[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
Available via the World Wide Web: http://www.access.gpo/gov/congress/
senate
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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
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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