMBER 26, 2007

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 
428-A, Russell Senate Office Building, the Honorable John F. 
Kerry (Chairman of the Committee) presiding.
    Present: Senators Kerry, Snowe, and Corker.

  OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, CHAIRMAN, 
SENATE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A 
            UNITED STATES SENATOR FROM MASSACHUSETTS

    Chairman Kerry. The hearing will come to order. Thank you 
all very much for joining us this morning to discuss how we are 
going to improve Internet access for small businesses in the 
country and the importance of being able to be online for 
business in today's world.
    I would just direct you quickly to today's New York Times 
and the Business Section, ``Strategies to Succeed Online.'' In 
the middle of the article it says the old ways of hiring a 
public relations firm and putting out press releases just don't 
cut it anymore. Today's businesses have to be more hands-on, 
grassroots, interactive, and maintain this flow of continuous 
communications.
    That is what this hearing is all about.
    Today, the Committee is exploring the pivotal, critical 
question of access for small businesses to the Internet. We 
want to look at the question of whether the prices are 
affordable, to what degree there is penetration, are the speeds 
adequate, and what do we do in order to make improvements?
    Most people don't disagree that high-speed Internet access 
is critical to economic competitiveness. You hear it talked 
about all the time and everybody in public life has it in their 
speeches. But they don't necessarily have it in their policies, 
and for small business, increasingly, it is becoming critical 
in order to track inventory, create jobs, monitor consumer 
relations, forecast product sales--any number of different 
things. The Internet is not a luxury, it is a necessity. It is 
imperative in maintaining our growing economy.
    In March of 2004, President Bush appeared to understand 
that by setting forth the Universal Broadband Access Goal by 
2007. Well, we are in 2007, but we have yet to put in place the 
policies that will actually realize that goal. So as a result, 
we are lagging behind the rest of the world now, which is 
pretty incredible when you consider I remember sitting in the 
Commerce Committee in 1996 when we wrote the Telecommunications 
Act, mostly thinking about telephony; within months, it was 
blown away and almost obsolete because it was all data 
transformation and data transmittal that really was at stake. 
And here we are now, just a little more than 10 years later, 
and the United States is lagging behind.
    When the Organization for Economic Cooperation and 
Development, the OECD, began surveying and ranking broadband 
use, the United States was ranked fourth among the 30 nations 
surveyed, behind Korea, Sweden, and Canada. Since 2000, the 
United States has plummeted in the OECD rankings to 15th place, 
and another ranking of access to high technology lists the 
United States 21st, behind Estonia and tied with Slovenia.
    We can do better than this and we have to do better than 
this. It is almost shameful, folks. It is inexplicable. It is 
essential for America to have a national broadband strategy 
that encourages competition and expands broadband access, or we 
are going to continue to be left behind.
    Today, from rural areas to big cities, nearly 60 percent of 
the country does not subscribe to broadband service, in part 
because they simply don't have access to the service or they 
can't afford it. Even a nationwide leader in technological 
innovation like my home State of Massachusetts had a 45.9 
percent broadband penetration rate at the beginning of 2006, 
and that was the fourth best rate in the country.
    While small businesses are the backbone of our growing 
economy, the power of the tools that they use to compete both 
domestically and globally are shrinking dramatically. With 
America's Internet speeds severely lagging behind universal 
standards, it is surprising that small businesses can compete 
at all. Americans in rural communities face especially 
difficult challenges in overcoming problems with broadband 
deployment, since many lack even basic access.
    The outcome is clear. We place a technological ceiling on 
job growth, innovation, and economic production. We cannot 
expect small businesses to fairly compete against more 
technologically advanced competitors unless we change what is 
happening today.
    Some experts estimate that universal broadband would add 
$500 billion to the U.S. economy and create 1.2 million jobs. 
With numbers like those beckoning us, we need to focus on 
reestablishing our technological edge.
    I am delighted that we have two FCC Commissioners here 
today on the first panel, Michael Copps and Jonathan Adelstein, 
to tell us what they feel needs to be done to develop a 
national broadband strategy. And on our second panel, we are 
pleased to welcome Ben Scott, who is a recognized leader in 
broadband deployment and media issues; Doug Levin, the CEO of 
Black Duck Software, who will give us a unique perspective as a 
technology business leader; Mr. Mefford will talk about 
innovative approaches to broadband being pursued in Kentucky; 
and Mr. Wallsten with the Progress and Freedom Foundation 
offers additional ideas on the current state of Internet 
penetration. We look forward to hearing their testimony.
    A few things are certain here. We need better information 
in the development of these policies. We are broadly lacking 
broadband data for small business itself. I plan to ask the 
Small Business Administration and the FCC to conduct a robust 
effort to gather data about small business and broadband usage.
    We also need a strong regulatory framework to encourage 
competition. Competition spurs innovation, enhances services 
andd reduces prices. I have advanced and supported a series of 
measures designed to increase competition. For example, I have 
worked to make better use of spectrum, which is a valuable 
public asset. Much of our spectrum is underutilized, shelved, 
and hoarded by incumbent companies. We can maximize this 
valuable asset, including the use of the white spaces, by 
creating 700 megahertz auction rules that encourage new market 
entrants; in fact, we are dealing with some of that on the 
Commerce Committee.
    Lastly, we need to think creatively about Internet access. 
We ought to look at reforms of the Universal Service Program 
and innovative public-private partnerships for additional 
ideas. I hope we can draw these and other issues out in the 
hearing. I look forward to hearing from our witnesses.
    Senator Snowe, good morning and thanks for being with us.

 OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, A UNITED 
                   STATES SENATOR FROM MAINE

    Senator Snowe. Good morning. Thank you, Mr. Chairman, for 
holding a hearing on this vital issue. I hope our combined 
membership on both the Commerce and Small Business Committee 
can help us work together and develop a policy with respect to 
broadband deployment.
    I want to thank Commissioners Copps and Adelstein from the 
FCC for their tremendous stewardship and public service. I have 
the highest respect for both of these Commissioners and I want 
to thank them for recently holding a hearing in Portland, 
Maine, to solicit testimony from various segments of the 
population regarding key telecommunications issues and 
preserving localism in the media marketplace.
    I have known Commissioner Copps for some time now and I 
applaud his unwavering leadership on the Federal-State Joint 
Board on Universal Service and in particular the E-rate program 
and his efforts to expand the Universal Service Fund to include 
broadband deployment. Commissioner Adelstein's understanding 
and experience with rural broadband deployment is highly 
essential and key voice in the FCC and I want to thank you, as 
well, for your steadfast dedication and commitment to expanding 
broadband across America.
    I look forward to a productive and constructive dialogue 
with the Commissioners and other expert witnesses on ways in 
which the Federal Government can encourage more robust 
broadband deployment, specifically to rural America and 
businesses.
    The President announced his priority 3 years ago for 
broadband deployment by 2007. We have a goal, but not the 
tactics to realize this initiative. Fulfilling this charge is 
imperative as small businesses who rely on broadband 
connections, specifically in rural areas such as Maine, need 
affordable access to technologies of the future and, as well as 
the ability to compete in the global marketplace where other 
countries and our international counterparts have a national 
broadband strategy.
    One of the issues associated with universal broadband 
deployment is, of course, the FCC's lack of a comprehensive 
broadband data gathering methodology. I know both Commissioners 
have been an advocate of making improvements in this area. The 
GAO agreed in November of 2006, indicating that without more 
reliable data, the FCC is unable to determine whether its 
regulatory policies are achieving their goals.
    I would like to explore the FCC's adherence to the 
Regulatory Flexibility Act, which requires the Federal agencies 
to consider the effect of these proposals on small businesses. 
Commissioners Copps and Adelstein, you are at the forefront of 
these issues and I welcome your input on how small businesses 
can work with the FCC to reap the benefits of broadband 
services.
    As Ranking Member of this Committee, I firmly believe that 
Federal policy should promote a universal broadband market that 
deploys competitive and affordable broadband. Today, the 
marketplace lacks competition, with 98 percent of Americans 
receiving their broadband service either from a cable or phone 
company. To encourage growth, we need to promote more 
competition in the market.
    I am particularly pleased that many States and 
municipalities have launched initiatives to bring high-speed 
Internet services and economic opportunity to communities the 
market has overlooked. One example of this growing trend is 
Connect Maine, an ambitious public-private partnership which 
seeks to provide 90 percent of Maine's residents with broadband 
access by 2010.
    As we consider the matter of competitiveness, we must also 
bear in mind that affordability is as much a barrier. According 
to a report by the Small Business Administration's Office of 
Advocacy, rural small businesses do not subscribe to broadband 
services as frequently as urban small businesses do, usually 
because of the high cost, creating a digital divide. In Maine, 
for example, even in the areas where they do have access to 
broadband, 59 percent choose not to subscribe because of the 
high cost. So, we must work together to address the disparities 
between those who have this access and those who do not.
    As many will mention here today, the United States, ranks 
very poorly in broadband penetration, although it raries by 
ranking the International Telecommunications Union ranks the 
United States 15th in terms of global broadband penetration 
rate. That is an unacceptable ranking, in the 21st century, for 
the United States globally to be ranked 15th in a category 
where it has been a pioneer.
    In Maine, the statistics are just as bleak. It ranks 31st 
in the country for residential broadband penetration, and 14 
percent of households have no access whatsoever. In America, it 
is 1 in 10 consumers who have no access.
    So, as we can see, broadband deployment in Maine and 
throughout the country is severely lacking. It continues to be 
one of the major concerns among small businesses in my State, 
and rightfully so, because broadband investments can have a 
substantial economic impact.
    Everybody agrees that broadband holds the promise of 
technological innovations, better communication, and connecting 
vast distances within the States. So the question for this 
Committee is how do we engender and promote a robust market, 
create that policy that charts a path to successfully deploying 
broadband to under-served small businesses?
    Hopefully, this is just the beginning of this dialogue and 
we can chart this policy. I think it is absolutely crucial that 
we begin the process in a very efficient and expeditious way, 
and hopefully it can be spurred by this Committee hearing this 
morning.
    Mr. Chairman, thank you.
    Chairman Kerry. Thank you, Senator Snowe.
    I would like to try to go right to the witnesses. Are you 
amenable?
    Senator Corker. Yes.
    Chairman Kerry. Great. Gentlemen, thank you for being with 
us. We look forward to your testimony. Your full statement will 
be placed in the record, as if read in full. If you could 
summarize in about 5 minutes, we would appreciate it.
    Commissioner Copps.

  STATEMENT OF THE HONORABLE MICHAEL J. COPPS, COMMISSIONER, 
       FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC

    Commissioner Copps. Chairman Kerry, Ranking Member Snowe, 
Senator Corker, thank you for holding this hearing. Time is 
short, so I will be blunt.
    America's lack of a coordinated broadband strategy is 
imposing huge costs on small businesses all across the land. As 
the front page of the Washington Post recently stated, 
``Americans invented the Internet, but the Japanese are running 
away with it.'' The most recent broadband rankings by a variety 
of organizations have the United States at anywhere from 11th 
all the way to 25th, and all of them have us falling. This is 
not where your country and mine is supposed to be.
    It is not just a matter of national pride that we are 
talking about, it is a business issue. Small businesses 
everywhere are increasingly relying on broadband Internet 
access. It is as essential as running water, electricity, or 
phone service. Some small businesses in rural America cannot 
get an Internet connection at all, and even when they can, they 
typically pay too much for service that is too slow. It isn't 
that much better in the Nation's metropolitan areas. Prices are 
high for service that is by global standards uncompetitive.
    The Internet is supposed to be our great equalizer, 
leveling the playing field between urban and rural, large and 
small, and domestic and global businesses. The broadband system 
we have today makes a mockery of this great promise by creating 
greater disparity.
    How do we turn things around? We need a comprehensive 
national strategy and a strong commitment from the very top 
that broadband is our national infrastructure priority. We need 
all the departments of Government cooperating to encourage 
broadband deployment using whatever mix of grants and 
incentives Congress may choose.
    There is an important role for the FCC. The Commission owes 
Congress and the country more than they are getting. First, 
better data. The Commission still unbelievably defines 
broadband as 200 kilobits per second. How 1997 that sounds. The 
Commission still assumes that if one person in a ZIP code has 
broadband, ergo, everybody has it. So let us get better 
definitions of speed and deployment and granular data on 
prices, and let us study also what other nations are doing, 
because there are some lessons to be learned there.
    Second, the FCC needs to become a clearinghouse for all the 
broadband innovation and experimentation that are occurring 
outside the beltway. I have attended broadband summits and met 
with local experts and small business owners in Cambridge, 
Massachusetts; Portland, Maine, and all around the country. I 
have learned that our diverse and varied Nation has immense 
reserves of local creativity. It is time to start sharing and 
encouraging that creativity.
    Third, the FCC needs to bring competition back into its 
telecom policies. For example, the GAO has demonstrated that 
the FCC's deregulatory policies and our approval of one big 
merger after another have saddled small businesses with 
increased costs, like special access prices. The Commission is 
scheduled to act on special access soon, and I hope 
Commissioner Adelstein and I can find a majority willing to 
stand up for entrepreneurs and consumers, not just incumbent 
phone companies.
    Fourth, we need to support broadband with the Universal 
Service Fund. It worked for plain old telephone service, and it 
will work here. I am delighted that the Federal-State Joint 
Board recently agreed with me that broadband must be the 
mission of the USF for the 21st century. We need to make that 
happen soon. Congress gave the FCC considerable authority to 
get broadband out to our people, and we need to start using 
that authority aggressively.
    You know, throughout our Nation's history, we have always 
found ways in this country to work together, business and 
government and communities, to build our physical 
infrastructure, whether it were roads or turnpikes or canals 
way back when, as well as railroads, and highways. Why can't we 
tackle this infrastructure challenge the same way, pulling 
together to get the job done instead of assuming that it is 
somehow just going to magically happen all by itself. It is not 
happening, and it needs to.
    I want to mention one more issue, not in my prepared 
statement, but I talk about it wherever I go, and it has real 
small business implications. It appears that the FCC may be 
asked to vote on media ownership issues soon, perhaps by the 
end of the year. Last time we did that, in 2003, it was a 
disaster from which we were rescued by the Senate and the 
courts. Media is not just another industry, it is the most 
potent social, political, and cultural influence in the 
country. It is how we communicate, inform, debate, and decide. 
Arthur Miller once said that a good newspaper is a nation 
talking to itself, and that is really what media is.
    Increasingly, media has become the province of a few mighty 
conglomerates who have sacrificed much of the localism and 
diversity and small business competition that are supposed to 
be the bedrock of our TV and radio, and the FCC has aided and 
abetted that at every step of the way. This has been nothing 
short of a disaster, not only for small businesses, but for our 
culture as a whole. The rise of big media has encouraged the 
homogenization of local journalism, arts, and culture and led 
to the degeneration of America's civic dialogue.
    It has been a special disaster for minority businesses. 
People of color are 30 percent of our country's population, but 
they own 3.26 percent of all full-power commercial television 
stations. Is it any wonder that TV is so full of caricatures 
and distortions?
    As you, Mr. Chairman, and Senator Obama pointed out in a 
letter to us, the FCC has had an open proceeding for years on 
how to increase media ownership by small businesses, women, and 
minorities. You called upon the FCC to complete this proceeding 
and make headway on the appalling situation we face today 
before we make further changes to our rules. I support your 
call 100 percent. I know my colleague, Jonathan Adelstein, 
feels strongly about this. It is time to draw a line in the 
sand, be honest about what is at stake, and not proceed on 
media ownership until we figure out how to get a seat at the 
table for women, minorities, and small businesses.
    My time is up, but I did want to get on the record that 
whether it is broadband or broadcast, small businesses are up 
against challenges not of their own making, and they are 
suffering and suffering badly as a result. We can do better. We 
must do better. Thank you.
    [The prepared statement of Commissioner Copps follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kerry. Thank you very much. I appreciate the 
direct and important testimony that you just gave.
    Commissioner. Adelstein.

     STATEMENT OF THE HONORABLE JONATHAN STEVEN ADELSTEIN, 
COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC

    Commissioner Adelstein. Thank you, Mr. Chairman, Senator 
Snowe, and Senator Corker. Thanks for inviting me.
    Mr. Chairman and Senator Snowe, I have certainly long 
admired your leadership on technology issues. You well 
understand that broadband is one of the best tools for 
promoting economic growth that we have ever seen in this 
country. It is a key factor in the success of so many of our 
small businesses.
    Small businesses drive job creation, economic development, 
and new technologies, as hearing after hearing has 
demonstrated. They also purchase a massive amount of 
telecommunications services, $25 billion a year. So I am deeply 
concerned about the problems with prices, speeds, and 
availability of broadband services.
    Unfortunately, as the GAO recently noted, the FCC collects 
very little reliable data about the availability of broadband 
to small business. We can't fix what we don't understand.
    The good news is that businesses are quickly integrating 
new telecom services into their business plans. Broadband 
connects entrepreneurs to millions to distant customers, 
facilitates telecommuting, and increases productivity in so 
many ways. As we know, much of our economic growth is 
attributable to productivity increases arising from 
telecommunications advances.
    Given that 52 percent of our small businesses are 
homebased, broadband capability is critical. Just as the 
Pilgrims used the Mayflower to reach new opportunities in 
Plymouth Harbor, entrepreneurs are using broadband to reach 
beyond their current horizons.
    Now, the bad news is that the little data we have suggests 
that small businesses are starved for telecommunications 
competition. Many small businesses have only one choice of 
broadband provider. This deprives them of innovative 
alternatives and can force them to pay higher prices. Even 
where there are competitive options, alternative providers rely 
heavily on inputs from incumbents, highlighting the importance 
of pro-competitive policies, as we have in the 
Telecommunications Act.
    Our businesses now compete on a global stage, so we have 
got to tap the potential of all their citizens, no matter where 
they live. We need to prevent the outsourcing of jobs overseas 
by promoting the insourcing of jobs here within our own 
borders. While we have made some progress, I am very concerned 
that we are failing to keep pace with our global competitors, 
as you noted. Every year, we slip further down the 
international rankings. The bottom line is, citizens of other 
countries are simply getting more megabits for less money.
    I am concerned that lack of a broadband plan is one reason 
we are falling behind. We need a comprehensive national 
broadband strategy, and to lay out some elements of it, it 
should incorporate benchmarks, deployment time tables, and 
measurable thresholds to gauge progress. We need to set 
ambitious goals, magnitudes higher than the 200 kilobits we now 
count as broadband. We should gather better data, including 
better mapping of broadband availability, as you have up there 
for Massachusetts. We don't have good data for much of the rest 
of the country that was done by the private sector. The 
Government has little idea where broadband is truly available.
    The FCC should be able to give Congress and consumers a 
clearer sense of the price per megabit, just as we look to the 
price of a gallon of gas as an indicator of consumer welfare. 
We must also increase incentives to invest, because the private 
sector will drive deployment. And we must promote competition, 
which is the best way to foster innovation and lower prices.
    We must also ensure that universal service evolves to 
support broadband so that our hardest-to-serve areas are 
covered. As you noted, Mr. Chairman, spectrum-based services 
offer some of the best opportunities for promoting broadband. 
We must get broadband spectrum into the hands of operators 
ready to serve at the local level, including small businesses. 
One way is through auctioning smaller license areas that are 
affordable to community-based providers.
    With the upcoming massive 700 megahertz auction, we have an 
historic opportunity to facilitate the emergence of a third 
broadband platform. I hope that companies will look at the 
rules that we made and we developed as a compromise to provide 
opportunities for a diverse group of licensees. We set up 
aggressive build-out requirements that will benefit consumers 
and small businesses everywhere. But I think we fell short on 
getting the rules right for small so-called designated 
entities, to give them a boost in the auction, and I hope we 
will reconsider some of the restrictions that we placed on 
them.
    Unlicensed broadband services can also cover many 
underserved areas and hold promise for small providers. 
Unlicensed spectrum is free. It can be accessed immediately and 
equipment is relatively cheap. We are working to make more 
unlicensed spectrum available at higher-power levels.
    There is also a lot more than Congress can do outside the 
purview of the FCC, such as providing adequate funding for RUS 
broadband loans and grants and properly targeting those loans 
and grants, providing tax incentives for companies that invest 
in broadband in underserved areas, promoting broadband in 
public housing, investing in basic science R&D, improving math 
and science education, and, of course, making sure that all of 
our children have affordable access to their own computer, 
because without a computer, broadband doesn't help.
    We sorely need leadership like this Committee is showing 
today at all levels of government. It is time for a series of 
national broadband summits mediated by the Federal Government 
in partnership with the private sector to restore our place as 
the world leader in telecommunications. I look forward to 
working with you to maximize the availability of affordable, 
truly high-speed broadband services.
    Finally, I would like to highlight an issue that 
Commissioner Copps mentioned. I know you both have expressed a 
lot of concern about the deplorable state of minority and 
female ownership of media assets. That is why I am encouraging 
the Commission to create an independent bipartisan panel to 
address these concerns. It is my hope that with your support 
and leadership, the Commission will do just that.
    Thank you for inviting me to testify today.
    [The prepared statement of Mr. Adelstein follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kerry. Well, thank you both for important 
testimony.
    We now have four statements today, mine, the Ranking 
Members, and both of yours, that describe the problem, and both 
of you have described it succinctly, eloquently, forcefully, 
and compellingly. So the question is, I mean, who is supposed 
to do this? Why is this not happening? What is the problem 
here?
    Commissioner Copps. Well, I think first of all is the lack 
of a strategy. Number two is the lack of good information so 
people can understand the problem. But I think as important as 
anything has been the mindset that we have been working under 
for the last several years--not to worry about it. The 
marketplace will take care of this. The market is going to 
provide ubiquitous broadband. It is going to protect the public 
interest in media, too. Nothing else is needed.
    While we all revere the marketplace, which is the 
locomotive of our system and should always be in the lead, 
there are some things that are not getting done, cannot get 
done by themselves. You can go back, as I said, to our early 
history, building the infrastructure that we needed to places 
where it had to go but the private sector didn't see an 
immediate profit by going there.
    So we need to cooperate. We need to innovate. We need to 
learn what municipalities are----
    Chairman Kerry. What do you think the most significant step 
would be, legislative structure, executive order, or an 
economic incentive? What is going to have the biggest return 
here in terms of people saying, wow, now we can go do this?
    Commissioner Copps. I think a committment from on high 
saying that this is the infrastructure challenge of the first 
part of the 21st century. We have always built America and kept 
it great by keeping up with infrastructure. We have to do that 
with our physical infrastructure, and broadband is the highway 
and the byway and the ports and the canals and the railroads of 
the 21st century. Without it we are going to be left behind. 
Then people will pay attention and then we can come in and do 
all this----
    Chairman Kerry. Didn't we set that goal? Didn't the 
President set that goal in 2004?
    Commissioner Copps. Well, a goal is always welcome, but a 
goal has to be accompanied by a strategy and a strategy has to 
be informed by tactics, and that is where we have fallen down.
    Chairman Kerry. Again, let me re-ask it. What tactic do you 
think would have the greatest impact? I mean, do we need to 
create some huge tax credit or incentive for rural investment? 
Do we need to create grants for rural investment?
    Mr. Adelstein. I think we need a comprehensive plan. I laid 
out today a comprehensive plan which involves both legislation 
and leadership on the national level, as well as action by the 
FCC. The Telecommunications Act did envision this. It talks 
about advanced services five times in Section 254.
    Chairman Kerry. The Telecommunications Act envisioned that 
we were going to have local Bell Telephone Companies competing 
in the marketplace and frankly, the regulators didn't regulate.
    Mr. Adelstein. That is right. We basically gave up on it.
    Chairman Kerry. Absent some enforcement, nothing happened.
    Mr. Adelstein. We gave up on competition. Competition 
drives deployment like nothing else. The vision of the Act was 
competition. Now, it is not Congress's fault that the FCC gave 
up on the job and the marketplace didn't work very well. Now we 
have consolidation and lack of competition, and as Free Press's 
testimony indicates, competition should be the biggest driver 
of prices. Prices are shooting up. There are no alternatives 
for these small businesses. We need a coordinated plan from the 
highest levels.
    I mean, one way to start is a national summit on broadband. 
Why don't we have this kind of leadership where we all gather, 
private sector, public sector, Congress, the Executive branch 
agencies including us, NTIA, all the way down the line. That 
brings everybody together. I also laid out a comprehensive plan 
here today--tax credits. You need grants. You need universal 
service. But you also need the FCC to promote competition 
policies and create the incentives to invest.
    Chairman Kerry. You talked about more megabits for less 
money in Europe. What were you referring to?
    Mr. Adelstein. In Europe and Japan, all around the world, 
the OECD data shows that we are paying more for less. In Japan, 
you get----
    Chairman Kerry. Why are we paying more for less, is that 
because of lack of competition?
    Mr. Adelstein. Well, it is lack of competition. In some 
cases in these countries, actually, have regulated monopolies 
which are resulted in faster speeds at lower prices. We pay 
seven times as much as Japanese consumers for lower speeds, and 
they have a more regulated environment. So we have this duopoly 
here, but apparently a duopoly isn't sufficient. A lot of small 
businesses don't have access to a cable provider at all, so 
they only have one choice because cable doesn't go to the 
business areas. We see that they are trying to compete, but 
there has been an attempt to squeeze and destroy the CLECs and 
they are in need of protection to have regulatory stability.
    Chairman Kerry. Who do you believe could be the critical 
players at that summit?
    Mr. Adelstein. Well, I think it has to come from the top on 
down. I think that leaders from the Executive branch to the 
Congress, the leaders of the committees, yourself included, of 
course, and this Committee as well as the Commerce Committee. I 
think that the private sector, all of the major leaders from 
the very small providers and the CLECs to the very largest 
national providers need to all come together to talk about 
making this a national priority and set goals and benchmarks. 
It is one thing to say you are going to get there by a certain 
date, but what are the exact benchmarks by which you get there? 
How do you measure that? What is the data that you need to get 
there? We need to all come together with that kind of 
leadership. Knocking heads together could make a difference.
    Commissioner Copps. But meanwhile, there are concrete 
things we can do. We talked about better data gathering and 
analysis, but the joint board is talking right now about 
including broadband specifically in universal service. I think 
we have the authority to do that under the Communications Act. 
We used universal service to get plain old telephone service 
out to all of our citizens, or most of them. That was the pots. 
Now we have got the pans, the pretty awesome new stuff, and we 
ought to find a way to get the pans out, as well as the pots to 
all Americans and we are not doing it, and this is a fix that 
could be made in the near-term future. So we would be at least 
taking one fairly significant step.
    Chairman Kerry. You talked about the past, we have great 
examples of this: for example, electricity in America and the 
TVA and the effort to say we are going to get electricity out 
to every home in America. Is there a sense that the Internet 
ought to be, at least until broadband is universal, treated as 
more of a public commodity?
    Mr. Adelstein. I think so. We should make broadband the 
dial tone of the 21st century. The Farm Bill in 2001 did take 
RUS from being just a telephone system to a broadband system. I 
talked to somebody last night from RUS, they are having more 
applications coming in than they can fund this year, great 
applications coming in. So that is one step. But it has to be 
like the National Highway System, as well. If it weren't for 
Eisenhower making the commitment, we wouldn't have the highway 
system we have today. That vision back in the 1950s needs to be 
happening now, I think, for the Internet system.
    Commissioner Copps. You ask about how we are treating the 
internet. We are not even treating it as a telecommunications 
service here in the 21st century. We have spent all this 
inordinate amount of time at the FCC deciding that, oh, this 
isn't telecommunications, this is an information service so 
none of the consumer protections, universal service, privacy 
obligations apply to it. Here we go in with all of this 
wonderful new technology, all of the awesome opportunities it 
has for the future of this country in the 21st century and we 
don't even apply the simple protections that applied to plain 
old telephone service in the last century. That is a shame and 
a sham.
    Chairman Kerry. Senator Snowe.
    Senator Snowe. Thank you, Mr. Chairman.
    I thank both of you for your very powerful statements on 
these issues that are clearly are resonating and reverberating 
across this country. There are a multiplicity of problems, 
without a doubt, the President did set a goal in 2007, and 
looking back, I remember thinking we would have plenty of 
choices when it came to purchasing the broadband carrier. The 
more choices around, the more the price will go down. The more 
the price goes down, the more users there will be. And with 
more users, it becomes more likely that America will stay on 
the competitive edge of world trade.
     Obviously, that hasn't occurred and it just can't happen 
magically. We have to develop complementary remedies between 
the Congress, the FCC, and the Administration. I think the idea 
of a broadband summit is an excellent way to start crafting a 
national strategy where each branch of government understands 
exactly what it is required to do. I was asking my staff last 
night who does what? It is critically important that each 
branch of the government understand their role, and I'm 
concerned that they don't. This is a multifaceted issue, and 
obviously you have to orchestrate a comprehensive strategy, and 
if it is important to America's economy, then clearly there 
should be a national broadband policy. Everybody has discussed, 
but it clearly hasn't happened.
    There are several issues that I would like to explore. One 
is on the use of the Universal Service Fund for broadband 
services, the high-cost fund. Is it clear, Commissioner Copps, 
as to whether or not you can use the Universal Service Fund for 
the support of broadband deployment, because you have had a 
reclassification of broadband services as information rather 
than telecommunications service. Is that a legal hindrance to 
using the fund?
    Commissioner Copps. No, I don't think it is a legal 
hindrance. Certainly it would be doable under the ancillary 
authority of title 1, if nothing else. But I think clearly we 
have not only the authority to do it, but the charge from 
Congress to get advanced telecommunications to all of our 
citizens.
    Senator Snowe. Last year, Senator Stevens and other Members 
of the Commerce Committee worked on the universal service 
issue. Five hundred million dollars was included in the 
Universal Service Fund to help deployment in rural areas. Do 
you think that this funding has had an impact?
    Commissioner Copps. I think that is helpful. I think in the 
long run, to get broadband deployed around the country is going 
to be a very expensive exercise. We are looking right now at 
trying to get a public safety broadband system established 
through the 700 megahertz auction and that is going to be 
billions of dollars just to do that.
    Senator Snowe. Commissioner Adelstein, you made a good 
point about tax incentives and grants, could they be supported 
by supplementing the Universal Service Fund, and would it help 
with respect to this type of deployment?
    Mr. Adelstein. I think that is right. I mean, a lot of 
people say the reason we are falling behind is we are rural. I 
am not sure that is entirely supported by the evidence, but to 
the extent that is true, and you know the rural parts of Maine, 
you look at Western Massachusetts, we do have a problem in 
rural areas. So if that is the problem, why don't we redouble 
our efforts? Why don't we focus broadband on that and the 
access advanced services in section 254 where we have that 
authority? We need to do tax credits to encourage areas where 
the market isn't serving, and the RUS program is, I think, 
really doing a great job of getting broadband out and it needs 
to do even more. It needs to be fully funded, as well.
    Senator Snowe. What about the special access issue? Is that 
a major factor that will help to promote competition? There are 
a lot of small companies that are dependent on the Bells for 
the infrastructure and access. In many cases it is only one 
company that small companies rely on and their prices are high 
and becoming even more costly. I know that there is a decision 
pending before the FCC, but would that help?
    Commissioner Copps. It is pending. I think if we can get it 
right, it would help. We had a GAO study recently that pointed 
up the problems that attend special access. There is a lot of 
money involved in it, $15 or $16 billion charged by the big 
phone companies, and about 94 percent of the country's 
enterprise buildings are reached only by the big ILECs. Is that 
a drain and a hindrance to small business? The GAO thought so, 
and I think so, too. So we are under an obligation to get this 
done, kind of a self-imposed one, by the first of October. That 
is 4 days away. I haven't seen the item yet.
    Mr. Adelstein. Certainly, that is right. Businesses, long-
distance providers, and wireless all rely on special access. 
Customers say they don't have any competition, that the 
earnings by the Bells are excessive. The GAO report that 
Commissioner Copps referred to found that there are competitors 
in only 6 percent of the market. Ninety-four percent of 
buildings are only being served by local incumbents. These are 
buildings where small businesses are located and large 
businesses as well. So this impacts everybody. It ripples 
throughout the system. Businesses, hospitals, governments all 
pay more than the market might otherwise determine, if it were 
truly competitive.
    And if you think about a new competitor coming in, like a 
new national wireless system we are hoping under the 700 
megahertz auction, every little node they set up, every tower 
they set up is going to have to use special access to connect 
to the network, and so we have to make sure that we get this 
right.
    Senator Snowe. What about broadband mapping? Would that be 
helpful to pass mapping legislation? Would that help us know 
exactly where broadband has been deployed and where it hasn't, 
and is this something the FCC is already undertaking?
    Commissioner Copps. No. But it would be immensely helpful. 
It is something that FCC should long ago have done and long ago 
provided to you and provided to companies around the country. 
Now, thank goodness we have all of these exercises, Connect 
Kentucky and Connect America generally, and a number of States 
are doing this and I applaud that. But this is something if we 
had a national strategy the FCC would have been charged to 
complete a long time ago. We shouldn't be messing around with 
this in 2007, finding out who has got what.
    Mr. Adelstein. And we should be mapping--I think Connect 
Maine will help, as Connect Kentucky did. I have this map of 
Massachusetts. You look at the FCC's data and compare it to 
that, the FCC says you have broadband everywhere in 
Massachusetts, but you look at all those red areas in Western 
Massachusetts and that is not the case at all. So the FCC's 
data is clearly inadequate. Our maps are a disgrace. They are 
not adequate to give us a real picture of what is happening.
    Chairman Kerry. Is that the John Adams Institute or----
    Mr. Adelstein. Yes. That John Adams map there shows all 
those red areas with no broadband, but the FCC's map, their 
different color codes show that you have broadband everywhere 
in Massachusetts. So our mapping is completely inadequate.
    Now, it is not that hard to do. I was in Chicago last week 
and there was a small businessman, Willie Cade, who owns PC 
Rebuilders and Recyclers. He, on his own, came up with a 
program, his little small business, that mapped all of Chicago, 
everything that the major providers are providing in Chicago, 
and you can see, as a matter of fact, there tends to be more 
service in the higher-income areas than in the lower-income 
areas, all mapped out. He managed to mine the data from 
publicly available information that the providers have on their 
own Web sites. So why can't we do it? If a small business in 
Chicago can do it, why can't the Federal Government do it?
    Senator Snowe. Well, that is a very good question. Why 
can't we?
    Mr. Adelstein. I think we can. I think we should. 
Legislation would be helpful, but the FCC must undertake, I 
think, a better role. I talked to Chairman Martin this morning 
and I think he shares the commitment to improving the data that 
we get. We have a proceeding that is pending right now. We need 
to make sure that we have good mapping as a part of that and 
make sure that we ascertain small business and what kind of 
availability small businesses have.
    Senator Snowe. So that is something that you think that the 
FCC will pursue?
    Mr. Adelstein. I do think so. We have a pending open 
proceeding right now. Just this morning we discussed the need 
to ensuring that we get better data. We are going to work very 
hard to make sure that it is as strong as it can be. We would 
like to work with you, as well, to get your input.
    Senator Snowe. Thank you.
    Chairman Kerry. Remember the old statement, trust but 
verify.
    Senator Snowe. Yes. Exactly. But I appreciate it, because 
it is clear to me that we have a lot to do with those branches 
and with the agency. We have to figure out how to corral all of 
this and just have a clear strategy for the future and pursue 
it aggressively. Thank you very much. Thank you, Mr. Chairman.
    Chairman Kerry. Thank you very much, Senator Snowe.
    I would like to reference this map for the moment a moment. 
It is up in the back here, and Senator Corker, I will recognize 
you in just 1 minute. I want to point out that the red areas 
are the entire areas and towns that have no access at all, and 
yet Massachusetts is ranked number four in the country. This is 
why this is important. The orange areas represent where 
broadband is available in a very limited amounts. The yellow 
shows areas that have only one broadband provider. As you can 
see, it is a complete monopoly--no competition--therefore 
pricing is not competitive.
    A duopoly is where you have two broadband providers and is 
shown in blue. Two is not sufficient in many people's 
judgments. And you have only this tiny area around Boston, the 
sort of greater Boston area there, where you actually have 
three or more broadband providers and real competition. So most 
of the State of Massachusetts doesn't have real competition 
(more than three providers) which is an extraordinary statement 
about where we stand with broadband penetration.
    [The broadband availability map referenced above follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Kerry. Senator Corker.
    Senator Corker. Mr. Chairman, thank you for pulling 
together this hearing. I was in 58 counties of the 95 that we 
have in our State during August recess and broadband is a big 
issue, especially in the rural areas. In our own State, a lot 
of the municipalities, I know when I was mayor we put in a 96-
fiber line around our city to create some competition and I 
know other cities are doing the same in our State. Some of the 
rural areas obviously are applying for grants to do the same 
kind of thing. But it is an issue, no doubt.
    I do wonder, I hear us talking about Federal mapping and 
all of that. I know that States are also engaged in many cases. 
I know we have a gentleman, Mr. Mefford, who is actually 
involved in the State of Tennessee right now connecting our 
State and is going to be part of the second panel which I am 
going to miss, but what role do you as Commissioners see at the 
State and local level?
    It seems like that we have a tendency here to want to 
Federalize everything and I know there are a number of 
activities that are taking place in States across the country 
and I would love for you all to make comment on that.
    Commissioner Copps. Well, I think it is an important 
question and I think probably we have actually Federalized too 
much in the way we have approached telecommunications policies 
and taken away authority from the States on a lot of the 
consumer and other issues. The franchising exercise that we 
went through was another example of that. So we have to get 
back to the kind of a balance that I think the 
Telecommunications Act of 1996 envisioned between Federal and 
State authorities.
    There are some things, I think, that are obviously more 
efficiently done in one venue than another, and I think getting 
baseline data on broadband and deployment and knowing who has 
it and measuring the speeds and all that is a perfectly 
legitimate exercise for the Federal Communications Commission 
and is something we should have done long ago. You know, a lot 
of States don't have the resources to do that and a lot of the 
States don't have the ``connect'' initiatives that many States 
are developing right now.
    This is a national problem. It is a national challenge. It 
is a global competitive challenge to our small businesses and 
we have to treat it that way and use all of the resources we 
have, Federal, State, local. We need to innovation and we need 
to learn from what various States and localities are doing.
    Mr. Adelstein. I think it really is a partnership that we 
need to do with our State and local colleagues. I was meeting 
with the mayor of Fort Wayne recently who has done an 
incredible job of getting Fort Wayne wired, working with 
providers, but what does that mean for Gary? What does that 
mean for South Bend? It's great for Fort Wayne, and they are 
going to get business that other cities won't get, but what 
about having a national system and working with innovative 
mayors like that, working with the States that are doing things 
like Connect Maine or Connect Kentucky? Where is Connect South 
Dakota? Are they going to get left behind if they don't get it 
together? Can't we all have similar maps so that we have a 
uniform national vision of this?
    I think we can learn a lot from what the State and local 
governments are doing. As a matter of fact, when it comes to 
the national summit, I wanted to say one of the ideas is you 
really want to include State and local governments in that. If 
need be, Congress itself could convene such a national summit--
it doesn't have to come from the Executive branch--and invite 
Executive branch partners to come in along with State and local 
governments to talk about what are some of the great things 
that are going on in places like Fort Wayne, and why can't we 
do that nationally. Those cities that have good visionary 
leadership shouldn't have an unfair advantage over those that, 
unfortunately, for whatever reason, don't have leaders that are 
so focused on telecommunications.
    Senator Corker. You know, we have had people in our office. 
I find the testimony today somewhat interesting. I think, in 
particular, Mr. Copps is kind of a cranky testimony, if you 
will, and you are involved, it seems, the FCC is sort of the 
centerpiece at the Federal level being involved in these kind 
of things.
    We have had people in our office talking about the 
auctioning of some of these spectrums that you all are talking 
about that say that they are perfectly willing to connect 
every--make sure that every home in America has access to 
broadband if they can just get these spectrums bid 
appropriately so that they have the opportunity to do that. I 
would love for you all to comment, because it sounds like there 
are some things that you readily have available to solve some 
of these problems.
    Commissioner Copps. Well, I am old, and I am cranky, and I 
have been in this town for 37 years now and----
    Senator Corker. You wear it well.
    Mr. Copps [continuing]. Dealing with this problem of small 
and medium-sized enterprise for much of that time, so that is 
why I get a little bit impatient.
    Yes, the rules and the procedures we establish for our 
auctions are very important. You have to look at each case that 
comes along. I mean, some people want to get that spectrum in 
very unconventional ways that sometimes may be in contravention 
of the statute or maybe go around auctions or something like 
that, so you have to look at each of those cases, but we have 
to be innovative. That is why Jonathan and I were concerned on 
the 700 megahertz auction that we weren't more innovative to 
encourage more participation and have open access, a wholesale 
model, to allow some competition in at least this one part of 
this one piece of spectrum. Let us try something different and 
see if it works. Yes, we have the authority to do that, and we 
should be doing a lot more of it than we are.
    Senator Corker. I mean, here we are testifying before a 
Senate Committee. Why don't you tell us why you are not doing 
that? It seems like to me that you have the tools at your 
disposal at the FCC truly on these spectrum auctions to solve 
this problem----
    Commissioner Copps. I think we do. But number one, I just 
observe that we are two out of five people, so we don't 
necessarily command a majority for everything that we want to 
do.
    Chairman Kerry. They don't have the votes. The Commission 
is appointed----
    Senator Corker. I understand there are five, but I can't 
imagine--I would love to get some of the other Commissioners up 
here then, Mr. Chairman, and talk about it. But I would sure 
love for you, since you seem a little perturbed about it, for 
you to air why that is not occurring.
    Commissioner Copps. It is not occurring for all of the 
reasons that I have tried to explain this morning, beginning 
with the lack of a national strategy. We don't have that charge 
from on high to get this job done. We don't have the charge 
saying, this is the most important infrastructure problem our 
country faces. That charge would say: go and use the authority 
you have and get it done, and if you don't have the authority, 
come back here and get some more.
    It is either going to be a priority or it is not going to 
be a priority and we are not treating it as a priority, and to 
me, it is the central infrastructure challenge that we face 
right now. If we don't do this, small business is going to 
suffer. Minorities are going to suffer. Rural America is going 
to suffer. And the country as a whole is going to suffer. It is 
a job that is not getting done and----
    Senator Corker. Again, I don't want to create acrimony 
here, but I just have people come in our office representing 
companies from around the country that feel like they could 
solve this problem. You all are two of the five Commissioners 
apparently that could affect that and I think that is an area 
for us to begin----
    Commissioner Copps. I think that is true, but in the 
deregulated environment in which we live, which is the 
environment that a lot of these companies pushed for, we were 
told that if we would deregulate the job would get done. We 
deregulated. The job didn't get done.
    Mr. Adelstein. I think I know one of the companies you are 
referring to. You are talking about getting wireless spectrum 
into use, and that is something that I talked about. I think 
you are exactly right on. There are opportunities out there to 
do it. Now, why didn't that happen? It is a very good question. 
The company perhaps is M2Z that you are talking about. This is 
a company that had a proposal for nationwide use of a certain 
area of spectrum that is now underutilized. They argued under 
section 7 of the Act that says we are supposed to get new 
services and new technologies approved or decided up or down 
within a year.
    Now, they put forward a proposal, and it was a year before 
we even acted on it. We didn't even have the opportunity to 
vote on it or anything because nothing came before us for a 
whole year. Finally, we just put an NPRM out like the day 
before the year expired so we wouldn't be exposed in court, but 
why didn't we do it quicker? What are we waiting for before we 
even put out a notice asking what we should do about something?
    Here this private company did identify, I think helpfully, 
that there was some underutilized spectrum and they wanted to 
do something with it. Well, whether you like what they want to 
do or not, why don't we find a way to get that spectrum into 
use, get them or somebody else using it, auction if off, get it 
moving, get that out for notice and get the auction up and 
running. I couldn't agree with you more. We need to be doing 
that. We need to look at every inch of spectrum we have and try 
to pack more data on it. Here is an example of where we didn't 
do our job well. We didn't really comply with the spirit of 
trying to get things done in a year and it is frustrating a 
little bit. It is making me age prematurely.
    Senator Corker. I appreciate the time, and Mr. Chairman, I 
would just say----
    Chairman Kerry. No, that is a very legitimate and very 
important series of questions. I think it does--clearly it begs 
the question that is on the table.
    Senator Corker. And I think that before we get involved in 
mapping and a Federal initiative and all that, I think there is 
an entity here that with some degree of innovation within its 
own ranks could go a long way toward solving this problem 
without--in a way that, candidly, is not something that would 
use a lot of Federal resources. I mean, you have spectrum. We 
have a need. You all have the ability to auction that spectrum 
in a way that creates universal access if you so decide, and I 
would just urge the Commissioners to maybe come back and talk 
with us about ways of making that happen.
    But again, thank you for this, and I had no idea I was 
going to ask even these types of questions. It really came 
because Mr. Mefford is wiring our State and I wanted to pay 
tribute to him, but thank you for this testimony.
    Chairman Kerry. No, we appreciate it. It is good to get 
everybody's crankiness out on the table.
    [Laughter.]
    Chairman Kerry. Thank you, gentlemen. We appreciate it.
    We are going to go right to the second panel. We are under 
a little bit of time pressure here, so if we could just have a 
seamless transition, that would be terrific.
    And I think, Senator Corker, it would be really worthwhile 
to get the other Commissioners in and have this conversation 
with them. I will do that. We will do that.
    Senator Corker. Thank you.
    Chairman Kerry. Thank you very much. We appreciate it.
    So Ben Scott from the Free Press, policy director, Brian 
Mefford, Doug Levin, and Scott Wallsten. If you could each 
summarize your testimonies in 5 minutes or less, that will 
help.
    Mr. Scott, do you want to start, and we will just run down 
the line. Just identify yourself for the record and proceed.

     STATEMENT OF BEN SCOTT, POLICY DIRECTOR, FREE PRESS, 
                         WASHINGTON, DC

    Mr. Scott. Thank you, Mr. Chairman, Senator Snowe. Thank 
you for the opportunity to testify today. I am the policy 
director at Free Press. We are a public interest organization 
with over 350,000 members. We are dedicated to public education 
and consumer advocacy on communications policy.
    Many of my members are small businesses and their interest 
in broadband could hardly be a higher priority. For them, 
broadband is a make or break technology. Many are E-commerce 
outfits, but almost all of them use the Internet to place 
orders, track inventory, or market products.
    Unfortunately, a lack of competition in the broadband 
market has led to high prices and slow speeds for these small 
business connections. This has been going on for quite some 
time, threatening to stunt innovation and endangering our 
global competitiveness, as both of the Commissioners pointed 
out. I share their view that this is a very serious problem.
    Increasingly, our small businesses are competing with 
similar enterprises overseas and we stand at significant 
disadvantage. A recent Small Business Administration study of 
broadband prices showed that small businesses in States like 
Massachusetts and Maine are likely to pay $40 or more for a 
six-megabit connection to a consumer-grade cable modem. Their 
competitors in Japan are paying the same price for 100 
megabits. This 15-fold speed advantage translates into more 
goods, better services, and higher efficiency, and it is not 
just the Japanese that have the edge.
    According to a study by the OECD of higher-quality 
enterprise-class broadband services, the United States once 
again pays far more than other nations for far less. What is 
available in Denmark for $350 to small businesses costs $2,500 
here at home. Now, I believe as much as the next guy in the 
power of the American entrepreneurial spirit, but the head 
start we are giving our global competitors is taking it just a 
bit too far.
    So what do Asia and Europe have that we don't? They have 
competitive markets. They have competition that drives prices 
down and speeds up and we don't, and it is not hard to see the 
results.
    In our study of this problem, we noticed how few small 
businesses actually subscribe to the high-end broadband 
services that best suits their interests. Most get by with a 
lower standard $40 consumer-grade broadband product. Only a 
fraction subscribe to enterprise-class services that could 
supercharge their businesses. According to the SBA survey from 
2004, only 4 percent of small businesses were buying these 
high-end connections--4 percent. Even if we generously assume 
that since 2004 that number has tripled, that is just over 10 
percent of our small businesses that are getting what they 
need.
    The simple reason is high prices. That same SBA survey 
showed that these high-quality connections cost over $700 a 
month. The kind of competition necessary to bring those costs 
down is nowhere on the horizon. Meanwhile, the big phone 
companies are over at the FCC using their political muscle to 
push out these competitors.
    Right now, the FCC is considering a number of critically 
important regulatory choices, including changes in so-called 
special access and network sharing policies that govern 
business class broadband. Wrong decisions could result in even 
higher prices for small business.
    Another free market policy that is critical to small 
business is network neutrality. Small businesses depend on the 
Internet for E-commerce and they need net neutrality to protect 
the free market, ensuring that no large companies have unfair 
advantages. One of my members is a small business owner from 
Washington State who wrote me and captured this issue in a 
nutshell. He wrote, ``I am the founder and CEO of a Web-based 
startup, so my life is dramatically affected by net neutrality. 
We will be competing against many major companies, so the 
possibility of a large ISP having the option of routing my 
traffic to a second-tier network is chilling, to say the 
least.''
    I want to thank both of you, Senator Kerry and Senator 
Snowe, for your leadership on this critical issue, because to 
meet the needs of this CEO and others like him, my 
recommendation is that this Committee undertake a sweeping 
inquiry into broadband policies that affect small businesses in 
particular.
    To begin, we need to improve our knowledge of the small 
business market. Currently, no Federal agency is consistently 
studying this problem. It seems to me we can't fix problems we 
don't measure, and since the SBA has already begun to conduct 
surveys of small business broadband, I think they ought to 
proceed, in cooperation with the FCC.
    But above all, we need competition policy to drive down 
prices, accelerate speeds, and deliver better value to American 
small businesses. That means fostering more competition with 
innovative new technologies, like in the spectrum auction, but 
it also means forcing entrenched monopolies to open their 
networks to competitors. That is the key point that is holding 
up action at the Commission.
    In the short term, I recommend moving forward on a variety 
of progressive policies which I outlined in detail in my 
written statement. These include opening the TV white spaces 
for unlicensed wireless use; protecting the rights of local 
government to offer broadband services; transitioning Universal 
Service Programs from dial tone to broadband; safeguarding the 
Internet's free market for goods, services, and speech through 
net neutrality rules; and finally, opening incumbent networks 
to unleash competitive forces.
    In my view, this is a paradigm shifting moment for American 
telecommunications. It is an imperative that we choose wisely.
    Thank you for your time and attention, and I do look 
forward to your questions.
    [The prepared statement of Mr. Scott follows:]

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    Chairman Kerry. Ben, thank you very much. A quick comment: 
I posted a blog this morning on Free Press and there were very 
thoughtful responses. I think there are about 72 at this 
moment. I am going to put this in the record, the responses 
that came in, and Senator Snowe, I will get a copy to you, but 
they are really thoughtful with a lot of folks raising 
questions about whether or not you should treat this as a 
public utility, all of them appalled by the lack of 
competition, the lack of access, suggesting ways in which we 
might be able to get it. So thank you for the testimony. It is 
very important and we appreciate it.
    [Response to Senator Kerry's blog appears in the appendix 
on page 137.]
    Mr. Mefford, welcome.

   STATEMENT OF BRIAN MEFFORD, PRESIDENT AND CHIEF EXECUTIVE 
       OFFICER, CONNECTED NATION, BOWLING GREEN, KENTUCKY

    Mr. Mefford. Chairman Kerry, Ranking Member Snowe, thank 
you for the opportunity to be with you today. I appreciate the 
invitation.
    I want to begin my testimony with a bit of a story that 
represents what we are seeing in Kentucky and what the types of 
opportunities are that are all about us as Kentucky has moved 
close to ubiquitous broadband coverage. It is the story of an 
entrepreneur named Kamren Colson who grew up in the ``Burley 
Belt'' of Central Kentucky, and like too many Kentuckians, 
after he graduated from college, couldn't find opportunities 
near home, and moved to a place that was more conducive to the 
creative class.
    He began a graphic design company and operated that company 
for a few years and then decided around 2004 or 2005 that he 
was going to push the broadband envelope--this whole technology 
opportunity--and so he said, I have this family farm that I 
grew up on in Kentucky and we don't raise tobacco anymore and 
it is just kind of sitting there. And so he said, I am going to 
relocate my business to Central Kentucky. And he said, with 
broadband technology, I can connect to my potential clients--my 
clients--just as easy as I can from a downtown business center.
    And so he did that. About a year after moving to Kentucky, 
he and his business won the account for creating the 2006 
Academy Awards program and all the additional promotional 
assets for the Academy Awards. So from a former tobacco field 
in Central Kentucky, this creative design services firm was 
operating back and forth with folks in Los Angeles as if they 
were down the hall from the Academy. The Academy reported that 
it was no different. They said they didn't even realize that he 
was in another State and it was just like he was down the hall.
    That is not an isolated example, but rather an illustration 
of what is happening throughout Kentucky as we move closer to 
100-percent broadband coverage. And I will tell you that based 
on the broadband that was deployed in 2005 alone, Kentucky has 
saved or created 59,000 jobs. In the technology sector, in the 
last 2\1/2\ years, Kentucky has created about 18,400 jobs. In 
the IT sector, specifically, that represents a reversal. 
Previous to these broadband efforts, Kentucky was bleeding IT 
jobs at a rate of about 6.4 percent per year. In the last 2 
years, we have seen a 4.1 percent increase.
    And so that is something that the State is proud of and 
something that Connected Nation is proud to be a part of as we 
take this model from State to State, as it is highly 
transferrable, and we are seeing some early results mirror 
those Kentucky results in the other States we are in.
    When we started in Kentucky 3 years ago, about 60 percent 
of households had the ability to access broadband. Today, right 
at about 95 percent of households have the ability to access 
broadband. Equally important, I would tell you, Mr. Chairman, 
and you point this out in your blog post with Free Press, that 
on the demand side--where we need to really pay attention--we 
have had an 82 percent increase in folks who are actually using 
the broadband once it is available.
    And so as we designed the plan that we have put in place in 
Kentucky and now in other States like Tennessee and West 
Virginia, it was with the needs of small business in mind. We 
looked at the challenges facing small business, and as we all 
know, so many of the challenges that are faced by entrepreneurs 
and small businesses are related to isolation. That is so often 
the reason that they fail. They are either isolated because of 
their relative size or they are isolated because of their 
location, isolated from capital or isolated from their 
potential customers, from market intelligence.
    And so we realized that broadband can fix these things, but 
we also realized that in rural areas, rural States like 
Kentucky, that problem is two-fold. And so we said we have to 
help our small businesses. We have to equip, or we have to 
improve our education providers, our health care providers, and 
so we developed this plan that was based on a dual approach, a 
dual focus on both supply and demand.
    And so we started out with a map where all providers 
cooperated and gave us their specific service-level data so 
that we could understand where those gaps existed, and so then 
we could drill down into those unserved areas and help 
providers understand what the market opportunities were in 
those unserved areas.
    At the same time, we worked at the grassroots level. We do 
work now at the grassroots level with communities and helping 
build awareness of what are the opportunities related to 
broadband, why should we be subscribing, and as you point out, 
Mr. Chairman, that is not a hard sell. These rural communities 
understand the opportunities associated with broadband.
    Bringing those two together, we identify those 
opportunities for providers. We raise interest, raise 
awareness, aggregate demand locally. And so we have seen 
providers recognize those local market opportunities and invest 
at a rate over the past 3 years in Kentucky that equates to 
about $700 million in private sector investment. That is an 
amount that is unprecedented in Kentucky.
    And so as we look at the impact, the impact is certainly 
profound across consumers, across businesses. We see in our 
business sector when you look at businesses that subscribe to 
broadband, their revenues are about four times that of 
businesses that don't subscribe to broadband. Consumers report 
that they are saving literally billions of dollars a year based 
on their use of broadband.
    And so to your question earlier, as I am wrapping up here, 
I would tell you that there are a couple of pieces of 
legislation that are on the table right now. I would mention 
Senator Durbin's Connect the Nation Act, which also shares many 
similarities with Senator Inouye's bill which passed 
unanimously out of committee, S. 1492, which I appreciate the 
Chair and the Ranking Member's support on that bill, 
particularly.
    I would say that one of the best things that the Senate 
could do at this point is to make sure that that bill reaches 
the desk of the President, and that would enable States to 
replicate the things that Connected Nation is doing across the 
country today.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Mefford follows:]

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    Chairman Kerry. Thank you very much for your thoughtful 
comments.
    Mr. Levin.

 STATEMENT OF DOUGLAS A. LEVIN, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, BLACK DUCK SOFTWARE, INC., WALTHAM, MASSACHUSETTS

    Mr. Levin. Thank you, Chairman Kerry and Ranking Member 
Snowe. I am the CEO of a Boston area startup company and this 
particular issue of Internet access for small businesses is 
particularly poignant because I believe that small companies 
are impacted by this issue. Larger companies are, in effect, 
small telecommunication companies. Companies that are publicly-
held companies have infrastructure internally, private networks 
and other means by which to deliver their own infrastructure to 
their employees, as well as their customers and their partners. 
And so a small company is impacted by this issue and I am going 
to give you a couple of examples in my testimony.
    I think that the global software industry is changing a 
great deal and it is impacting the U.S. software industries 
significantly because one of the shifts in software delivery is 
software is a service which is highly dependent on the Internet 
and U.S. companies are operating at somewhat of a disadvantage 
in offering this new model of software as a service.
    Secondly, startups and small- and medium-sized software 
companies have problems delivering their software and the data 
and various other parts of their service offerings through 
conventional Internet connections.
    And finally, poor Internet connections in suburban areas 
and rural areas impact small companies because they can't 
encourage telecommuters, their employees who are living in 
rural areas and need to commute in in the eventuality of snow 
or other issues. Poor Internet connections discourage this 
telecommuting.
    By way of background, I am a 27-year veteran of the 
software industry. I worked at Microsoft for around 9 years. I 
have been the CEO of a bunch of Internet startups in the Boston 
area and I am the CEO of Black Duck Software today. I also 
served on the Cable Monitoring Committee for the town of 
Brookline, Massachusetts, where we struggled to introduce two 
competitors into the marketplace and get Internet access into a 
community with lots of Ph.D.s, but also lots of people who just 
demand the Internet access for their families as well as 
themselves.
    Black Duck Software was born out of the idea of realizing 
that corporations use the Internet as a collaboration medium. 
Today, we are backed by seven top-tier VC and we are 
headquartered in Waltham, Massachusetts, and have five offices 
across the country, as well as offices in Amsterdam and the 
United Kingdom. We employ 81 people and we have 400 customers 
worldwide.
    The idea for Black Duck was born while I was lying on a 
beach in Cancun, Mexico, thinking about the problem of 
exchanging data across the Internet and getting developers to 
be highly productive. And the reason why I mention that is 
because inspiration can come in all different ways at different 
places, and to have universal Internet access is a very 
important thing in the genesis phase of an entrepreneurial 
endeavor.
    With respect to the changing model of the software 
industry, software as a service promises to deliver software 
applications over the Internet inexpensively for small 
businesses, as well as large businesses and at a fraction of 
the cost of the conventional applications. It offers a big 
advantage for small companies and where they can save money, 
especially on IT infrastructure. Software as a service, 
however, is Internet intensive, and in the United States today, 
this is holding back the expansion of software as a service 
because in some areas of the country, there are people who 
literally cannot get these applications through their local 
pipes.
    A second issue for Black Duck is we offer lots and lots of 
updates to our software through the Internet and some of those 
updates come in the form of software and some of it comes 
through data. But in either case, we are constantly updating 
our software, and we need high-speed Internet services to 
deliver them. Our competitors, who do not have as advanced 
applications as we do, do it over the Internet. Their 
applications are smaller. Our applications, because they are so 
robust, have to be delivered sometimes via the U.S. mail 
instead of the Internet. This is sometimes hard to comprehend 
when we are sitting in meetings, but it is a fundamental thing 
that very advanced technology businesses in the United States 
are operating at a competitive disadvantage, and you can see it 
pragmatically day to day in the business when we talk about 
costs and we talk about delivery and customers.
    Chairman Kerry. Is that because of the speed or the volume 
and size?
    Mr. Levin. It is both.
    Chairman Kerry. Both?
    Mr. Levin. The pipes are not big enough and the speed is an 
issue. And by contrast, I could do this in Denmark [snapping of 
fingers] like that--in the middle of a field. In fact, they 
have an advertisement where they talk about in rural areas of 
Denmark you can get 10 gigabytes downloaded to you in the 
middle of a field.
    Poor Internet capabilities in suburban and rural areas make 
it very difficult for American companies also for this 
telecommuting issue. It is interesting to note that when I 
drive by Boston College--I live on Beacon Hill downtown--when I 
drive by Boston College, which is only a couple of miles away 
from downtown Boston, my services are not there. They are not 
available. When I go to the Berkshires for strategic offsites, 
which are 2\1/2\ hours away from Boston, I don't have Internet 
access. And this is in Boston, and Massachusetts is supposed 
one of the most advanced States in the country.
    Do we work around it? Absolutely, because we are 
entrepreneurs. However, it makes things more difficult and 
costly.
    So I would urge you to create a national broadband strategy 
that encourages the creation of a new generation of information 
superhighway for the new millennium. Thank you very much.
    [The prepared statement of Mr. Levin follows:]

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    Chairman Kerry. Very helpful. Congratulations on what you 
are doing.
    That is a very interesting perspective for us to hear.
    Dr. Wallsten.

STATEMENT OF DR. SCOTT WALLSTEN, SENIOR FELLOW AND DIRECTOR OF 
    COMMUNICATIONS POLICY STUDIES, THE PROGRESS AND FREEDOM 
                   FOUNDATION, WASHINGTON, DC

    Dr. Wallsten. Mr. Chairman and Senator Snowe, thank you for 
inviting me here and giving me the opportunity to testify. I 
will make three points.
    First, there is not an overall U.S. broadband problem. 
Telephone, cable, and wireless companies are investing billions 
in new high-speed infrastructure. Consumers and businesses are 
adopting broadband at remarkable rates.
    Second, those who believe there is a problem advance 
proposals that sound appealing, but they don't demonstrate that 
their proposals would actually benefit consumers and 
businesses.
    Third, despite substantial current investment, policies can 
still affect broadband's growth. In particular, we need to 
collect better data that would allow us to rigorously analyze 
proposed policies and to remove arbitrary barriers to entry 
that continue to prevent the market from reaching its full 
competitive potential. Government could help achieve both 
goals. I will elaborate on those points.
    First, the sky isn't falling. There is scant evidence of a 
U.S. broadband problem. Nearly half of all American households 
subscribe to high-speed Internet connections, more than twice 
as many as just a few years ago, and about 60 percent of 
businesses with fewer than 100 employees have broadband 
connections.
    Earlier this month, the National Federation of Independent 
Businesses reported the results of a survey that asked members 
to state their most important problem. Broadband didn't make 
that list.
    Internet service providers are investing in broadband 
infrastructure at unprecedented rates. Cable countries are 
expected to invest about $15 billion this year upgrading their 
networks. Verizon alone is planning to spend $23 billion on its 
fiber optic network by 2010. By the second quarter of 2007, its 
fiber services were available to nearly 8 million homes and are 
expected to reach 9 million by the end of the year. Cellular 
mobile companies continue to upgrade and build high-speed 
networks while other firms are building out new wireless 
networks that offer coverage ranging from very local to 
national.
    But supply is not the only factor that affects the state of 
broadband. Demand is also crucial in determining broadband 
penetration and speeds. I understand that some advocates think 
faster is always better. Like them, I live online and place a 
high value on a very fast connection. But not everyone has the 
same preferences that we do. Few small businesses, for example, 
download multiple movies every day or engage in bandwidth-
intensive online gaming. Many people in small businesses are 
simply unwilling to pay more for higher speeds. That is why not 
everybody signs up for the fastest speed they can get.
    Those who believe the United States has a broadband problem 
claim that broadband speeds in the United States are much 
slower than elsewhere. These claims are simply wrong. They are 
based on comparisons of advertised, not actual, speeds. 
According to speedtest.net, which has data from nearly 200 
million unique speed tests of actual broadband connections 
around the world, the average U.S. speed ranks about third or 
fourth globally.
    In short, the evidence contradicts the argument that there 
is too little investment in broadband infrastructure or that 
most consumers and small businesses are desperate for more. The 
important question is whether market failures or other 
obstacles hinder broadband investment, competition, and 
adoption by consumers and businesses. Because investment 
dollars are scarce and because policies have costs as well as 
benefits, we should analyze policies carefully and rigorously 
to ensure that their expected benefits exceed their expected 
costs. Unfortunately, few proposals are accompanied by 
analysis.
    For example, many who believe the United States has a 
broadband problem argue that France and Japan are doing well 
because they require their biggest telecom companies to open 
their infrastructure to competing broadband providers. This 
regulation is known as unbundling, which is sort of like making 
Starbucks lease space and equipment to any free-lance barrista 
who stops by. But the truth is more subtle. France does not 
apply unbundling regulations to fiber optic lines, and in 
Japan, the regulated price for a firm to use the fiber is so 
high that essentially no company takes advantage of that 
regulation. Instead, the incumbent telephone company and the 
electric power utilities are building and operating fiber 
themselves. In other words, unbundling proponents point to 
Japan and France as models to emulate, but those countries 
have, for all practical purposes, not applied unbundling to the 
very type of infrastructure those proponents want to see here.
    As another example, some argue that expanding the Universal 
Service Fund to include broadband services might benefit small 
businesses. But expanding that fund is more likely to harm 
small businesses since they, like all other consumers, pay for 
universal expenditures through taxes on their own telecom 
services. That is why the National Federation of Independent 
Businesses argues strongly against increasing the fund.
    I do not, however, intend to imply that the market is 
perfect. We know that the overall positive picture of broadband 
in the United States can mask underserved geographic areas and 
socioeconomic groups. Data collection efforts should be 
targeted at identifying potential problems and at gathering the 
information necessary to evaluate whether proposed policies are 
likely to address them effectively. That is why models like 
Connect Kentucky are successful. They carefully identify areas 
where there might be a problem and help tailor specific 
solutions.
    In addition, certain regulations continue to make it more 
expensive than necessary for new companies to enter the market. 
For example, there is no economic justification for requiring a 
special license or franchise to offer cable television services 
over broadband lines.
    And despite strong investment in wireless networks, 
hundreds of megahertz of spectrum remain unused or 
inefficiently used by the private sector and by the Government. 
Every day that spectrum remains unavailable for high-value use 
represents a tremendous opportunity cost, a significant loss to 
our economy.
    To conclude, let me reiterate that the key to good 
broadband policy is careful analysis that attempts to identify 
market failures or artificial barriers suppressing broadband 
investment and adoption, followed by rigorous evaluation of 
whether proposed interventions are likely to yield net 
benefits. And precisely because the Internet is so important, 
Congress should be cautious and consider carefully 
interventions in this fast-changing industry to ensure that 
they do not unintentionally reduce incentives to invest in the 
very infrastructure we all believe is so important. Thank you.
    [The prepared statement of Dr. Wallsten follows:]

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    Chairman Kerry. Thank you. Well, we seem to have not just a 
disconnect out in the country at large, but we also have a 
disconnect between you and Mr. Levin right here, so let me feel 
this out a bit. Are you satisfied with the United States going 
backwards in terms of other countries?
    Dr. Wallsten. Well, I think that the rankings are actually 
not very useful at all and there are many reasons not to pay 
attention to simply just rankings and not use them as a basis 
to make policy.
    First of all, the data that the OECD puts out themselves 
are very problematic. They----
    Chairman Kerry. You use that data in your own charts.
    Dr. Wallsten. The data in the chart in this figure is from 
speedtest.net. But----
    Chairman Kerry. No. In addition to that, don't you have 
some other--I thought you had some additional data there.
    Dr. Wallsten. I don't believe I used data from the OECD in 
this paper, but I actually have used the data from the OECD in 
papers and the way that I use the data and the way that I think 
the data should be used is to control carefully--control for 
things that policy can't affect, like population density. That 
is not offered as an excuse, it is simply an empirical fact. 
Every single empirical study on broadband penetration finds 
that population density is correlated with it. Control for 
things like that and test for the effects of factors that 
policies can affect. Then you are not looking simply at 
rankings, you are controlling for lots of things.
    I mean, it doesn't make sense, for example, to compare the 
United States to Iceland, which ranks third in the OECD 
rankings, since Iceland has a population of 300,000, which 
might compare to Buffalo.
    Chairman Kerry. Dr. Wallsten, it is a relative deal if some 
countries are bigger than other countries. But if the country's 
population as a whole has access and they are all able to use 
it, that is one measurement, isn't it?
    Dr. Wallsten. Well, that is right, and that is why I think 
it is important also to look very carefully----
    Chairman Kerry. Dr. Wallsten, this is your chart here, and 
broadband subscriptions per capita by technology, it says, 
Scott Wallsten----
    Dr. Wallsten. That is right, and what else is on there?
    Chairman Kerry. OECD.
    [The chart being referenced follows:]

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    Dr. Wallsten. Umm-hmm, and what is the heading on the 
chart?
    Chairman Kerry. Broadband subscriptions per capita by 
technology. So you are using, I guess, the OECD----
    Dr. Wallsten. That is true, but the point in that one is to 
show the mix----
    Chairman Kerry. So it is selective. You use it where you 
want to and----
    Dr. Wallsten. No. Senator Kerry, I am sorry, that is not 
correct. I try to use that data appropriately, and the data 
themselves--I am not trying to make excuses for the United 
States. I interested in using the data appropriately. The 
data----
    Chairman Kerry. Just help me understand it. Mr. Levin, who 
is in business, has described a situation where he can't 
achieve his business goal because we don't have adequate 
capacity. But he can achieve it in another country. Isn't that 
an incentive to go and operate out of the other country?
    Dr. Wallsten. Well, I would prefer not actually to use 
anecdotes as basis for making policy.
    Chairman Kerry. But that is real life.
    Dr. Wallsten. No, Senator Kerry, the OECD data omits, for 
example, all university connections. It omits most----
    Chairman Kerry. I am not talking about OECD now. I am 
talking about the practical reality of speed and access----
    Dr. Wallsten. The question for any policy is whether its 
expected benefits exceed its expected costs, and it is possible 
you could pass a law that would mandate, for example, a minimum 
speed for broadband that would be very high and that might aid 
his company. The cost for that might be very high, and that is 
a question you want to ask. What are the costs of a proposed 
policy expected to be? Right now, we don't even have the data 
to be able to answer that question well.
    And I do have--I mean, there are other suggestions of 
things that we can do. I think there are things we can do right 
now to improve the broadband situation----
    Chairman Kerry. What are you suggesting? There is something 
I don't understand here. I mean, a community ought to have 
access to broadband and be able to make the choice within the 
community of whether you want to buy, at what speed you want to 
buy, et cetera.
    Dr. Wallsten. Exactly. People should be able to choose the 
speed they want to buy.
    Chairman Kerry. But you have to have that availability to 
be able to do it and right now we don't have that availability.
    Dr. Wallsten. But that doesn't mean that everybody should 
invest, every community should automatically invest in 100 
megabit per second availability. They have other priorities, I 
am sure.
    Chairman Kerry. Mr. Levin, what do you say to that?
    Mr. Levin. I disagree with a lot of the points that he has 
made during the course of his testimony. I think even in the 
most concentrated areas of technology, like for example, the 
Silicon Valley, and also Massachusetts, it is difficult 
sometimes to find wireless connections, good Internet 
connections, and building a business has some fundamental 
challenges connected to it and getting inexpensive broadband to 
a small business is challenging in the United States today.
    Dr. Wallsten. If I could just--could I just follow up for 1 
second? There are things that Congress could do right now. The 
AWS spectrum auction concluded more than a year ago. Companies 
spent billions of dollars on spectrum. For example, T-Mobile, 
Leap Wireless, Metro PCS, Comcast all bought spectrum hoping to 
build out broadband networks. Many of them are having trouble 
because the government agencies that were on that spectrum are 
not moving away.
    That is something that Congress could do right now to open 
up more wireless space for broadband. That doesn't require a 
summit, a broadband summit. There are wireless opportunities 
that we could be doing right now, and those would be great for 
improving competition.
    Chairman Kerry. So you disagree with the President's goal 
that we ought to have ubiquitous broadband----
    Dr. Wallsten. I think we ought to make sure that we do 
everything we can to make sure that the market is competitive.
    Chairman Kerry. Do you think we have done everything we can 
to make it competitive?
    Dr. Wallsten. I think there are things that we should be 
doing. I think franchise regulations are serious impediments to 
firms investing. One thing that we don't pay very much 
attention to is demand. One of the reasons that consumers in 
France and Japan, for example, would buy higher-speed 
connections is because companies have always been allowed to 
offer video--television video--over broadband lines. Here, you 
can't do that without a franchise and there is not--I mean, I 
understand there are fiscal reasons why cities need those 
franchise rules, but there is not an economic reason for that 
and without being able to purchase cable television services 
over broadband, that reduces demand.
    Chairman Kerry. Mr. Scott, what is your reaction to this?
    Mr. Scott. Well, I have no doubt that Dr. Wallsten comes by 
his opinions honestly and some of his critiques in his academic 
papers I find interesting. I disagree with most of them, but I 
think his analysis is worthy.
    I look at the debate over the broadband problem over the 
last few years and it reminds me somewhat of the global warming 
debate. The overwhelming amount of evidence is on one side, as 
far as I can see, and the telephone companies, like the oil 
companies, can make a really nifty PowerPoint presentation to 
provide the opposite, but it doesn't make it so. And if we have 
got evidence from the OECD, the ITU, and Point Topic, and the 
FCC and numerous other data sources, as well as every foreign 
telecommunications service provider that is, I think, not lying 
about the advertised rates of service, I just have to say the 
broadband problem is very real. It is both about a lack of 
availability and a lack of competition. That means lower speeds 
and higher prices. And if we don't do something about it, we 
are going to suffer economically over the next 10 to 20 years.
    Chairman Kerry. Speaking of global climate change, I am 
Chairing the Foreign Relations Committee meeting with foreign 
ministers on that subject in about 5 minutes, so I have got to 
run and do that. But let me just say from our own experience--
Dr. Wallsten, you need to sort of know this and then maybe you 
can respond afterwards for the record--in the Berkshires in 
Massachusetts, we have a very thoughtful, well-educated 
economic base which has been handicapped by virtue of the lack 
of access to broadband. We had to create something called 
Berkshire Connect to create a consortium to pull various people 
together in order to create the economic clout to even get 
people to bid, because they wouldn't bid. They just didn't 
think there were enough folks there. There wasn't enough money 
to be made. They wanted to hook up all the big buildings in 
downtown Boston and other communities first. So there is a race 
to the easy money, not necessarily a race to where it has 
social impact.
    So this question of utility, of public utility and which 
comes first, the chicken or the egg here, is a critical one 
from a public policy point of view. Those schools need access. 
Kids need access. People need access. We need to educate people 
about why access is, in fact, good. If you just leave it out 
there and nobody is aware of what the benefits may be, they may 
not demand it. But as they become more aware of the benefits 
and the economic upside in some of the ways that Mr. Levin and 
others have described, there are all kinds of benefits.
    It is hard to ignore a study that says we are leaving 1.2 
million jobs and $500 billion off the table because we are not 
getting that kind of access to high-speed Internet.
    Dr. Wallsten. And that is why I believe that models like 
Connect Kentucky are good, because they identify very specific 
problems. Also, those studies that you cite, the $500 billion 
one from about 4 years ago, I believe, and the more recent one 
from Brookings, don't advocate any of the policies that some 
here have recommended. And I am--all my work is empirical, 
data-driven, and that is why I think the data is important.
    Chairman Kerry. Listen, I am not trying to fight with you, 
I am just disagreeing with some of your conclusions. But I 
think it is important to have the testimony. It is important to 
have the discussion. We wouldn't have invited you here if we 
didn't think it was important. I think there is a very powerful 
argument for why, in fact, this access and the competition is 
so critical.
    I am sure that Senator Snowe will further examine that, so 
why don't I turn it over to her and you can close it out. Thank 
you.
    Senator Snowe. [presiding.] Thank you, Mr. Chairman.
    Dr. Wallsten, so you don't think that there should be any 
national policy with respect to the broadband deployment, is 
that right?
    Dr. Wallsten. Well, I think we need to be careful about 
what exactly that means. I mean, our data collection right now 
is very poor. I think everybody has agreed with that. And that 
is certainly a good place to start.
    Senator Snowe. So if the FCC changes its methodology and 
the type of data it acquires, which needs to be done soon, and 
it reaffirms the dramatic problem that we are facing in this 
country, would you feel differently?
    Dr. Wallsten. Absolutely.
    Senator Snowe. You would?
    Dr. Wallsten. I would like to see studies--I would like to 
see proposed policies and analyses of the expected costs and 
benefits of those proposals and then we would go from there. I 
mean, what is sort of amazing to me is that in almost every 
other area of policy--you think of labor policy, for example, 
or environmental policy, for example--those agencies collect 
tremendous amounts of data and policies are based on extensive, 
careful analyses. And here, for broadband policy, an industry 
that affects so much of our economy, we want to make policy 
based on simple rankings that don't provide any sources, that 
don't tell you what their methodology is, that leave out huge 
categories of connections. To me, that is simply irresponsible.
    Senator Snowe. And the FCC has acknowledged that their 
methodology is wrong, correct?
    Dr. Wallsten. Oh, yes, and----
    Senator Snowe. And that was affirmed by the GAO----
    Dr. Wallsten. Right. And even the FCC staff know this, too, 
and would like to work on that problem.
    Senator Snowe. Right. Exactly. Better data is obviously 
critical, to get our arms around the data and study exactly 
what the picture of America looks like. But I think the real 
question is whether or not you can give impetus to the 
deployment of broadband and what role the Federal Government 
plays.
    I am impressed with Mr. Mefford and what is happening with 
Connected Nation and Connect Kentucky. Maine has a Connect 
Maine initiative and I hope it will share the same success. But 
they have undertaken it because there is a huge vacuum in 
leadership, even at the national level. These are programs 
undertaken by local governments that otherwise could not afford 
to do them, but they recognize it is an economic imperative, 
especially in rural America.
    I mean, that is the real issue here, how we are going to 
rebuild rural America at a time in which we are dramatically 
losing manufacturing jobs. In our State, we have lost 17 
percent of the manufacturing jobs since 2000. It keeps 
happening. It happened again recently. We keep losing major 
companies in rural America. How do you rebuild it? You rebuild 
it by giving them access to the technology so that they can 
conduct their small enterprises in these rural economies. You 
shouldn't have to be in urban America. I think that is one of 
the real issues that we have to confront in this country today 
is what we are going to do to assist small towns to rebuild 
their economies and this is one dimension of that.
    I don't know--Mr. Mefford, maybe you can add to this debate 
about what pace you would expect to happen in other places as 
compared to Connect Kentucky. The President set a goal in 2004 
that by the end of 2007, we would have broadband deployment. 
That hasn't happened. So what would it take to apply your model 
across this Nation? How long would it take?
    Mr. Mefford. Well, first of all, it requires something like 
S. 1492 or Senator Durbin's Connect the Nation Act. That is 
what enables States, that will empower States to replicate this 
model.
    Senator Snowe. You need the broadband mapping.
    Mr. Mefford. Well, that is the starting point. Somebody 
said the mapping is sort of like putting on your clothes to go 
to work. I mean, that is what gets us started. That is what 
starts this market-based approach that embraces all providers. 
When I say market-based, I mean that it is this dual focus on 
both supply and demand, but it is inclusive of all types of 
providers. And so in Kentucky, when I say we have gone from 68 
percent to 95 percent, that includes cable and DSL and fixed 
wireless and municipal wireless and municipal cable, all these 
different types of services.
    So to answer your question, once that empowering piece of 
legislation is passed, then the process can begin immediately. 
We are engaged with about a dozen different States on different 
levels, so the interest is there and we certainly have the 
capacity to engage additional States. But once the funding is 
in place, that certainly, like most things, is the largest 
impediment.
    Senator Snowe. Do you see that as an appropriate role for 
the Federal Government?
    Dr. Wallsten. I think what Connect Kentucky--I think that 
general approach seems to be exactly right. I mean, they 
carefully identify where there are problems and then figure out 
ways to solve them.
    Senator Snowe. But the broadband mapping legislation, for 
example--Dr. Wallsten. I think that is worth considering.
    Senator Snowe. Would that be enough once that was 
concluded, how long would it take to have that ripple effect 
across America?
    Mr. Mefford. We are talking a matter of months. I mean, if 
we can establish a single clearinghouse where that data is 
placed, then it is a matter of processing data and distributing 
that throughout the country.
    Senator Snowe. Mr. Scott, what is your reaction to that?
    Mr. Scott. I agree with all these guys that data is an 
important step. The better data we have, the better policies we 
can make. I think the partnership between Federal data 
collection, where you have got a baseline standard that makes 
tools for organizations like Connect Kentucky to use at the 
State and local level is the right approach. I think S. 1492 is 
a good bill. We supported it from its inception.
    But I think having the data begs the question that we have 
issues we need to look at, and in my written statement I have 
laid out a number of pieces of policy which we think will go 
toward solving the problem, some small, some large, some that 
the Commission will do, some that the Congress should do, and I 
think that we have an opportunity now in the next 12 months to 
really think carefully about what steps we want to take and 
what goals we want to reach, because ultimately all policy is 
made to reach some big picture goal, and if our big picture 
goal is just to incrementally improve our broadband market, 
that is one set of policies. If our big picture goal is to 
produce a world-class infrastructure and duplicate the same 
kinds of successes we had with electrification and the highway 
programs, well, that is a different set of policies. I think 
there is honest disagreement about what you want to do, but you 
have got to make those choices.
    Senator Snowe. This is why we wrote the Telecommunications 
Act of 1934. We thought it was in the national interest to 
extend telephone service to all parts of America. That is why 
Senator Rockefeller and I created the E-rate program.
    Mr. Scott. That reminds me of a statement that Congressman 
Ed Markey, the Chairman of the Telecom Subcommittee in the 
House of Representatives, said to me once. He said the 1996 
Telecommunications Act was a great idea. I sure wish somebody 
would try to implement it.
    [Laughter.]
    Senator Snowe. Good point. And look at where we are today 
vis-a-vis that policy and how much has dramatically changed. I 
think it just tells you what the landscape looks like and that 
is why small enterprises and rural America are struggling with 
the current market plan. We didn't even factor in wireless at 
that point. Even with respect to the E-rate program, it was 
just on the cusp of being discussed and wireless wasn't really 
part of the picture at that point when we rewrote the Act in 
1996.
    Mr. Mefford.
    Mr. Mefford. Senator Snowe, I would say that that point 
just provides more additional merit for this approach to 
empower States. I think where States have been active in 
engaging providers in the context of telecommunications reform, 
I think we have seen some positive results. Certainly and 
obviously that hasn't been complete and total or we wouldn't be 
here today, but again, as we have employed this market-based 
approach in the States that we are engaged with, and I will 
reference Kentucky specifically, we have seen that increase and 
that has been primarily by private sector providers, not 
totally, but that investment has been made in large part by 
private sector providers.
    In the remaining 5 percent that we have to cover--Kentucky 
will be at 100 percent broadband coverage by the end of this 
year. That has required a more entrepreneurial approach and so 
that does get us to the point where we have to look at things 
like public-private partnerships that incent investment. And so 
we may have local governments partnering with private sector 
providers to build out infrastructure and sharing revenue. But 
that, again, has been the minority part of our approach.
    Senator Snowe. But there would be a public commitment. Is 
there a public commitment currently on the Connect Kentucky.
    Mr. Mefford. Yes, ma'am.
    Senator Snowe. Do the State and local government 
participate financially?
    Mr. Mefford. They do. The largest commitment comes from the 
State, and so generally in our States, about 80 percent of the 
commitment comes from State government and the remaining 20 
percent comes from the private sector, and not just 
telecommunications providers, but companies in general that 
have a vested interest in the growth of technology. So we have 
health care companies and automobile companies and banks and so 
forth.
    Dr. Wallsten. If I could just jump in for 1 second, I just 
wanted to add that I think one of the great things that has 
come out of their initiatives is a tremendous amount of data 
that actually will begin to allow us to test the effects of 
different policies. I know I am very much looking forward to 
using it.
    I would also just like to sort of add on a personal note 
that that presentation of mine that Senator Kerry was referring 
to is available on the Web site of the Progress and Freedom 
Foundation, and I hope that people will look at it to realize 
how I am analyzing the data and not using data where it seems 
it helps my case and not.
    Senator Snowe. We won't. We appreciate that.
    Dr. Wallsten. I hope people look at it.
    Senator Snowe. Do you think that there is competition in 
the market now? Do you think that that is the essence of the 
problem, as well?
    Dr. Wallsten. I think it depends where you look. I believe, 
overall, there is competition. So, for example, there was an 
article in the Wall Street Journal two or 3 days ago noting 
that broadband satellite services are becoming faster and 
cheaper and that is available everywhere in the United States. 
Verizon and Sprint both offer wireless broadband services. That 
is generally slower than wired services, but is getting faster.
    Senator Snowe. But isn't it a question of cost?
    Dr. Wallsten. None of those are reflected on that map. I am 
sorry.
    Senator Snowe. Isn't it the question of cost?
    Dr. Wallsten. And those costs are coming down. But you are 
right. It is a question of cost, and also as we move more 
spectrum into the market and as there are more options, I would 
expect those prices to continue to come down.
    Senator Snowe. And the special access decision that will be 
made by the FCC, do you think that would help to promote growth 
in competition?
    Dr. Wallsten. Special access is another complicated 
question where also the GAO--actually, we would probably be 
having a very similar discussion if it were just on special 
access because the GAO's main conclusion was that there wasn't 
enough data to do an analysis. I would hope that all the 
various players would come to the table and show their data, 
because none of the CLECs make their data available, for 
understandable reasons, and the incumbents don't want to make 
more available than they are required to and it is very hard to 
make decision under those circumstances.
    Senator Snowe. And unbundling, do you think that it has 
helped to open markets, because there has really been a lot of 
problems with incumbents pulling out of the residential 
broadband market.
    Dr. Wallsten. Right. Well, that is slightly a little bit 
different from unbundling policies. I am actually working on a 
paper right now, or revising a paper right now, on bundling 
policies across OECD countries and it didn't work here. Like I 
mentioned, in France and Japan, unbundling doesn't apply to the 
fiber lines and so companies are investing in their own fiber 
optic lines.
    One question I have, for example, in Japan, one of the main 
providers of high-speed service is the electric utilities, not 
through broadband over power lines, which seems to be next 
year's technology and always will be, but actual fiber optic 
connections. Why aren't companies like that doing it here? Why 
don't electric utilities do it here? Maybe it is a bad business 
decision. Maybe regulations don't easily allow them to enter 
other electricity markets--I am sorry, markets other than 
electricity. I think things like that are worth looking at. I 
don't know the answer.
    Senator Snowe. Mr. Scott.
    Mr. Scott. I think both the points you raised are 
critically important. I will start with the current proceedings 
at the Commission. It is not just special access. It is also 
forbearance petitions and copper retirement. These are 
technocratic issues that are very complicated in the regulatory 
proceedings, but their outcomes will be hugely important in 
determining the prices and choices that small businesses have, 
particularly as they grow, and I think we would do well to pay 
close attention to what the Commission is going to do on those 
issues.
    As far as unbundling goes, I shared Congressman Markey's 
comment in jest, but I think his point is very valid here. You 
know, unbundling was never properly implemented in the United 
States for a variety of reasons, which we can debate at length 
at another time. But I think if you look at the way unbundling 
policies have been executed, if you just as a tourist stroll 
around in any European capital, you will find half-a-dozen or 
more storefront shops trying to sell you DSL. It is a 
competitive market the likes of which is impossible to imagine 
in the United States, and I think that disparity is something 
that we have got to address. I am not saying that I have the 
answer chapter and verse today, but I think taking unbundling 
and putting it back on the table for serious consideration is a 
very wise move.
    Senator Snowe. I appreciate that. Any other comments? Mr. 
Levin, do you think we should have a national policy?
    Mr. Levin. Absolutely. The national policy may address 
these issues of have and have nots and I would encourage my 
colleague over here to go out and see some of these disparities 
that you see in different markets. I travel extensively. I go 
to South Korea and Japan and I have been all over Europe and I 
feel like I may not have second-class services, but I certainly 
don't have first-class services. That affects my business. It 
affects lots of other businesses. And I can think of my kids in 
school or people in hospitals. Those are two areas, schools and 
hospitals, where I think Internet service would actually lower 
the cost of operating those entities and also offer much more 
data to people and applications that need data.
    Senator Snowe. I appreciate it. Mr. Mefford, you have the 
last word.
    Mr. Mefford. Senator Snowe, thank you again for the 
invitation today. I would just end by reiterating the fact that 
America's broadband challenge is as much about demand as it is 
supply in my mind, and I think Senator Kerry has affirmed this 
today, affirmed it yesterday in his blog post, to note that we 
have to acknowledge that the number of people actually using 
the technology that has already been deployed is extremely low 
from the household standpoint, and what our model and the data 
that we have generated after the fact has revealed is that as 
we can increase those numbers of people actually subscribing to 
broadband, then providers are obviously more interested in 
deploying further and further and further out into those 
developing markets.
    The things that can be done at the very grassroots level 
are basic in nature, but it is about generating awareness and 
helping households and small businesses understand and 
appreciate better the value of broadband. We have recently 
gathered some data where we asked, what are the factors that 
caused you to become a new subscriber to broadband? The top 
reasons are things like, well I realized that broadband was 
worth the extra money. Then there is, I learned that broadband 
became available in my area. So you can see these are awareness 
building issues. And the third is, I got a computer in my home, 
and so we know that is an obstacle that we have to address. On 
down the list is the point that, well, I decided that broadband 
became affordable.
    So contrary to some conventional wisdom that is out there, 
our biggest challenge to adoption is not price. It is in 
raising awareness and improving the value proposition that 
allows individuals, families, and businesses to make the 
decision to spend the money on broadband.
    Senator Snowe. But you wouldn't disagree that price is a 
barrier in many cases?
    Mr. Mefford. Price is absolutely a barrier for some 
segments of the population----
    Senator Snowe. Such as those that only depend on one 
provider right?
    Mr. Mefford. That is right, but Senator, what we have seen 
in Kentucky is that what we do, in effect, is lower the cost of 
entry for new providers or for existing providers to extend 
their networks. As that has happened, we have seen that now the 
majority of Kentuckians have a choice between at least two 
providers. Many have a choice between three and four and five 
providers, and as that has happened, we have seen the effects 
of competition and prices have come down.
    Far and away, price is not the top reason given that people 
aren't investing in broadband, but absolutely, to your point, 
we are focused on addressing price, and we don't consider a 
broadband solution an option worthy of mapping until it is 
affordable.
    To the point of computers being an obstacle, we have 
developed programs, again, that are State-specific, one that we 
called ``No Child Left Offline'' that actually uses donations 
from companies like Microsoft and Lexmark and CA and Intel and 
we put computers in the homes of identified families, 
underprivileged families, and that addresses that barrier of 
computer ownership and allows them then to become a broadband 
subscriber.
    Senator Snowe. Well, I appreciate it. I thank you all very 
much. It has been very helpful and very critical to this issue, 
and I thank you for your excellent testimony.
    Before we adjourn, we will leave the hearing record open 
for 2 weeks for additional questions and testimony.
    With that, the hearing is adjourned.
    [Whereupon, at 11:48 a.m., the Committee was adjourned.]



















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