[Senate Hearing 110-1123]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 110-1123
 
                      THE UNIVERSAL SERVICE FUND: 
     ASSESSING THE RECOMMENDATIONS OF THE FEDERAL-STATE JOINT BOARD 

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 12, 2007

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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        SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska, Vice Chairman
    Virginia                         JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington           JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey      JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas                 JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware           DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
   Christine D. Kurth, Republican Staff Director and General Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 12, 2007....................................     1
Statement of Senator Dorgan......................................     2
Statement of Senator Klobuchar...................................    22
Statement of Senator McCaskill...................................    29
Statement of Senator Pryor.......................................    27
Statement of Senator Snowe.......................................    33
Statement of Senator Stevens.....................................     1
    Prepared statement...........................................     2
Statement of Senator Sununu......................................     3
    Letter dated April 13, 2007 to Hon. Deborah Tate.............     3

                               Witnesses

Flannery, Jr., Everett B., Chief Deputy, Sheriff's Office, 
  Kennebec County, State of Maine; Representative, Maine 
  Sheriffs' Association..........................................    59
    Prepared statement...........................................    61
Foxman, Jonathan D., President and CEO, Chinook Wireless.........    46
    Prepared statement...........................................    48
Lubin, Joel E., Vice President, Regulatory Planning and Policy, 
  AT&T Services, Inc.............................................    56
    Prepared statement...........................................    57
Nishi, Roger, Chairman, Organization for the Promotion and 
  Advancement of Small Telecommunications Companies (OPASTCO); 
  Vice President, Industry Relations, Waitsfield and Champlain 
  Valley Telecom; on Behalf of National Telecommunications 
  Cooperative Association; Western Telecommunications Alliance; 
  and Independent Telephone and Telecommunications Alliance......    42
    Prepared statement...........................................    44
Rooney, John E., President and CEO, United States Cellular 
  Corporation....................................................    37
    Prepared statement...........................................    39
Tate, Hon. Deborah Taylor, Commissioner, Federal Communications 
  Commission; and Chair, Federal-State Joint Board on Universal 
  Service........................................................     5
    Prepared statement...........................................     7

                                Appendix

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared 
  statement......................................................    91
National Association of State Utility Consumer Advocates 
  (NASUCA), prepared statement...................................    96
Response to written questions submitted by Hon. Daniel K. Inouye 
  to:
    Jonathan D. Foxman...........................................   106
    Roger Nishi..................................................   105
    Hon. Deborah Taylor Tate.....................................   102
Response to written questions submitted by Hon. Bill Nelson to:
    Jonathan D. Foxman...........................................   107
    Roger Nishi..................................................   106
    Hon. Deborah Taylor Tate.....................................   103
Response to written questions submitted by Hon. Frank R. 
  Lautenberg to Hon. Deborah Taylor Tate.........................   104
Supplemental information supplied by ComspanUSA..................    91


                      THE UNIVERSAL SERVICE FUND:
                  ASSESSING THE RECOMMENDATIONS OF THE
                       FEDERAL-STATE JOINT BOARD

                              ----------                              


                         TUESDAY, JUNE 12, 2007

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Ted Stevens, 
presiding.

            OPENING STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Good morning. The Chairman will be along, 
we hope, in a little while. For those of you who are interns, 
you can come up and use some of these chairs up here.
    Today, the Committee revisits--this is the Chairman's 
statement--today, the Committee revisits a familiar topic, 
Universal Service. More than a decade ago, in the 
Telecommunications Act of 1996, as a Congress, we made clear 
that we are committed to the principle of Universal Service. We 
stated that, in all regions of the Nation--rural, urban, and 
everywhere in between--consumers are entitled to comparable 
services at comparable rates. The Federal Communications 
Commission was charged with translating this lofty principle 
into concrete action. To do so, they set up the Universal 
Service Fund.
    Today, that Fund faces some difficult challenges. If the 
Fund continues to expand at current pace, some say we may 
jeopardize Universal Service itself. Incumbent carriers urge us 
to place limits on the ability of other carriers to access 
these funds. ``How is it feasible,'' they ask, ``for the 
Universal Service Fund to support so many different carriers 
serving so few customers in rural areas?'' Still other 
carriers, many of them, wireless providers, ask if it's fair to 
reduce support that may be necessary to serve large swaths of 
rural America. ``In order to provide comparable services at 
comparable rates,'' they say, ``we need to access these 
funds.''
    Last month, the Federal-State Joint Board on Universal 
Service weighed in on this matter. It recommended the 
Commission cap the amount of funds available to competitive 
providers as an interim measure, pending broader Universal 
Service reform. In the end, we cannot let short-term proposals 
free us from the need to address long-term reform. If 
comprehensive reform requires a more vigorous review of the 
identical support rule or any other aspect of existing policy, 
we should proceed down that road. After all, ensuring the long-
term sufficiency and stability of Universal Service funds means 
ensuring all of our citizens have communications capabilities 
they need to compete in the global economy.
    I'll place my statement in the record, following the 
remarks of the Chairman.
    [The prepared statement of Senator Stevens follows:]

    Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
    I thank the Chairman for scheduling this hearing. Senator Inouye is 
my great friend who has become a leader with respect to Universal 
Service ever since we worked together to assure Alaska and Hawaii had 
the same phone rates as in the rest of our country.
    This Committee has heard much about problems with Universal Service 
which need to be addressed:

   contributions only come from long distance service.

   broadband is not explicitly supported.

   and critics continue to raise accountability concerns.

    For me the importance of a unified and national communications 
infrastructure remains paramount and Universal Service is needed to 
ensure the availability of communications services throughout the 
country. I hope this hearing today will move the Committee forward to 
engage Universal Service reform in a comprehensive fashion.
    The Committee will hear today about the proposed cap on wireless 
Universal Service support. My hope is the panel will explain if and how 
an interim cap would advance the fundamental reform Universal Service 
needs.
    To put off such reform the more risk there is that there will be a 
communications divide in this country, a shameful outcome which would 
hurt jobs and small businesses throughout rural America, including my 
home state Alaska.
    Thank you.

    Senator Stevens. Senator, do you have an opening statement?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Just very briefly, Senator Stevens.
    I'm not going to be able to stay for the entire hearing, 
because of other committees, but I do want to say--it's been 
obvious, for some long while, I think, to many of us on this 
Committee, that the Universal Service Fund issue needs 
attention, and needs serious attention.
    I think those of us that come from rural states understand 
the urgency of fixing this problem. The ``comparable services 
at comparable prices,'' represents the language that we 
included in 1996. Those of us who were on the Committee then 
were deliberate, in terms of what we wanted to do and what we 
intended to accomplish. We included, by the way, ``advanced 
services.'' At that point, we didn't know much about broadband, 
but we included ``advanced services'' in that requirement.
    I acknowledge that the Joint Board has done its work. It's 
now very important that we proceeds, and see that the FCC 
proceed, in untangling these problems, resolving them, and 
having a Universal Service Fund that does what it's intended to 
do so that we are not left, a year or 2 or 5 years from now 
wondering how on Earth this gets fixed.
    Senator Stevens, you and I, and others on this Committee, 
have introduced legislation on these issues. And my hope is 
that at last--at long, long last--we will be able to see these 
resolved.
    Senator Stevens. Thank you very much.
    Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman.
    I simply want to offer a few comments about the recent 
decision by the Joint Board.
    As Senator Dorgan indicated, this is an issue we've been 
going around for some time. We tried to deal with it in the 
comprehensive telecommunications bill we marked up last year. 
And, unfortunately, that didn't move forward. We had a proposal 
in Committee for an overall cap on the Fund, which I think is 
extremely important, because there is so much going on within 
the Fund for which it was not intended. It provides subsidies 
to companies instead of consumers. It provides subsidies to 
consumers in areas that aren't necessarily deserving of 
subsidies, because they're not areas that are underserved, 
they're not at an economic disadvantage, or they're not true 
rural high-cost areas. That should be the focus of the Fund.
    What the Joint Board has done is recommend a relatively 
arbitrary cap for one segment of Universal Service, the CETCs. 
I had, with other members of this Committee, written a letter 
specifically suggesting they not take this approach, that they 
look at a more comprehensive approach for capping funds.
    And, Mr. Chairman, I would ask that that letter be made 
part of the record.
    Senator Stevens. Without objection.
    [The information previously referred to follows:]

                                       United States Senate
                                     Washington, DC, April 13, 2007
Hon. Deborah Tate,
Chairman,
Federal-State Joint Board on Universal Service,
Federal Communications Commission,
Washington, DC.

Dear Joint Board Chairman Tate,

    The Federal-State Joint Board on Universal Service (Board) was 
established, in part, to provide recommendations on how best to 
preserve and advance the Federal Universal Service (USF) program. We 
arc writing today to provide the Board with our views on the USF 
program, which we believe must be substantially reformed to if it is to 
continue, and to share our serious concerns over reports of recent and 
future increases in the contribution factor, which has pushed the 
entire program closer to a boiling point. The Board has the opportunity 
and, in our judgment, the obligation, to suggest reforms and structural 
changes to the USF program that could result in long-term solvency, and 
ensure that only consumers who truly need the program's support receive 
it. Failure of the Board to make the difficult decisions necessary at 
this critical juncture will reduce political support and sustainability 
of the program. We urge the Board to make the tough decisions and 
proposals necessary to place the program on a new course. In other 
words, it is time to be bold.
    We strongly request that the Board recommend an overall cap on the 
entire USF program. Last year, the four of us and others supported an 
amendment to a telecommunications reform bill during consideration in 
the Senate Commerce Committee that would have capped the overall USF 
program. We believe a cap would ensure that the administrators of the 
USF program spend the money more effectively and efficiently, and would 
work to reduce this limitless and recurring tax on consumers.
    We do not support any plan that would cap only one select group of 
providers but not others, as we believe such a fix would unfairly skew 
the marketplace. Instead, we reiterate the need for capping the overall 
program and doing so in a manner that does not pick winners and losers 
or favor one technology over another. We also urge you not to use 
interim measures, such as a temporary cap, to address the pressing 
issues facing the USF program. Many interim measures enacted by the 
Federal Communications Commission in the past have lived far longer 
than intended when proposed.
    While a cap on all USF program funding is truly needed, a cap is 
only as valuable as the corresponding changes made to the USF 
distribution mechanism. Funding multiple providers without a reduction 
in the level of support for existing providers losing customers has put 
the Fund on an uncontrollable growth pattern that will only result in 
higher telephone bills for all Americans. If this is not addressed, the 
USF program will over subsidize some markets at the expense of those 
markets most in need.
    In addition, we strongly recommend the Board give significant 
weight to a reverse auction mechanism for distributing USF support. 
This can be done in a number of ways, including establishing the 
support level for a study area, state, or otherwise (i.e., maximum 
price support point), or establishing a sole provider eligible for 
support in a respective market. However accomplished, allowing all 
providers to take part of one unified auction in a market--not just a 
platform-specific proposal--to bid down support needed to serve 
particular consumers will reduce the total cost of the USF high-cost 
program. It will also bring much needed efficiency to the system, 
facilitate regulatory parity, allow for the emergence of new 
technologies to many markets, eliminate the distinction between rural 
and non-rural incumbent carriers, and instill necessary market-oriented 
solutions.
    In sum, the USF program has not kept pace with the remarkable 
innovation that has occurred in the communications industry over the 
last few years. It must be dramatically reformed to operate in a way 
that best serves the American people. The Board must transform this 
program into one that takes in and distributes USF funds in a 
responsible manner that ensures Americans are not subjected to 
limitless increases on their phone bills. We respectfully request that 
you take the steps necessary to fully reform the USF program and reject 
short-term solvency solutions.
    We ask that this letter be handled in strict accordance with 
existing agency rules, regulations, and ethical guidelines.
            Sincerely,
                                   John E. Sununu
                                   John McCain
                                   Jim DeMint
                                   John Ensign

    Senator Sununu. I think that a piecemeal approach like this 
one, it's not necessarily fair, it has the potential to skew 
the markets; but, two, it's just passing these significant 
problems within the system down the road. And, in many ways, I 
think it's going to make it harder for Congress to act in a 
comprehensive way. I think it's going to create additional 
inequities in the system. And I find it somewhat disappointing. 
The Joint Board has said, ``We're going to recommend a more 
comprehensive approach in 6 months.'' That brings us really to 
the heart of a 2008 campaign season, and, frankly, I think that 
is highly unlikely. I hope we hear, today, not just from 
Commissioner Tate, but from other stakeholders and 
participants, some very specific ideas about how to enact 
additional reforms, what really needs to be done to make sure 
this program works effectively for those it was intended, and 
how and why we should have confidence that the costs of the 
program aren't going to simply continue to accelerate and 
continue to be passed on to consumers. A 10 percent or 12 
percent or 15 percent surcharge on interstate calls is pretty 
significant, and that's levied on every consumer in America. 
And when you're assessing surcharges that high, you ought to be 
delivering something that's measurable, that's tangible, and 
something that's going to those people that need it most.
    Thank you, Mr. Chairman.
    Senator Stevens. Senator Pryor, did you have a statement 
you wished to make?
    Senator Pryor. I don't. Thank you, Mr. Chairman.
    Senator Stevens. Thank you very much.
    Our first witness is the Honorable Deborah Taylor Tate, 
Commissioner of the FCC. We're pleased to have your statement.

             STATEMENT OF HON. DEBORAH TAYLOR TATE,

        COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION;

              AND CHAIR, FEDERAL-STATE JOINT BOARD

                      ON UNIVERSAL SERVICE

    Ms. Tate. Thank you, Vice Chairman Stevens and 
distinguished Members of the Committee.
    I do welcome the opportunity to be here to testify today 
and to talk with you all as the Federal Chair of the Joint 
Board on Universal Service regarding our recent consensus 
recommendation of the Joint Board, that the FCC take immediate 
action to rein in the explosive growth in the high-cost 
Universal Service support disbursements. Like many of you all, 
I'm from a rural state, and I've seen and experienced, 
firsthand, opportunities that are provided by Universal Service 
in those rural areas. I've told you all before that I remember 
the day the telephone wire was rolled up a gravel road to my 
grandmother's house in rural Tennessee, an event that likely 
would not have occurred without Universal Service.
    I now have the distinct honor and responsibility and 
privilege to help design and implement policies that will 
preserve and advance Universal Service for all Americans.
    I think we all agree a modern and high-quality 
communications infrastructure is essential to ensure all 
Americans, especially those living in rural communities, have 
access to the full array of educational, economic, and other 
opportunities that are delivered via advanced services. Indeed, 
Congress--you all--have directed consumers in all regions of 
the Nation have access to reasonably comparable 
telecommunications services, including advanced services, at 
comparable rates.
    As we look to achieve the long-term goals of the Universal 
Service program, as you all have mentioned, including 
deployment of those advanced services, we must recognize how 
technological changes are putting strains on the mechanics of 
both the contribution and distribution systems. The high-cost 
support mechanism alone has grown from about $2.6 billion in 
the year 2000 to approximately $4 billion in 2006, placing 
significant pressure on the stability of the Fund.
    This growth was largely due to increased support provided 
to multiple competitive eligible telecommunications carriers, 
CETCs, as illustrated in this series of charts. As you can see 
from Chart 1, since 2003, incumbent LEC payments have been 
relatively flat, the dark blue--you can see how flat that line 
is--and actually have even begun to start downward. On the 
other hand, Chart 1 also shows that almost all of the recent 
growth in the high-cost support is largely as a result of 
distributions to CETCs.
    As Chart 2 shows, the CETC high-cost distributions have 
been growing at a rate trend of 101 percent per year since 
2002. Specifically, in 2000 CETCs received a million dollars, 
and, according to USAC, now receive almost a billion, in 2006.
    Chart 3 shows the rapid year-over-year dollar growth of 
CETC payments. This chart highlights another problem with the 
current system, CETCs presently receive high-cost support based 
on the incumbent LEC's embedded cost, or per-line support 
amount that the LEC receives, rather than on their own costs.
    Overall, these charts illustrate our current high-cost 
mechanism is in need of repair and revision. As stewards of 
public funds, our obligation is to preserve and advance 
Universal Service. It mandates immediate action to stem this 
explosive growth in the high-cost support, while doing all we 
can to move quickly toward fundamental reform to ensure that 
quality services are, indeed, available to all of our citizens.
    I would have preferred, and hoped, the Joint Board act more 
immediately to fundamentally reform the high-cost distribution 
mechanism. Unfortunately, I was not able to move us to a 
consensus on that point. The Joint Board was, however, able to 
reach a consensus on an interim step. Seven out of eight 
members of the Joint Board agreed an interim emergency cap on 
the amount of high-cost support that CETCs receive for each 
state, based on 2006 support levels, was required to stabilize 
the high-cost fund while the Board and the FCC further explore 
comprehensive high-cost distribution reform.
    The Recommended Decision and its companion Public Notice 
made clear the Joint Board is totally committed to making 
further recommendations, as the Senator noted, by November 1st, 
within 6 months of our decision. Whether through reverse 
auctions or some other cost-effective mechanism, a fundamental 
reform plan will ensure that Universal Service promotes the 
availability of services at reasonably comparable rates 
throughout the country; hopefully, in a technologically and 
competitively neutral manner.
    Comprehensive reform also must take into account areas of 
our country that are uniquely situated. For example, any 
comprehensive reform plan, by necessity, must continue the 
Commission's traditional recognition that there are underserved 
lands. Tribal lands in the Lower 48, in Alaska Native Regions, 
are uniquely situated and deserving of individual treatment to 
ensure that they are not left behind.
    I hope to continue to facilitate these discussions between 
you, this Committee, Congress, the Commission, and, of course, 
members of the Joint Board, while doing all we can to preserve 
the Fund and ensure these services are available to consumers 
no matter where they choose to live.
    Thank you, again, for the opportunity to discuss these 
important issues, and, of course, I'm pleased to answer 
questions.
    [The prepared statement of Ms. Tate follows:]

     Prepared Statement of Hon. Deborah Taylor Tate, Commissioner, 
Federal Communications Commission; and Chair, Federal-State Joint Board 
                          on Universal Service
    Good morning, Chairman Inouye, Vice Chairman Stevens, and 
distinguished Members of the Committee. I welcome the opportunity to 
testify today on the recent recommendation of the Federal-State Joint 
Board on Universal Service (Joint Board) to the Federal Communications 
Commission (FCC or Commission). Like many of you, I have seen and 
experienced firsthand the opportunities provided by Universal Service 
in very rural areas. I remember the day the telephone wire was rolled 
up a gravel road to my grandmother's house in rural Tennessee--an event 
that likely would not have occurred without a Universal Service 
program. As a Commissioner and the Federal Chair of the Joint Board, I 
now have the honor and responsibility to help design and implement 
policies that will preserve and advance Universal Service to all 
Americans.
    All of the Joint Board members--FCC Chairman Kevin Martin, FCC 
Commissioner Michael Copps, Commissioner and Joint Board State Chair 
Ray Baum of Oregon, Chairman Lisa Edgar of Florida, Commissioner Larry 
Landis of Indiana, Commissioner John Burke of Vermont, and Director 
Billy Jack Gregg of the Consumer Advocate Division of West Virginia--
deserve praise for their commitment to addressing these complex issues 
in addition to their full time jobs as Federal or state government 
officials. I should also thank the members of the state and Federal 
staff whose dedication and professionalism reflect the highest ideal of 
government service.
    Congress directed the FCC to institute the Joint Board ``to 
recommend changes to any of [the FCC's] regulations in order to 
implement sections 214(e) and [254]'' of the Act. The Commission has 
referred a number of issues to the Joint Board and relied heavily on 
its recommendations. Most relevant to the subject of today's hearing, 
the Commission in 2002 asked the Joint Board to review Commission rules 
related to the high-cost Universal Service support mechanisms.\1\ Among 
other things, the Commission asked the Joint Board to review the 
Commission's rules relating to high-cost Universal Service support in 
study areas in which a competitive eligible telecommunications carrier 
(CETC) is providing service.\2\ In response, the Joint Board 
recommended, inter alia, that the Commission implement a ``primary 
line'' restriction limiting the scope of high-cost support for each 
household to a single connection that provides access to the public 
telephone network. The Joint Board also made a number of 
recommendations concerning the designation of eligible 
telecommunications carrier (ETCs) in high-cost areas, but declined to 
recommend that the Commission modify the basis of support (i.e., the 
methodology used to calculate support) in study areas with multiple 
ETCs.\3\ Instead, the Joint Board recommended that it and the 
Commission consider possible modifications to the basis of support for 
CETCs as part of an overall review of the high-cost support mechanisms 
for rural and non-rural carriers.\4\
    In 2004, the Commission asked the Joint Board to review, inter 
alia, the Commission's rules relating to the high-cost Universal 
Service support mechanisms for rural carriers and to determine the 
appropriate rural mechanism to succeed the plan adopted in the Rural 
Task Force Order.\5\ In August 2004, the Joint Board sought comment on 
issues the Commission referred to it related to the high-cost Universal 
Service support mechanisms for rural carriers.\6\ The Joint Board also 
specifically sought comment on the methodology for calculating support 
for ETCs in competitive study areas.\7\ Since that time, the Joint 
Board has sought comment on a variety of specific proposals for 
addressing the issues of Universal Service support for rural carriers 
and the basis of support for competitive ETCs, including proposals 
developed by members and staff of the Joint Board and the use of 
reverse auctions (competitive bidding) to determine high-cost Universal 
Service funding to ETCs.\8\
    Since I was named the Chair of the Joint Board in 2006, the Joint 
Board has continued its work to review the Universal Service policies 
and respond to the FCC's referrals. I have been committed to keeping 
our work on a timetable paced to fulfill our statutory role in a 
thoughtful and deliberative manner. The Joint Board has held a number 
of face-to-face meetings, countless conference calls, issued notices 
and referrals, and reviewed hundreds of comments from interested 
parties. The Joint Board staff held a retreat for 3 days in June 2006 
to review outstanding and new proposals, and the Joint Board met in 
August 2006 during the NARUC summer meeting. On August 11, 2006, the 
Joint Board issued a Public Notice and sought comment on primary 
questions, such as the overall appropriateness and legality of 
implementing reverse auctions, as well as questions about the mechanics 
of implementing reverse auctions, such as the role of Federal and state 
jurisdictional roles, defining quality of service obligations, and the 
unique questions regarding the treatment of incumbent local exchange 
carriers (LECs). The Joint Board received numerous comments and reply 
comments last fall, and also received additional submissions in the 
record.
    In September 2006, because there were several newer members of the 
Joint Board, including myself, the Joint Board hosted a two-day meeting 
at the FCC focusing on training. We heard from the Universal Service 
Administrative Company (USAC), the National Exchange Carrier 
Association (NECA), and FCC staff experts about the mechanics of the 
Universal Service programs. The state members of the Joint Board and 
staff met again in November 2006 during the NARUC winter meetings. 
Further, on February 20, 2007, as a part of its en banc hearing in 
Washington, D.C., the Joint Board heard from a number of experts, 
including witnesses from the National Telecommunications Cooperative 
Association, Verizon, and CTIA--The Wireless Association, discussing 
specific proposals, benefits, and concerns regarding reverse auctions. 
The Joint Board also heard from experts on geo-spatial mapping and 
approaches to more effectively targeting the distribution of support, 
including witnesses from the Polis Center in Indianapolis, CostQuest 
Associates, and Embarq. We were pleased that members of your staffs 
attended as well.
    It became clear to the Joint Board during the course of its 
deliberations that high-cost support has been rapidly increasing in 
recent years, largely due to increased support provided to CETCs. 
According to FCC and USAC data, in the 6 years from 2001 through 2006, 
CETC support grew from $15 million to almost $1 billion--an annual 
growth rate of over 100 percent. Over the same time period the USF 
support to the incumbent local exchange carriers serving high-cost 
rural areas under the Fund has leveled out.
    Based on current estimates, CETC support in 2007 will reach at 
least $1.28 billion absent Commission action. Moreover, if the 
Commission were now to approve all 33 CETC petitions currently pending 
before the Commission, high-cost support for CETCs could rise to as 
much as $1.56 billion in 2007. This does not include the financial 
impact of the approximately 35 additional CETC applications that are 
pending or have been approved by the states since the beginning of 
2007. High-cost support to CETCs is estimated to grow to almost $2 
billion in 2008 and $2.5 billion in 2009 even without additional CETC 
designations in 2008 and 2009.
    This growth is not only due to multiple providers receiving high-
cost support in many study areas, but also because CETCs receive 
Universal Service support based on the incumbent LEC's embedded costs 
or the per line support amount that the incumbent LEC receives. But as 
we heard at the en banc, a CETC's actual costs are likely to be very 
different, and perhaps lower, than the incumbent telephone carrier's 
costs on a per line basis.
    In light of those facts, the Joint Board reached a consensus that 
immediate action was required to stabilize the high-cost fund. On May 
1, 2007, the Joint Board issued a Recommended Decision advocating that 
the Commission adopt an interim emergency cap on the amount of high-
cost support that CETCs may receive for each state based on 2006 
support levels.\9\ The Commission issued a Public Notice seeking 
comment on the Joint Board's recommendation on May 14, 2007. The 
Commission received over 60 comments on June 6, 2007, and reply 
comments are due June 13, 2007.
    The Joint Board also recommended that both it and the Commission 
further explore comprehensive high-cost distribution reform, and sought 
comment on various reform proposals in a Public Notice released on the 
same day as the Recommended Decision.\10\
    The Recommended Decision and its companion Public Notice make clear 
that the Joint Board is committed to making further recommendations 
regarding comprehensive high-cost Universal Service reform by November 
1, 2007. I am committed, as the Federal Chair, to putting the Joint 
Board in a position to make those recommendations.
    As we look to achieve the long-term goals of the Universal Service 
program, we must balance the goal of encouraging competitive entry with 
the other challenges, such as the further deployment of advanced 
services. It is essential that we recognize how technological changes 
are putting strains on the mechanics of our contribution and 
distribution systems. As stewards of public funds, our obligation to 
preserve and advance Universal Service mandates that we recommend 
immediate action to stem the explosive growth in high-cost Universal 
Service support disbursements, while doing all we can to achieve 
fundamental reform to ensure that affordable, quality services are 
available to consumers all across the country.
    As Chair of the Joint Board, my goal has been to encourage 
discussion among my colleagues and facilitate consensus that will 
ensure that American consumers throughout the Nation continue to have 
access to an evolving level of services. Every member of this Joint 
Board supports the principles of Universal Service: to promote the 
availability of quality services at just, reasonable, and affordable 
rates; to increase access to advanced telecommunications services 
throughout the Nation; and to advance the availability of such services 
to all consumers. Our recommendation is a step toward more fully 
implementing those principles. I look forward to working with my 
Federal and state colleagues and with all stakeholders as we continue 
to make progress.
    Again, I appreciate your invitation to be here with you today. I am 
pleased to answer any questions you may have.
                               Appendix A
  Federal-State Joint Board of Universal Service Recommended Decision
              Before the Federal Communications Commission
                             Washington, DC
In the Matter of High-Cost Universal Service Support
Federal-State Joint Board on Universal Service
WC Docket No. 05-337
CC Docket No. 96-45 Service
                          Recommended Decision
Adopted: April 26, 2007
Released: May 1, 2007

    By the Federal-State Joint Board on Universal Service: Chairman 
Martin, Commissioner Tate, Chairman Edgar, Commissioner Landis, and 
Commissioner Burke issuing separate statements; Director Gregg 
concurring; Commissioner Baum concurring and issuing a statement; 
Commissioner Copps dissenting and issuing a statement.
I. Introduction
    1. In this Recommended Decision, the Federal-State Joint Board on 
Universal Service (Joint Board) recommends that the Commission take 
immediate action to rein in the explosive growth in high-cost Universal 
Service support disbursements. Specifically, we recommend that the 
Commission impose an interim, emergency cap on the amount of high-cost 
support that competitive eligible telecommunications carriers (ETCs) 
may receive for each state based on the average level of competitive 
ETC support distributed in that state in 2006.\11\ We also recommend 
that the Joint Board and the Commission further explore comprehensive 
high-cost distribution reform. As part of that effort, today in a 
companion Public Notice we seek comment on various proposals to reform 
the high-cost Universal Service support mechanisms.\12\ We also commit 
to making further recommendations regarding comprehensive high-cost 
Universal Service reform within 6 months of this Recommended Decision. 
Finally, we recommend that the Commission act on these further 
recommendations within 1 year from the date of our further Recommended 
Decision.
II. Background
    2. In 2002, the Commission asked the Joint Board to review certain 
of the Commission's rules related to the high-cost Universal Service 
support mechanisms.\13\ Among other things, the Commission asked the 
Joint Board to review the Commission's rules relating to high-cost 
Universal Service support in study areas in which a competitive ETC is 
providing service.\14\ In response, the Joint Board made many 
recommendations concerning the designation of ETCs in high-cost areas, 
but declined to recommend that the Commission modify the basis of 
support (i.e., the methodology used to calculate support) in study 
areas with multiple ETCs.\15\ Instead, the Joint Board recommended that 
it and the Commission consider possible modifications to the basis of 
support for competitive ETCs as part of an overall review of the high-
cost support mechanisms for rural and non-rural carriers.\16\
    3. In 2004, the Commission asked the Joint Board to review the 
Commission's rules relating to the high-cost Universal Service support 
mechanisms for rural carriers and to determine the appropriate rural 
mechanism to succeed the plan adopted in the Rural Task Force 
Order.\17\ In August 2004, the Joint Board sought comment on issues the 
Commission referred to it related to the high-cost Universal Service 
support mechanisms for rural carriers.\18\ The Joint Board also 
specifically sought comment on the methodology for calculating support 
for ETCs in competitive study areas.\19\ Since that time, the Joint 
Board has sought comment on a variety of specific proposals for 
addressing the issues of Universal Service support for rural carriers 
and the basis of support for competitive ETCs, including proposals 
developed by members and staff of the Joint Board and the use of 
reverse auctions (competitive bidding) to determine high-cost Universal 
Service funding to ETCs.\20\
III. Recommendation for an Immediate Interim Cap on Support for 
        Competitive Eligible Telecommunications Carriers
A. Need for Immediate Action
    4. High-cost support has been rapidly increasing in recent years 
and, without immediate action to restrain growth in competitive ETC 
funding, the Federal Universal Service Fund is in dire jeopardy of 
becoming unsustainable.\21\ Today, the Universal Service Fund provides 
approximately $4 billion per year in high-cost support.\22\ Yet, in 
2001 high-cost support totaled approximately $2.6 billion.\23\ In 
recent years, this growth has been due to increased support provided to 
competitive ETCs which receive high-cost support based on the per-line 
support that the incumbent local exchange carriers (LECs) receive 
rather than the competitive ETC's own costs. While support to incumbent 
LECs has been flat or even declined since 2003,\24\ by contrast, in the 
6 years from 2001 through 2006, competitive ETC support grew from $15 
million to almost $1 billion--an annual growth rate of over 100 
percent. Based on current estimates, competitive ETC support in 2007 
will reach at least $1.28 billion if the Commission takes no action to 
curtail this growth. Moreover, if the Commission were now to approve 
all competitive ETC petitions currently pending before the Commission, 
high-cost support for competitive ETCs could rise to as much as $1.56 
billion in 2007.\25\ High-cost support to competitive ETCs is estimated 
to grow to almost $2 billion in 2008 and $2.5 billion in 2009 even 
without additional competitive ETC designations in 2008 and 2009.\26\
    5. We conclude that immediate action must be taken to stem the 
dramatic growth in high-cost support. We therefore recommend that the 
Commission immediately impose an interim cap on high-cost support 
provided to competitive ETCs until such measures can be adopted that 
will ensure that the Fund will be sustainable for future years. We 
believe that taking this action will prevent increases in high-cost 
support due to the designation of additional competitive ETCs or line 
growth among existing competitive ETCs. While imposition of the interim 
cap will not address the current disproportionate distribution of 
competitive ETC support among the states,\27\ the cap will stop growth 
in competitive ETC support while the Joint Board and the Commission 
consider fundamental reforms to address issues related to the 
distribution of support. At this time, we do not recommend additional 
caps on support provided to incumbent LECs, because the data show less 
growth pressure from incumbent LECs. Moreover, incumbent LEC high-cost 
loop support is already capped and incumbent interstate access support 
has a targeted limit.\28\ Also, local switching support and interstate 
common line support provided to incumbent LECs have been stable in 
recent years.\29\ Accordingly, we recommend that the Commission 
immediately impose an interim high-cost support cap, but one that is 
limited to high-cost support provided to competitive ETCs.
    6. We believe that adopting an interim cap on high-cost support 
only for competitive ETCs would not violate the Commission's Universal 
Service principle of competitive neutrality for several reasons.\30\ 
Fundamental differences exist between the regulatory treatment of 
competitive ETCs and incumbent LECs. For example, competitive ETCs, 
unlike incumbent LECs, have no equal access obligations. Competitive 
ETCs also are not subject to rate regulation. In addition, competitive 
ETCs may not have the same carrier of last resort obligations that 
incumbent LECs have. Furthermore, under the identical support rule, 
both incumbent rural LECs and competitive ETCs receive support based on 
the incumbent rural LECs' costs. Therefore, incumbent rural LECs' 
support is cost-based, while competitive ETCs' support is not. Due to 
this, as discussed below, we recommend that the Commission consider 
abandoning the identical support rule in any comprehensive and 
fundamental reform ultimately adopted.\31\
    7. We decline to recommend that the Commission adopt General 
Communication Inc.'s (GCI) proposal that we exempt wireline competitive 
ETCs from the cap.\32\ The growth of support to wireless competitive 
ETCs may indeed have been much greater than the growth of support to 
wireline competitive ETCs. However, we recommend a cap today largely 
because we conclude that the identical support rule has become dated 
and may no longer be the most appropriate approach to calculating 
support for competitive ETCs. Today wireline competitive ETCs (such as 
GCI) and wireless competitive ETCs both derive their Universal Service 
support from the identical support rule. Neither receives support based 
on its own costs. In addition, GCI would have us create an exemption 
based upon the ETC's chosen technology, rather than its legal status. 
We are not aware of anything in the Commission's current rules that 
provides a precedent for such a technology-based differentiation within 
Universal Service policy.
B. Length of Time
    8. We emphasize that the cap on competitive ETC support that we 
recommend here should be an interim measure that is used to stem the 
growing crisis in high-cost support growth while the Commission and the 
Joint Board consider further reform. We remain committed to 
comprehensive reform of the high-cost Universal Service support 
mechanisms. Accordingly, we recommend that the Commission immediately 
adopt an interim cap on high-cost support to competitive ETCs, and that 
the cap expire 1 year from the date of any Joint Board recommended 
decision on comprehensive and fundamental Universal Service reform. As 
discussed below, we commit to adoption of a further recommended 
decision addressing fundamental high-cost reforms within 6 months of 
today's Recommended Decision. We also anticipate that the Commission 
will act promptly on the Joint Board's subsequent recommended decision 
in light of the interim nature of the cap, notwithstanding the fact 
that the Communications Act of 1934, as amended (the Act) imposes a 
one-year time limit on such action.\33\
C. Operation of the Cap
    9. We recommend that the Commission immediately impose a cap on 
competitive ETC support for each state. We believe that a competitive 
ETC cap applied at a state level effectively curbs growth but allows 
states some flexibility to direct competitive ETC support to the areas 
in the state that are most in need of such support.\34\ An interim, 
state-based cap on competitive ETC support will also avoid creating an 
incentive for each state to designate as many new ETCs as possible. A 
state-based cap will require newly designated competitive ETCs to share 
funding with other competitive ETCs within the state.
    10. Under the proposed state-based cap, support would be calculated 
using a two-step approach. First, on a quarterly basis, the Universal 
Service Administrative Company (USAC) would calculate the support each 
competitive ETC would have received under the existing (uncapped) equal 
per-line support rule and would sum these amounts by state.\35\ Second, 
USAC would calculate a state reduction factor to reduce this amount to 
the competitive ETC cap. Specifically, USAC would compare the total 
amount of uncapped support to the cap amount for each state. Where the 
total state uncapped support is greater than the available state cap 
support amount, USAC would divide the state cap support amount by the 
total state uncapped amount to yield the state reduction factor. USAC 
would then apply the state-specific reduction factor to the uncapped 
amount for each competitive ETC within the state to arrive at the 
capped level of high-cost support. Where the state uncapped support is 
less than the available state capped support amount, no reduction would 
be required.
    11. For example, if in State A, the capped amount is $90 million 
and the total uncapped support is $130 million, the reduction factor 
would be 69.2 percent ($90/$130). In State A, each competitive ETC's 
support would be multiplied by 69.2 percent to reduce support to the 
capped amount. If in State B, however, the base period capped amount is 
$100 million and the total uncapped support is $95 million, there would 
be no reduction factor because the uncapped amount is less than the 
capped amount. Each quarter, for the duration of the cap, a new 
reduction factor would be calculated for each state. Finally, if in 
State C the base period capped amount is $0 (i.e., there were no 
competitive ETCs receiving support in State C as of when the cap was 
established), then no competitive ETCs would be eligible to receive 
support in that state.
    12. Although the competitive ETC cap retains the so-called 
identical support or portability rule in the first step of calculating 
capped support amounts, the Joint Board recommends that the Commission 
consider abandoning or modifying this rule in any comprehensive reform 
it ultimately adopts. The identical support rule seems to be one of the 
primary causes of the explosive growth in the fund. Most of the reform 
options that we seek comment on in today's companion Public Notice 
would replace this approach with approaches that better reflect the 
economic realities of different technologies.\36\ Thus, we recommend 
that the Commission expressly place competitive ETCs on notice that 
identical support without cost justification may be an outdated 
approach to USF funding.
D. Base Period for the Cap
    13. We recommend that the Commission cap competitive ETC support 
for each state at the level of competitive ETC support actually 
distributed in that state in 2006. Although this approach likely 
results in a lower cap in most jurisdictions than the level of support 
that is being distributed in 2007, we find that the need for adopting 
this emergency interim cap to stabilize support for competitive ETCs 
identified above justifies using 2006 support levels.\37\ Moreover, 
using 2006 data allows the Commission to use actual support amounts, 
rather than relying on USAC projections to set the cap amounts. By 
using actual distributions over four quarters of 2006, the Commission 
will be able to smooth out any seasonal or one-time fluctuations that 
may be reflected in any single quarter.\38\ Consistent with our 
recommendation to cap competitive ETC support on an interim basis, we 
find that there is no need to index the cap to a growth factor.
IV. Fundamental High-Cost Distribution Reform
    14. The imposition of an interim cap on competitive ETC high-cost 
support represents only a temporary solution to the problems that 
plague the high-cost support distribution mechanisms. As noted above, 
we are committed to making further recommendations regarding 
comprehensive high-cost Universal Service reform within 6 months. So 
that we may accomplish that goal, we seek comment, in a companion 
Public Notice, on several proposals that have been placed in the record 
since the close of the last comment cycle, as well as other possible 
reforms.\39\ Specifically, we seek comment on proposals related to the 
use of reverse auctions, the use of geographic information systems 
(GIS) technology, the disaggregation of high-cost support, and support 
for broadband services.\40\ As we state in the Public Notice, we expect 
parties to submit comprehensive reform proposals pursuant to the 
pleading cycle set forth in the Public Notice.\41\
V. Recommending Clause
    15. For the reasons discussed herein, the Federal-State Joint Board 
on Universal Service, pursuant to sections 254(a)(1) and 410(c) of the 
Communications Act of 1934, as amended, 47 U.S.C.  254(a)(1), 410(c), 
recommends that the Commission adopt recommendations set forth herein 
concerning an interim cap on high-cost Universal Service support for 
competitive ETCs.

                          Federal Communications Commission
                                       Marlene H. Dortch, Secretary
                               Appendix A
Charts Presented by Chairman Martin at February 2007 En Banc Hearing of 
           the Federal-State Joint Board on Universal Service
Chart 1

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chart 2

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Chart 3

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Chart 4

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                                 ______
                                 
                               Appendix B

 State High-Cost Universal Service Support, Ranked by 2006 Total Support
                    and 2006 Competitive ETC Support
------------------------------------------------------------------------
                                       2006
                                    Incumbent       2006          2006
   Ranked by  2006 Total Support        ETC      Competitive     Total
                                     Support    ETC  Support    Support
------------------------------------------------------------------------
State                                            $ Millions
------------------------------------------------------------------------
 1  Mississippi                         136.4           139.6      276.0
 2  Texas                               206.1            24.6      230.7
 3  Kansas                              135.4            54.8      190.2
 4  Alaska                               98.1            55.5      153.6
 5  Wisconsin                            83.0            51.2      134.2
 6  Arkansas                            101.9            30.6      132.5
 7  Louisiana                            85.1            41.9      127.0
 8  Oklahoma                            107.0            16.6      123.6
 9  Puerto Rico                          29.5            93.9      123.4
10  Minnesota                            79.6            40.3      119.9
11  Alabama                              99.6            16.4      116.0
12  Georgia                              99.1             8.6      107.7
13  California                          105.0             1.0      106.0
14  Iowa                                 63.4            42.2      105.6
15  Washington                           58.9            43.8      102.7
16  Kentucky                             73.4            25.9       99.3
17  South Dakota                         60.1            29.4       89.5
18  Missouri                             86.0             0.1       86.1
19  Arizona                              67.1            15.9       83.0
20  South Carolina                       81.9             0.0       81.9
21  Nebraska                             58.3            23.5       81.8
22  Florida                              72.2             9.4       81.6
23  North Carolina                       74.0             7.4       81.4
24  North Dakota                         41.4            39.5       80.9
25  Colorado                             71.0             8.5       79.5
26  Virginia                             65.7            13.8       79.5
27  Montana                              66.6            11.5       78.1
28  Oregon                               62.3            10.0       72.3
29  West Virginia                        59.7            10.7       70.4
30  Illinois                             67.8             0.0       67.8
31  New Mexico                           50.3            15.2       65.5
32  Pennsylvania                         64.0             1.5       65.5
33  Indiana                              57.9             5.6       63.5
34  Michigan                             43.8            15.1       58.9
35  Wyoming                              39.7            18.0       57.7
36  Idaho                                52.1             0.0       52.1
37  Tennessee                            50.3             1.5       51.8
38  New York                             45.6             3.3       48.9
39  Ohio                                 41.6             0.0       41.6
40  Hawaii                               22.6            18.2       40.8
41  Maine                                23.8            13.2       37.0
42  Nevada                               24.9             6.3       31.2
43  Vermont                              24.9             5.9       30.8
44  Virgin Islands                       25.3             0.0       25.3
45  Utah                                 23.9             0.3       24.2
46  Guam                                  9.4             7.3       16.7
47  New Hampshire                         7.8             0.3        8.1
48  Maryland                              4.5             0.0        4.5
49  Massachusetts                         2.8             0.0        2.8
50  American Samoa                        1.3             1.4        2.7
51  Connecticut                           2.1             0.0        2.1
52  New Jersey                            1.3             0.0        1.3
53  N. Mariana Is.                        0.6             0.2        0.8
54  Delaware                              0.3             0.0        0.3
55  D.C.                                  0.0             0.0        0.0
56  Rhode Island                          0.0             0.0        0.0
------------------------------------------------------------------------
    Total                             3,116.4           979.9    4,096.3
------------------------------------------------------------------------
Note: Numbers may not add due to rounding. Annual support amounts less
  than $50,000 show as $0 due to rounding.
Source: Universal Service Administrative Company


------------------------------------------------------------------------
              Ranked by  2006 CETC Support                     2006
---------------------------------------------------------   Competitive
                                                           ETC  Support
                          State                          ---------------
                                                            $ Millions
------------------------------------------------------------------------
 1  Mississippi                                                    139.6
 2  Puerto Rico                                                     93.9
 3  Alaska                                                          55.5
 4  Kansas                                                          54.8
 5  Wisconsin                                                       51.2
 6  Washington                                                      43.8
 7  Iowa                                                            42.2
 8  Louisiana                                                       41.9
 9  Minnesota                                                       40.3
10  North Dakota                                                    39.5
11  Arkansas                                                        30.6
12  South Dakota                                                    29.4
13  Kentucky                                                        25.9
14  Texas                                                           24.6
15  Nebraska                                                        23.5
16  Hawaii                                                          18.2
17  Wyoming                                                         18.0
18  Oklahoma                                                        16.6
19  Alabama                                                         16.4
20  Arizona                                                         15.9
21  New Mexico                                                      15.2
22  Michigan                                                        15.1
23  Virginia                                                        13.8
24  Maine                                                           13.2
25  Montana                                                         11.5
26  West Virginia                                                   10.7
27  Oregon                                                          10.0
28  Florida                                                          9.4
29  Georgia                                                          8.6
30  Colorado                                                         8.5
31  North Carolina                                                   7.4
32  Guam                                                             7.3
33  Nevada                                                           6.3
34  Vermont                                                          5.9
35  Indiana                                                          5.6
36  New York                                                         3.3
37  Pennsylvania                                                     1.5
38  Tennessee                                                        1.5
39  American Samoa                                                   1.4
40  California                                                       1.0
41  New Hampshire                                                    0.3
42  Utah                                                             0.3
43  N. Mariana Is.                                                   0.2
44  Missouri                                                         0.1
45  Connecticut                                                      0.0
46  D.C.                                                             0.0
47  Delaware                                                         0.0
48  Idaho                                                            0.0
49  Illinois                                                         0.0
50  Maryland                                                         0.0
51  Massachusetts                                                    0.0
52  New Jersey                                                       0.0
53  Ohio                                                             0.0
54  Rhode Island                                                     0.0
55  South Carolina                                                   0.0
56  Virgin Islands                                                   0.0
------------------------------------------------------------------------
    Total                                                          979.9
------------------------------------------------------------------------
Note: Numbers may not add due to rounding. Annual support amounts less
  than $50,000 show as $0 due to rounding.
Source: Universal Service Administrative Company

                 Statement of Chairman Kevin J. Martin
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    I am pleased that the Federal-State Joint Board on Universal 
Service recommends measures to the Commission to address the rapid 
growth in the high-cost Universal Service program. It is essential that 
we take actions that preserve and advance the benefits of the Universal 
Service program.
    The United States and the Commission have a long history and 
tradition of making sure that rural areas of the country are connected 
and have similar opportunities for communications as other areas. I 
believe our Universal Service program must continue to promote 
investment in rural America's infrastructure and ensure access to 
telecommunications services that are comparable to those available in 
urban areas today, as well as provide a platform for delivery of 
advanced services.
    Changes in technology and increases in the number of carriers that 
receive Universal Service support, however, have placed significant 
pressure on the stability of the Fund. A large and rapidly growing 
portion of the high-cost support program is now devoted to supporting 
multiple competitors to serve areas in which costs are prohibitively 
expensive for even one carrier. These additional networks in high-cost 
areas don't receive support based on their own costs, but rather on the 
costs of the incumbent provider, even if their cost of providing 
service is lower. The Recommended Decision emphasizes the problems of 
maintaining the equal support rule. The recommendation also caps 
competitive ETC funding to address the escalating impact of this 
problem. I would argue that if a competitive ETC can demonstrate that 
its costs meet the support threshold in the same manner as the rural 
provider, the competitive ETC should receive support, despite the cap. 
Thus, a preferable rule would be to cap those providers that do not 
receive support based on their own costs.
    Today's recommendation is not an end in itself, but rather signals 
the need for comprehensive reform. Among the reform ideas the Joint 
Board continues to consider is the use of reverse auctions (competitive 
bidding for support in defined areas) to determine high-cost Universal 
Service funding for eligible telecommunications carriers. I believe 
that reverse auctions could provide a technologically and competitively 
neutral means of controlling the current unsustainable growth in the 
Fund and ensuring a move to most efficient technology over time. 
Although the use of reverse auctions is one way of limiting the growth 
of the fund, I will give any recommendation submitted by the Joint 
Board my full consideration and remain open to other ideas that could 
restrain fund growth and prioritize investment in rural and high-cost 
areas of the country.
    I look forward to working with my colleagues at the Commission to 
address the Joint Board recommendation in a timely manner. I also look 
forward to a continued dialogue with my Joint Board colleagues as the 
Joint Board continues to address comprehensive and fundamental reform.
             Statement of Commissioner Deborah Taylor Tate
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    Congress directed the Commission to institute the Federal-State 
Joint Board on Universal Service so that the Joint Board could 
recommend necessary changes to the Commission's regulations. As 
stewards of public funds, our obligation to preserve and advance 
Universal Service mandates that we recommend immediate changes to stem 
the explosive growth in high-cost Universal Service support 
disbursements. I am proud of the consensus achieved by this Joint Board 
in fulfillment of its duties.
    This interim action is just that: interim. As the Recommended 
Decision and its companion Public Notice make clear, the Joint Board is 
committed to making further recommendations regarding comprehensive 
high-cost Universal Service reform within 6 months of this Recommended 
Decision. I am committed, as the Federal Chair, to putting the Joint 
Board in a position to make those recommendations.
    Every member of this Joint Board supports the principles of 
Universal Service: to promote the availability of quality services at 
just, reasonable, and affordable rates; to increase access to advanced 
telecommunications services throughout the Nation; and to advance the 
availability of such services to all consumers. Our recommendation 
today is a step toward more fully implementing those principles. I look 
forward to working with my Federal and state colleagues and with all 
stakeholders as we continue to make progress.
           Concurring Statement of Chairman Lisa Polak Edgar
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    I support the Recommended Decision and the accompanying Public 
Notice.
    Rapid growth in the Universal Service High-Cost Fund is placing 
unprecedented financial pressure on consumers of telecommunications 
services and the Federal-State Joint Board on Universal Service today 
takes a necessary step to address that unplanned and exceptional 
growth.
    The cap detailed in today's Recommended Decision is an interim 
step, meant to create a pause in fund growth while a more equitable and 
comprehensive distribution mechanism can be crafted. The current 
support mechanisms must be reformed to reduce excessive support to 
multiple providers and better target financial support as envisioned by 
the Telecommunications Act of 1996. Funding redundant providers is 
particularly troubling for consumers in net-contributor states, who 
shoulder the burden of undue growth in the high-cost fund. Therefore, I 
share my colleagues urgency in addressing a comprehensive reform of the 
high-cost distribution mechanism that adheres to the goals of Universal 
Service.
               Statement of Commissioner Larry S. Landis
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    In recent weeks, the bulk of the attention by various parties 
offering ex parte comments in this proceeding has been devoted to 
certain anticipated aspects of the proposed interim emergency cap which 
is addressed in today's Recommended Decision. I can appreciate the 
concern of various parties with regard to how (without knowing the 
exact parameters of the proposed cap) it might impact them. Much has 
been said and written about the need for competitively and 
technologically neutral policies, disregarding the fact that in some 
respects the current regime is anything but.
    The basic facts are inescapable, as set forth in the Recommended 
Decision. Growth in high-cost support on the current trend line is 
unsustainable. A number of proposals were offered in ex parte filings 
as alternatives, with the intent of ``sharing the pain'' among various 
groups of providers. Those proposals fail to address the fact that for 
most segments, growth has been virtually flat or even modestly negative 
in the short run; there is only one group of providers which have seen 
dramatic and continued growth, and that group is wireless CETCs.
    To use an analogy, if you are offering emergency medical treatment 
to a badly injured person who is bleeding profusely from the arm, you 
don't address the short-term problem by applying a tourniquet to the 
patient's leg. Having said that, a tourniquet is not a long-term or 
permanent solution, and neither is the interim emergency cap.
    While the growth is attributable to CETCs, most of which are 
wireless carriers, they are simply operating under the current laws and 
rules, once they have received ETC designation. Over the course of the 
past several months, I have come to a greater appreciation of the 
extent to which there are wireless companies which operate on a 
business model targeted primarily to serving rural areas, and which 
contribute significantly to realizing the goal of providing truly 
Universal Service to areas where costs are such that no business case 
can be made for build-out, absent Universal Service support.
    At the same time, there are many rural areas where multiple 
wireless providers are active. Where there is already competition, we 
need to make sure we don't inadvertently advantage one company over the 
others which entered that market based on a competitive, unsubsidized 
model. Indeed, it may be time to ask if the presence of some minimum 
number of competitors greater than one in a market is a prima facie 
indicator that the market is contestable and competitive, and that no 
Universal Service support should be rendered to the competing providers 
in that market.
    The states have an obligation and a growing partner role with the 
FCC as joint stewards in seeing to it that Universal Service funds are 
appropriately deployed, that legitimate needs are met, but that 
accountability and performance are audited and demanded.
    Now that the interim Recommended Decision has been approved by this 
body, it is my hope that we can move on to the far more significant and 
far-reaching issues and potential solutions addressed in the companion 
Request for Comment.
    The Request for Comment raises the question of whether the Joint 
Board and the Commission should consider adding broadband to the list 
of supported services. It is my hope that the parties will examine not 
only the threshold questions (is penetration sufficient for broadband 
to qualify as a supported service?) but also, if they conclude that 
broadband should be a supported service, how that can best and most 
efficiently be implemented. What are the appropriate threshold funding 
obligations of providers? Of the several states, including (but not 
limited to) state funds and other incentives? And of the high-cost 
funds? These potential interrelationships require closer examination.
    Finally, I appreciate the concerns of those who have suggested that 
the interim emergency cap will somehow morph into an intermediate or 
long-term default ``patch'' to the issues we propose to examine. By 
explicitly committing to making further recommendations regarding long 
term, comprehensive high-cost Universal Service reform within 6 months, 
and by proposing that the cap expire 1 year from the date when such 
recommendations are offered, I hope that we have convinced interested 
parties that the Joint Board is determined to address those long term 
issues in a meaningful, thoughtful and aggressive manner.
    If we are to do so, we will need to build a record which is 
considerably more comprehensive and provides greater granularity than 
that which we have today. Interested parties simply need to move with 
dispatch. The clock is running for all parties with an interest in the 
outcome of this deliberation. As such, the record will be only as 
robust as the parties make it.
                  Statement of Commissioner John Burke
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    I agree with my colleagues on the USF Joint Board as to today's 
Recommended Decision. I would stress the need for a comprehensive 
solution to be finally adopted by the FCC at the earliest possible 
date.
    Some inequities could result from any cap but inequities 
undoubtedly already exist at least in part because of the identical 
support rule as presently applied. I would hope then that the cap never 
be extended beyond the 18 month period contemplated as the outside 
margin of this recommendation for development and adoption of these 
more comprehensive reforms
             Concurring Statement of Commissioner Ray Baum
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    In concurring with today's interim decision capping the CETC 
portion of the fund, I would like to emphasize the following:

        1. I underscore that today's decision is interim. The Joint 
        Board intends to recommend major reform of the USF to the FCC 
        within 6 months of the date of this decision. Parties should 
        file their comments in response to the accompanying Public 
        Notice within the comment periods. Parties who wait to put 
        forward their proposals in ex parte submissions will jeopardize 
        their consideration. The Joint Board intends to move 
        expeditiously, and takes seriously the 6 month deadline for 
        recommending major reform.

        2. My support for a cap of this nature is limited to the 18 
        months outlined in today's decision. In several states, there 
        are high-cost rural service areas that had no CETC drawing USF 
        support during the interim cap's 2006 base period. As a result 
        of the cap, consumers in these rural areas may not enjoy the 
        same quality and reliability of service that is enjoyed by 
        rural consumers in states with earlier CETC designations. The 
        CETC portion of the Fund is now disproportionately allocated 
        among rural consumers and states. This cap does not remedy that 
        inequity.

        3. Broadband is critical to telecommunications/information 
        services of the future, for both rural and urban Americans. 
        Rural ILECs have generally done a good job of making broadband 
        available to the rural consumers they serve; non-rural ILECs 
        generally have not. The Joint Board and commenting parties 
        should address whether this inequity can be remedied by 
        properly focused incentives to ETCs, both wireline and 
        wireless, to provide necessary broadband services to all rural 
        consumers.

        4. Due to unsustainable growth pressures on the Fund all ETCs 
        should anticipate changes to current USF distribution 
        mechanisms. The identical support rule for CETCs may not 
        survive. Rural ILECs may no longer receive support based on 
        their embedded costs. All parties should use the forthcoming 
        comment periods to put forth their best ideas, describing in 
        detail how they are to be implemented.

    The Joint Board faces difficult decisions in the next 6 months. The 
best efforts of all parties in filing comments to assist the Joint 
Board is essential and appreciated.
         Dissenting Statement of Commissioner Michael J. Copps
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
        337; 
        Federal-State Joint Board on Universal Service, CC Docket No. 
        96-45
    Congress made clear what it expected of the Federal-State Joint 
Board on Universal Service in section 254 of the Communications Act: 
the Board shall recommend policies to preserve and advance Universal 
Service. Since I rejoined the Joint Board over 2 years ago, my 
colleagues and I have worked with this singular purpose in mind. As 
anyone who toils in the field of Universal Service knows, there are 
many worthy ideas on how to achieve the purposes set forth in the Act. 
Today the Joint Board recommends that the FCC impose a so-called 
``interim, emergency cap'' on the high-cost support available to 
competitive eligible telecommunications carriers. While I commend my 
colleagues for their good intentions--to curb the growth of the 
Universal Service Fund--I have serious concerns that such a cap will be 
misinterpreted as a solution, even though it does not address--or 
pretend to address--the fundamental, comprehensive reforms needed to 
carry a viable and improved system of Universal Service forward in the 
twenty-first century.
    The clear and compelling challenge to the Joint Board and the FCC 
is to bring basic and advanced telecommunications to all our citizens 
and to ensure that our Universal Service system, which has accomplished 
so much, can continue to sustain itself. Our job is to develop 
strategies and programs to bring the best, most accessible and cost-
effective communications system in the world to all our people--and 
Universal Service does indeed mean ``all'' our people. Every citizen of 
this great country should have access to the wonders of 
communications--whether they live on farms or rural hamlets, on tribal 
lands or in the inner city; whether they have limited income or are 
challenged by disabilities; whether they are schoolchildren or rural 
healthcare providers.
    Universal service has done great things for America. But its job is 
far--very far--from complete. Revolutionary changes are transforming 
the world of telecommunications, but not all of us will be able to 
benefit from them without significant Universal Service system reforms. 
We have studied these problems for a very long time. Hundreds of 
discussions have taken place. Ideas have been exchanged. Solutions have 
been proposed. The problem is that the solutions are not painless. 
Companies and government both get comfortable with business as usual, 
and when someone proposes to rock the boat we all get nervous. Game 
theory supersedes decisionmaking--and nothing gets done. Yet reality 
keeps knocking at the door: the system is stressed; down the present 
path it may not be sustainable; it still marches to the tune of 20th 
century telecom. And there is this: we may all be called on for shared 
sacrifice if Universal Service is going to fulfill its mission.
    I believe we have it within our ability--and within our grasp--to 
resolve our current Universal Service Fund problems and to deploy a 
system that can contribute mightily to economic opportunity for all our 
citizens and to truly expansive economic growth for our country. This 
modernized Universal Service system would ensure that every citizen in 
our country is connected to vital education, public health, public 
safety, employment and entrepreneurial opportunities.
    But we don't have the luxury of time to get this right. That is why 
I believe today's recommendation misses the mark--it puts too many 
issues off to another day. It's risky business.
    The Joint Board has two major referrals before it, one dating to 
2002 and the other to 2004. These are complicated referrals, to be 
sure, but it is nevertheless entirely possible to come forward with 
recommendations on the outstanding issues with which we are all 
familiar. Instead the Joint Board proposes an interim, emergency cap 
that solves no enduring problem and that will be interpreted by many as 
movement enough to justify putting the larger Universal Service reform 
imperative on the back-burner. I fear today's action diminishes rather 
than enhances the prospects for near or even mid-term reform.
    In the best-case scenario under the proposed cap, even if the Joint 
Board acts within 6 months on fundamental reforms and the FCC then 
proceeds to adopt some version of those reforms in a year, it will be 
18 months--autumn of 2008--before we even have a strategic long-term 
plan from the FCC for Universal Service reform. If the past is 
prologue, coming to FCC consensus may take far longer than that, not to 
mention any legislative changes that may be suggested.
    Frankly, I worry that an emergency, interim cap inflames discord 
and disagreement among industry sectors at a time when we should be 
bringing everyone to the table to develop as much consensus as we can. 
I don't see the need to poison the well when we could all be drinking 
from the same cup. Others have expressed concerns that this emergency 
action could lead to extended litigation and to putting into play 
concerns about the lack of technology neutrality that some see in this 
proposal.
    It is not just the pressure on the Universal Service Fund that 
compels action. It is even more the pressure from our country's grossly 
inadequate under-performance in getting advanced telecommunications out 
to all our citizens. Just last week, the OECD moved the United States 
down three more spots in its broadband rankings--now your country and 
mine is Number 15. Some are attempting to impugn the rankings or to say 
that, even if true, it is good news that other countries are moving 
forward so quickly! These comments and claims are lame attempts to mask 
a national embarrassment. Universal service has a huge role to play in 
correcting our course and moving us back toward the top where the 
United States always belongs.
    This is why it is so incumbent upon us to get comprehensive Joint 
Board recommendations to the Commission expeditiously and then for the 
Commission to act. We need to act not just because informed action will 
move us up the rankings, but because of what our country's poor 
performance means in terms of a continuing, perhaps even worsening, 
rural-urban digital gap and in terms of economic opportunities foregone 
for individuals, communities and businesses all across America.
    The Joint Board is filled with uncommon knowledge, expertise and 
good judgment. It has most of the information, data, and analysis that 
it needs, right now, to move ahead to propose needed repairs and 
modernization for Universal Service. I will be in the minority with my 
vote today. Still, I look forward to working with my colleagues and 
friends on the Joint Board and the Commission to move the ball forward 
on the new field we have designed. To them and to all the millions of 
stakeholders in this work, I pledge my full participation and 
cooperation to move ahead as speedily as possible to expedite and 
complete the Joint Board's work.
Endnotes
    \1\ See Federal-State Joint Board on Universal Service, CC Docket 
No. 96-45, Order, 17 FCC Rcd 22642 (2002).
    \2\ Id.
    \3\ See Federal-State Joint Board on Universal Service, CC Docket 
No. 96-45, Recommended Decision, 19 FCC Rcd 4257 (2004).
    \4\ Id. At 4294, para. 88.
    \5\ See Federal-State Joint Board on Universal Service, CC Docket 
No. 96-45, Order, 19 FCC Rcd 11538, para. 1 (2004) (Rural Referral 
Order); Federal-State Joint Board on Universal Service, CC Docket No. 
96-45, Fourteenth Report and Order and Twenty-Second Order on 
Reconsideration, Multi-Association Group (MAG) Plan for Regulation of 
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers 
and Interexchange Carriers, CC Docket No. 00-256, Report and Order, 16 
FCC Rcd 11244, 11268-70 (2001) (Rural Task Force Order); see also 
Federal-State Joint Board on Universal Service; High-Cost Universal 
Service Support, CC Docket No. 96-45, WC Docket No. 05-337, Order, 21 
FCC Rcd 5514 (2006) (extending Rural Task Force plan).
    \6\ See Federal-State Joint Board on Universal Service Seeks 
Comment on Certain of the Commission's Rules Relating to High-Cost 
Universal Service Support, CC Docket No. 96-45, Public Notice, 19 FCC 
Rcd 16083 (2004).
    \7\ See id. At 16094, paras. 36-37.
    \8\ See Federal State Joint Board on Universal Service Seeks 
Comment on Proposals to Modify the Commission's Rules Relating to High-
Cost Universal Service Support, CC Docket No. 96-45, Public Notice, 20 
FCC Rcd 14267 (2005); Federal-State Joint Board on Universal Service 
Seeks Comment on the Merits of Using Auctions to Determine High-Cost 
Universal Service Support, WC Docket No. 05-337, Public Notice, 21 FCC 
Rcd 9292 (2006).
    \9\ Federal-State Joint Board on Universal Service, WC Docket No. 
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1 (Fed.-
State Jt. Bd., rel. May 1, 2007) (Recommended Decision) (attached as 
Appendix A).
    \10\ Specifically, the Joint Board sought comment on proposals, 
including the use of reverse auctions to determine high-cost Universal 
Service support; the use of geographic information systems technology 
and network cost modeling to better calculate and target support at 
more granular levels; disaggregation of support below the study area or 
wire center level; the methodology for calculating support for CETCs; 
and whether Universal Service funding should be used to promote 
broadband deployment directly. Federal-State Joint Board on Universal 
Service Seeks Comment on Long Term, Comprehensive High-Cost Universal 
Service Reform, WC Docket No. 05-337, CC Docket No. 96-45, Public 
Notice, FCC 07J-2 (Fed.-State Jt. Bd., rel. May 1, 2007).
    \11\ The interim cap will apply to all of the existing high-cost 
support mechanisms: high-cost loop support (including safety net 
support and safety valve support), local switching support, high-cost 
model support, interstate common line support, and interstate access 
support.
    \12\ Federal-State Joint Board on Universal Service Seeks Comment 
on Long Term, Comprehensive High-Cost Universal Service Reform, WC 
Docket 05-337, CC Docket No. 96-45, Public Notice, FCC 07J-2 (rel. May 
1, 2007) (May 2007 Public Notice).
    \13\ See Federal-State Joint Board on Universal Service, CC Docket 
No. 96-45, Order, 17 FCC Rcd 22642 (2002).
    \14\ Id.
    \15\ See Federal-State Joint Board on Universal Service, CC Docket 
No. 96-45, Recommended Decision, 19 FCC Rcd 4257 (2004).
    \16\ Id. At 4294, para. 88.
    \17\ See Federal-State Joint Board on Universal Service, CC Docket 
No. 96-45, Order, 19 FCC Rcd 11538, para. 1 (2004) (Rural Referral 
Order); Federal-State Joint Board on Universal Service, CC Docket No. 
96-45, Fourteenth Report and Order and Twenty-Second Order on 
Reconsideration, Multi-Association Group (MAG) Plan for Regulation of 
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers 
and Interexchange Carriers, CC Docket No. 00-256, Report and Order, 16 
FCC Rcd 11244, 11268-70 (2001) (Rural Task Force Order); see also 
Federal-State Joint Board on Universal Service; High-Cost Universal 
Service Support, CC Docket No. 96-45, WC Docket No. 05-337, Order, 21 
FCC Rcd 5514 (2006) (extending Rural Task Force plan).
    \18\ See Federal-State Joint Board on Universal Service Seeks 
Comment on Certain of the Commission's Rules Relating to High-Cost 
Universal Service Support, CC Docket No. 96-45, Public Notice, 19 FCC 
Rcd 16083 (2004).
    \19\ See id. At 16094, paras. 36-37.
    \20\ See Federal State Joint Board on Universal Service Seeks 
Comment on Proposals to Modify the Commission's Rules Relating to High-
Cost Universal Service Support, CC Docket No. 96-45, Public Notice, 20 
FCC Rcd 14267 (2005); Federal-State Joint Board on Universal Service 
Seeks Comment on the Merits of Using Auctions to Determine High-Cost 
Universal Service Support, WC Docket No. 05-337, Public Notice, 21 FCC 
Rcd 9292 (2006). In February 2007, the Joint Board held an en banc 
hearing to discuss high-cost Universal Service support in rural areas, 
including the use of reverse auctions and geographic information 
systems (GIS) to determine support for eligible telecommunications 
carriers. See Federal-State Joint Board on Universal Service to Hold En 
Banc Hearing on High-Cost Universal Service Support in Areas Served by 
Rural Carriers, WC Docket No. 05-337, Public Notice, 22 FCC Rcd 2545 
(2007).
    \21\ The most recent contribution factor is 11.7 percent, which is 
the highest level since its inception. See Proposed Second Quarter 2007 
Universal Service Contribution Factor, CC Docket No. 96-45, Public 
Notice, 20 FCC Rcd 5074 (2007).
    \22\ See Universal Service Monitoring Report, CC Docket No. 98-202, 
Prepared by the Federal and State Staff for the Federal-State Joint 
Board on Universal Service in CC Docket No. 96-45, Table 3.2 (2006) 
(Universal Service Monitoring Report).
    \23\ Id.
    \24\ In 2001, much of the growth in high-cost support was 
attributable to removing implicit subsidies from access charges and the 
inclusion of these amounts in explicit Universal Service mechanisms 
adopted in the CALLS Order and the MAG Plan Order. See Access Charge 
Reform, Price Cap Performance Review for Local Exchange Carriers, CC 
Docket Nos. 96-262 and 94-1, Sixth Report and Order, Low-Volume Long-
Distance Users, CC Docket No. 99-249, Report and Order, Federal-State 
Joint Board on Universal Service, CC Docket No. 96-45, Eleventh Report 
and Order, 15 FCC Rcd 12962 (2000) (CALLS Order); Multi-Association 
Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap 
Incumbent Local Exchange Carriers and Interexchange Carriers in CC 
Docket No. 00-256, Federal-State Joint Board on Universal Service in CC 
Docket No. 96-45, Access Charge Reform for Incumbent Local Exchange 
Carriers Subject to Rate-of-Return Regulation in CC Docket No. 98-77, 
Prescribing the Authorized Rate of Return From Interstate Services of 
Local Exchange Carriers in CC Docket No. 98-166, Second Report and 
Order and Further Notice of Proposed Rulemaking, Fifteenth Report and 
Order, and Report and Order, 16 FCC Rcd 19613 (2001) (MAG Plan Order), 
recon. pending.
    \25\ This estimate does not include the effect of states granting 
any of the more than 30 competitive ETC petitions that are pending in 
various state jurisdictions.
    \26\ Recently, several parties have submitted filings highlighting 
the need for the Commission and the Joint Board to take immediate 
action to bring the growth of the high-cost fund under control. See 
e.g., Letter from Mary L. Henze, Senior Director Federal Regulatory, 
AT&T, to Marlene Dortch, Secretary, FCC (dated March 22, 2007); 
Kathleen Grillo, Vice President Federal Regulatory, Verizon, to Deborah 
Taylor Tate, Federal Chair and Ray Baum, State Chair, Federal-State 
Joint Board on Universal Service (dated Feb. 9, 2007); see also 
Appendix A (charts presented by Chairman Martin at the February 2007 En 
Banc Hearing of the Joint Board, demonstrating growth of competitive 
ETC support and its consequences).
    \27\ For example, four states and Puerto Rico receive forty percent 
of the total support distributed to competitive ETCs, and ten states 
receive almost sixty percent of competitive ETC support. As shown in 
the attached table, many states receive little or no competitive ETC 
support. See Appendix B.
    \28\ See 47 C.F.R.  36.603 and 54.801(a).
    \29\ Local switching support for incumbent LECs ranged between $360 
million and $384 million annually from 2003 through 2006. Interstate 
common line support (including its predecessor long-term support) for 
incumbent LECs, which ranged between $871 million and $953 million 
annually from 2003 through 2006, has remained stable at approximately 
$950 million annually for the last 2 years. See Universal Service 
Monitoring Report, Table 3.2.
    \30\ In the Universal Service First Report and Order, the 
Commission adopted this principle as part of its effort to support more 
than one competitor in rural areas. Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 
8776 8944-45 paras. 311-13 (1997) (Universal Service First Report and 
Order) (subsequent history omitted).
    \31\ See infra para. 12.
    \32\ Letter from John T. Nakahata, Counsel to General Communication 
Inc., to Deborah Taylor Tate, Federal Chair, Federal-State Joint Board 
on Universal Service, and Ray Baum, State Chair, Federal-State Joint 
Board on Universal Service (dated Apr. 13, 2007).
    \33\ See 47 U.S.C.  254(a)(2).
    \34\ In addition to capping competitive ETC support by state, we 
considered, but declined to recommend, capping competitive ETC support 
nationwide or by study area. A nationwide cap amount would maintain 
incentives for states to designate additional competitive ETCs to 
increase their share of competitive ETC capped support and would result 
in competitive ETC support shifting to those states that aggressively 
designate competitive ETCs during the period of the interim cap. A cap 
by study area would foreclose the possibility of support for the 
duration of the cap for those study areas that currently have no 
competitive ETCs and would be administratively burdensome. We note that 
establishing the cap by any particular geographic area would not change 
the total amount of competitive ETC support available for all 
competitive ETCs in the nation, but the scope of the geographic 
territory for the cap affects the distribution of capped support and 
the administrative complexity of computing capped support.
    \35\ 47 C.F.R.  54.307.
    \36\ See infra para. 14.
    \37\ See supra para. 4.
    \38\ For example, the annual true-up of interstate common line 
support (ICLS) occurs in the third and fourth quarters, but not in the 
first and second quarters.
    \39\ May 2007 Public Notice.
    \40\ Id.
    \41\ See id. at para. 1.

    Senator Stevens. Thank you very much.
    Senator McCaskill, did you have an opening statement?
    Senator McCaskill. No.
    Senator Stevens. Senator Klobuchar?
    Senator McCaskill. No, Mr. Chairman, thank you, though.
    Senator Stevens. Senator?
    Senator Klobuchar. Yes, I do.
    Senator Stevens. Thank you.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you, Mr. Chairman.
    I'm pleased to be here today to address the Joint Board's 
recommendation regarding high-cost universal support and to 
consider, more generally, ways to reform Universal Service.
    I don't think that anyone questions the important policy 
goals inherent in the Universal Service system. And nobody in 
1934, or even 1996, could have predicted the importance of 
wireless service in modern life.
    I've talked, in previous hearings, about the importance of 
high-speed Internet connections in rural America, the 
importance of having telephone service and cell phone service 
all over our state. I can tell you having just recently driven 
in the far corners of our state, that it's still a major issue.
    And, in light of this, I'm concerned that any cap on high-
cost Universal Service support for competitive eligible 
telecommunications carriers, even the temporary cap proposed by 
the Joint Board, may at first delay and then hamper current 
efforts to build-out wireless service in rural America. At the 
same time, I'll say that I recognize that the Universal Service 
system screams out for reform. As Commissioner Copps wrote in 
his dissent to the May 1 Joint Board recommendation, we should 
be bringing everyone to the table to develop as much consensus 
as we can.
    I look forward to the testimony today, and questioning you, 
Commissioner Tate, and to learning about the ways we can 
achieve fundamental comprehensive reform.
    Thank you.
    Senator Stevens. Thank you, Senator.
    Ms. Tate, these first questions are the Chairman's 
questions.
    The Joint Board's recommendation for a cap is designed to 
be a short-term fix for the growth in Universal Service demand. 
In order to ensure the long-term stability of Universal 
Service, what specific further reforms would you favor?
    Ms. Tate. I'm glad the Chairman noted that this was 
definitely an interim decision, and a consensus decision, on 
what action to take.
    My vision, obviously, in terms of being a Commissioner, I 
have an open mind on many of the proposals that have been 
submitted to the record. We have numerous comments, and reply 
comments, and I'm looking forward to the close of that comment 
period, to review all of those.
    My vision, as I said in my statement, was for us to move to 
a technologically and competitively neutral plan that would be 
based on the provider's cost, and hopefully that would also 
have mechanisms that would control this continued growth over 
time so that, indeed, we can sustain the Fund to be used 
precisely as you all have recognized, for what it should be.
    There are a number of proposals, obviously, that you all 
have discussed. Chairman Martin and many others in the record 
have suggested reverse auctions that, indeed, would be 
technologically and competitively neutral. The Joint Board 
suggested in our Recommended Decision, that the FCC review the 
primary line restriction, which Congress has disallowed in the 
past; and the possibility of revisiting the portability rule. 
There are also some proposals about trying to utilize more 
granular data for the purpose of also better targeting the 
funds to the need.
    Senator Stevens. The Chairman would have asked, ``In the 
long term, do you believe that Universal Service funding should 
be available to more than one carrier in a geographic area?''
    Ms. Tate. We did not reach a decision about that. And I 
think that is one of those decisions that, as a Commissioner, I 
will be faced with in trying to determine what fundamental 
reform will look like. Certainly, that's going to be an 
important part of this, and that is whether we fund multiple 
carriers in areas that are determined to be high-cost areas.
    Senator Stevens. Well, the Joint Board recommends Universal 
Service funds for competitive carriers be capped on a state-by-
state basis. The recommendation omits any mention of tribal 
lands. In the light of the special jurisdictional concerns 
involving Indian country, how should the FCC apply that cap to 
tribal lands? That's still a question of the Chairman's.
    Ms. Tate. Yes, sir, I understand. I think that, as I said 
in my statement, certainly the FCC and the Joint Board realizes 
there are many unique circumstances for tribal lands, and we 
would need to take those unique circumstances into account as 
we move forward with the implementation of a cap.
    Senator Stevens. In order to preserve sovereignty of these 
tribes, would it be best to address support for competitive 
carriers serving tribal lands on a case-by-case basis?
    Ms. Tate. Senator, I haven't had an opportunity to think 
about looking at that. I assume that as we look at tribal lands 
through the lens of the unique circumstances that they pose, I 
assume that's what that does mean.
    Senator Stevens. All right. Senator Sununu preceded me, and 
I would call on him first.
    Senator Sununu. No, that's all right. Please continue.
    Senator Stevens. All right. I just have one question. Did 
the Joint Board consider the problem of paying the second 
carrier, the competitive carrier, on the basis of the primary 
carrier's costs? As I understand it, if carrier A has been 
serving, and carrier B comes in to compete and seeks Universal 
Service, the reimbursement to carrier B is based upon the cost 
to carrier A, not carrier B. And, by definition, in almost 
every circumstance, carrier B has a substantially lower cost. 
Why the windfall?
    Ms. Tate. Yes, sir. Well, I think that that goes back to 
fundamental reform of the entire program.
    Senator Stevens. It's not in the law. The Commission did 
that.
    Ms. Tate. Once again, I think that that is precisely the 
reason that we need to move forward absolutely as quickly as 
possible toward fundamental reform.
    Senator Stevens. Well, I agree. I just cannot believe that 
we would have the situation continue, when the Commission has 
the authority to change this without the Joint Board. We do 
have the bill Senators Dorgan and Smith have introduced, and I 
have a bill on Universal Service reforms, and Senator Inouye's 
staff and mine are working on a way to put them all together.
    But it's going to take time to do that. The Commission 
could solve this now. That chart you showed us of the increased 
cost is based upon a cost basis that is based primarily upon 
fixed cost. The new carriers are involved in wireless and other 
basic costs that are substantially lower. I just don't 
understand why the Commission persists in allowing that to 
continue. Have you reviewed it at all?
    Ms. Tate. That was not what the Joint Board particularly 
focused on. The Joint Board came to a consensus that we should 
cap the CETC side on the Fund only as an interim basis so we 
could move forward as quickly as possible toward fundamental 
reform. I agree with you, Senator, that the present system is 
fraught with many inequities.
    Senator Stevens. This will be my last question. It is my 
understanding, what is happening now, under the Joint Board's 
recommendation, is you cap the newcomers, you cap the 
competitors that are coming in, and keep that cap on for at 
least 18 months, when the problem is recognizing those 
newcomers come in at a lower cost. I'm frustrated dealing with 
this issue, because we're getting a bill passed when FCC has 
the power to deal with it. You're relying on this Joint Board 
as though it's something we mandated you to follow. We have not 
mandated that you follow them. Do you agree?
    Ms. Tate. I can understand your frustration, Senator. And I 
think we're all frustrated. I think that's why the Joint Board 
came to a consensus decision that we needed to do something to 
curb the Fund.
    I do want to speak for a moment, though, about the new 
carriers that could be designated. The cap is at the State 
level, so new carriers may be designated, and they would share 
in--underneath whatever that State cap is.
    Senator Stevens. Yes, I'm afraid of that. With a state one-
fifth the size of the United States, we have the new carriers 
come in with new technology, and you're going to put a cap on 
what's happened in the past, when we still have areas that 
don't have any service at all. So, I don't understand what's 
going on. It's just like someone's putting their head in the 
ground. This is an ostrich approach, as far as I'm concerned.
    Senator Sununu?
    Senator Sununu. Thank you, Mr. Chairman.
    Commissioner Tate, you indicated that the Commission--or 
the Board wasn't able to reach consensus on more comprehensive 
measures. And that's frustrating to hear, especially in an 
environment, and on a Committee, where everyone says they're 
for reform, and they're for change, and they're for the future, 
and they're for the children. Can you be specific as to what 
the obstacles are, and what the reasons are, that have 
prevented consensus from being developed at the Joint Board?
    Ms. Tate. Well, let me start out with saying that there was 
consensus. Seven of eight of us determined that we needed to 
take this first step. So, in----
    Senator Sununu. No, no, but consensus on----
    Ms. Tate. I understand.
    Senator Sununu.--broader reform. No, but you wouldn't be 
here--you wouldn't have made the recommendation on the CETCs if 
there weren't consensus, I understand that. But----
    Ms. Tate. And----
    Senator Sununu. But you were talking about more competitive 
reform----
    Ms. Tate. Absolutely.
    Senator Sununu.--and an----
    Ms. Tate. And----
    Senator Sununu.--obstacle there.
    Ms. Tate. And I can assure you, I wish that I could have 
moved us, faster, forward to more comprehensive reform. We 
discussed many of the recommendations that are already in the 
record. I think the good news is, I've never seen this much 
attention focused on these issues. People are frustrated. The 
Fund is growing at an unsustainable rate. So, I do think we are 
beginning to get good, cost-effective, cost-based--as Senator 
Stevens said--proposals on the table, and we will move forward. 
We are meeting in July. We continue to meet extremely often to 
try to move forward on this. The reply comment period, I think, 
closed today or tomorrow. We will immediately get all of those 
comments summarized and begin to work through each one of those 
concepts.
    Senator Sununu. But, in the absence of any description of 
what the specific obstacles to consensus for broader reform, 
it's hard to believe, then, that you'll be able to meet the 
goal of putting forward a more comprehensive plan in 6 months. 
And, in your statement, you talk about being able to advance 
some more comprehensive proposals in the near future. One, why 
should we feel good about that commitment--or why should we 
feel comfortable that that goal will be met? And, two, what 
deadline should Congress set to help ensure that that action is 
forthcoming?
    Ms. Tate. Well, thank you for recognizing it's a really 
tough job trying to get people to come to consensus, especially 
on these issues. So, I thank you for recognizing that. It would 
be wonderful if you all asked the next panel some of these 
questions.
    Senator Stevens. We will.
    [Laughter.]
    Ms. Tate. Ask them to come together so that we can get to 
fundamental reform.
    Senator Sununu. But why are you confident it will happen in 
6 months? And should Congress set a deadline for action?
    Ms. Tate. The Joint Board, in a consensus decision, chose 6 
months. We wanted to keep ourselves on a very tight timeframe. 
If you all would like to choose a timeframe, I'm sure that we 
will try to accommodate that.
    Senator Sununu. In the meantime, we have an interim cap on 
CETCs. Some of them have requests pending, or decisions 
pending, at the FCC. What happens to them? And I'm sure there 
are some in many states; I'm quite sure there are some in New 
Hampshire--and they've had requests and decisions pending in 
front of the FCC, not for a couple of months, but, in some 
cases, for a few years. What happens to those pending requests? 
And are they going to be just shut off from the access that 
would have been available if this decision either hadn't been 
made so soon or if their petitions had been acted on in a more 
timely way?
    Ms. Tate. The state cap would provide that the amount of 
funding is capped at the 2006 level, which is a real amount, 
that we knew would be a firm amount. If new ETC designations 
are made--and, as you know, most of those are through Section 
214 at the State level--they will take a pro rata share of the 
state-capped amount.
    Senator Sununu. So, they're out of luck. You know, if they 
made a request 2 years ago, or 3 years ago, the FCC hasn't 
acted, you impose this cap, so it's too late, because their 
petition wasn't acted on in a timely way.
    Ms. Tate. No----
    Senator Sununu. They can take from some other CETC, because 
they're taking out of a capped pool at the State level. I 
understand the point you made with regard to the pro rata 
share. But, you know----
    Ms. Tate. That's----
    Senator Sununu.--there's obviously a very different 
economic picture and a very different economic value in that. 
So, they're out of luck.
    Ms. Tate. They will receive funding. It will just be capped 
at the State level of 2006.
    Senator Sununu. But the incumbents won't be capped.
    Ms. Tate. Yes.
    Senator Sununu. But there's no cap on any other part of the 
program.
    Ms. Tate. Oh, the incumbent providers. Actually--well, 
Senator Sununu, you know, there are caps over on the wireline 
side, on the high-loop cost and on the interstate access rate. 
And then you know that we also have a cap on both the E-Rate 
fund and the rural healthcare fund. So, I mean, there are some 
caps in place.
    Senator Sununu. Right, but there's no overall cap in the 
high-cost support, which is what benefits most of the----
    Ms. Tate. There isn't a cap----
    Senator Sununu.--most of the ILECs.
    Ms. Tate.--that--there is not a cap now on the overall 
fund.
    Senator Sununu. Understood. Thank you.
    Senator Stevens. Senator Snowe, did you have an opening 
statement?
    Senator Snowe. I did, Mr. Chairman, but I could do it 
later.
    Senator Stevens. You may do it later, yes.
    Senator Snowe. Thank you.
    Senator Stevens. Senator Pryor?

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman.
    I would like to ask about the Joint Board's recommendation 
being interim in nature. Do you think ``interim'' means 
interim? I mean, is that a short-term, long-term--how----
    [Laughter.]
    Senator Pryor. What does that mean, in your world?
    Ms. Tate. Obviously, I haven't been in D.C. as long as all 
the people behind me, but----
    [Laughter.]
    Ms. Tate. You know, we chose--again, as a consensus 
decision--to make this an interim cap. We set very strict 
guidelines to act in the most timely way that we, as the Joint 
Board, felt would be possible. In the decision, we even used 
the word ``emergency.'' So, I am hoping--I pledge to you all 
that I will work as hard as I can to facilitate the continued 
discussions between the Joint Board members so it is, indeed, 
an interim cap.
    Senator Pryor. The concern I have about the use of the term 
``interim'' is that the Commission adopted an interim freeze on 
separations factors in 1982, and an interim cap on high-cost 
loop support in 1993, and, basically, those are still in effect 
today. So, I think there have been very slight modifications to 
both of those, and there are probably other examples, too, that 
people in the audience are aware of. When you talk about 
``interim,'' and you talk about ``consensus''--now, I wasn't 
part of any of those discussions, but I would like to know your 
impressions on the consensus. It sounds to me like it was very, 
very difficult to reach a consensus, and, basically, you just 
did the best you could under the circumstances. But maybe a 
true consensus still needs to be reached. Is that fair to say?
    Ms. Tate. Absolutely, Senator. We must move toward 
fundamental reform.
    Senator Pryor. Well, what----
    Ms. Tate. And----
    Senator Pryor.--what is it that will get you to consensus, 
where we can move to fundamental reform? What are the major 
sticking points?
    Ms. Tate. Someone has already quoted my colleague 
Commissioner Copps, and he said, ``Well, everyone may have to 
sacrifice a little.'' And, again, not to be trite, but you are 
going to have a panel in front of you that represents all the 
major industries that are going to be affected by whatever--
whether it's a cap or another recommendation--that the FCC may 
accept. So, I would ask you all, as we are doing, to encourage 
the industry to come together around some consensus proposal.
    Senator Pryor. OK. There's a lot of investment right now in 
rural broadband by the wireless industry. Do you think that 
this recommendation of the Joint Board will help or hurt 
deployment of rural broadband?
    Ms. Tate. You know, obviously, like you, I live right next 
door, and I am constantly amazed and thrilled by all the 
services that the wireless industry is providing. We want to do 
all we can to encourage that. I believe that rural Americans 
should have an evolving level of services. So, I hope the 
interim nature of this will be seen as that, and that companies 
will continue to invest. And, as you know, there are many 
companies that don't seek ETC status----
    Senator Pryor. Right.
    Ms. Tate.--wireless companies, that do provide services.
    Senator Pryor. Right. There again, the ``interim'' issue 
there, to me, would make it difficult for a company to know 
what to do, in terms of how much to invest, based on what the 
future might look like. They would like some certainty.
    Ms. Tate. Senator, what do you think--I mean, I'm--I'm very 
interested in moving toward a more competitively neutral cost-
based system, so that's one of the concepts, for instance, when 
you say, ``What's standing in your way?''--you know, perhaps 
that's something that the wireless industry would want to come 
forward with----
    Senator Pryor. Uh-huh.
    Ms. Tate.--some kind of cost-based analysis, their own 
cost, cost to serve a very specific area. Alltel has a really 
creative suggestion in the record right now about providing 
broadband to underserved areas. So, you know, maybe those are 
some suggestions that you could encourage.
    Senator Pryor. OK. Well, thank you, and I'll try to do 
that.
    One last question, on the Fifth Circuit Court of Appeals. 
They stated that the Commission, ``Must see to it that both 
Universal Service and local competition are realized,'' and 
that you, ``cannot flatly ignore or contravene a goal set forth 
in the Act.'' Do you feel like this recommendation of the Joint 
Board--are you accomplishing what the Fifth Circuit has laid 
out, or do you think there's still work to be done?
    Ms. Tate. Well, once again, yes, there is much work to be 
done. We have got to move toward fundamental reform. And I 
think that this cap was just in order to move us forward one 
step to stem what we see as just unsustainable growth on that 
side.
    Senator Pryor. Thank you, Mr. Chairman.
    Senator Stevens. Thank you.
    Senator McCaskill?

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Thank you, Mr. Chairman.
    I got to tell you that I know broad-based reform is hard, 
but if there was ever an area that needs broad-based reform, 
obviously it's this. And I'm a little depressed, because you 
keep asking us to ask the next panel. And that's kind of a 
public acknowledgment that, you know, the cart is driving the 
horse here.
    The next panel is full of people who have financial 
interests. This is about money, and they have financial 
interests. And what you're basically saying to us is, ``The FCC 
is incapable of moving forward on reform unless all the people 
who are making money say it's OK.'' And that's hard for me to 
get my arms around.
    It seems to me that the FCC is supposed to be the body that 
is given the statutory authority, and it's given the ability to 
look at this broad program and see whether or not it's 
accomplishing its purpose, and see whether people are being 
enriched, and act, not waiting for the people who are making 
money to all join hands and sing ``Kumbaya.''
    And so, I'm interested in why we have gotten to the point 
that, before the FCC can do its job, you've got to get all the 
people making money to agree with you.
    Ms. Tate. I certainly understand your frustration, and we 
are acting. I'm here today because we took a step, and there 
are a lot of people who obviously are not pleased with the 
consensus recommendation that the Joint Board came forward 
with. But we are moving ahead. We've set a tight timetable, the 
Joint Board has asked the FCC to work on a very tight 
timetable. I think the Chairman will be placing something 
before the full Commission in very short order for us to look 
at. So, we are moving forward.
    Senator McCaskill. It's my understanding that the cap will 
not cap the amount of money that taxpayers are paying into this 
Fund. Correct? In other words, the amount that consumers 
continue to pay is going to remain.
    Ms. Tate. Well, consumers will continue to pay in, but the 
rate will be capped at what the 2006 rate was.
    Senator McCaskill. Well, my question is simple. Will the 
Fund continue to grow, overall?
    Ms. Tate. Well, we have only capped the CETC portion, so I 
can't answer, right now, whether the Fund--the entire Fund will 
continue to grow or not. If we did not cap this side of the 
Fund, then this side of the Fund would continue to have grown 
at a rate that's unsustainable.
    Senator McCaskill. But there's nothing in this 
recommendation that will make sure that consumers are not 
continuing to pay for this in the future.
    Ms. Tate. Consumers are continuing to pay, today, Senator.
    Senator McCaskill. It's my understanding that this Fund 
cannot be used for broadband, but it can, kind of--wink, wink, 
nod, nod--be used for everything but DSLAM. And so, is it the 
knowledge of the FCC that a lot of these monies are being used 
for what you would call ancillary or connected costs of 
deploying broadband without actually spending it on the DSLAM?
    Ms. Tate. Well, I think that investment in infrastructure 
that supports broadband--certainly, some of this money is being 
used to encourage more investment in infrastructure, especially 
in rural areas. There----
    Senator McCaskill. All right.
    Ms. Tate.--are also--as you know, we also are encouraging 
broadband through E-Rate, through our rural telemedicine, so we 
are encouraging broadband at the FCC.
    Senator McCaskill. I want to ask you, is the FCC familiar 
with what is and isn't happening with the Rural Utilities 
Service Broadband Grants at USDA? Do you all look at that, that 
program, and what is and isn't happening with that program, as 
you all consider the Universal Service Fund and the impact that 
it is or isn't having in rural America?
    Ms. Tate. I don't have any personal knowledge about having 
met with them. I'm sure that, at some level, our bureaus 
probably do work together. I remember that when I was a 
Commissioner in the State of Tennessee, actually there was a 
joint RUS, ARC, and FCC pilot project up in Appalachia. So, I 
know that, at least in the past, our staffs have worked 
together.
    Senator McCaskill. Well, you know, it's another example of 
where, there's money being spent on the same thing from two 
different pots of money, and the person who knows how to access 
the pots of money, and who's got the inside track, they're all 
anxious for everything that is currently the way it is to not 
change. And, as has kind of been referenced in previous 
questions, the goal needs to be that we continue to keep the 
field open for future competitors, and I'm frustrated that the 
Rural Utilities Service Broadband Grants, even though we'd 
authorized with leverage, you know, billions of dollars, and 
appropriated billions of dollars, it is not being deployed in a 
way that is making the kind of progress, I think, that was 
anticipated by the legislation, to impact rural broadband.
    Let me ask you this question. Do you all feel that the 
initial reason this Fund was put in place, in terms of making 
sure that there were landlines available in rural America--do 
you feel that the need is the same now, for maintenance as it 
was for establishment?
    Ms. Tate. Well, certainly I believe that all Americans 
should have the opportunity to have an evolving level of 
services. And, in order to have those new technologies, there 
has to be a new investment in infrastructure for companies to 
keep up with the new technologies and to provide those to all 
Americans.
    Senator McCaskill. Should we open up this fund for 
broadband, then, for Internet phone?
    Ms. Tate. Well, that is certainly one of the 
recommendations that we have been asked, on numerous times. 
And, in fact, I believe some people on this Committee probably 
would like for us to do that. The Joint Board did include that 
question in our Public Notice that accompanied the Recommended 
Decision. So, we will be taking that into account as we move 
forward.
    Senator McCaskill. And is there any fear--if we're frozen, 
without consensus, by the people who are stakeholders, from a 
profit perspective in this system, is there any fear that if we 
lock in a cap, that what we're doing is locking in the status 
quo?
    Ms. Tate. I hope not. This is, indeed, a change. And what 
we hope is that--once again, this is the first step--we're in a 
process, this is not a solution--that this is the first step, 
so we can get, and move toward, fundamental reform.
    Senator McCaskill. Well, Mr. Chairman, I know that you're 
working on broadbased reform in this area, and I hope that we 
can all come together and try to, as quickly as possible, 
within the way the U.S. Senate works, get the comprehensive 
reform. And I hope we include the Rural Utilities Service 
Broadband Grants. With the farm bill coming up, I think that 
has to be contemplated, too.
    It seems to me that we've got a bunch of silos here, and 
that the people that have the mechanism to move around those 
silos and figure out how to access the money are ones that are, 
kind of, driving this train, as opposed to the sound public 
policy that ought to be ruling the roost at this juncture.
    But, I thank you, Commissioner Tate, for being here today, 
and I will try to, along with my colleagues, ask some of the 
questions you want asked. But I want to encourage you, that it 
doesn't matter what the next panel says, if the FCC is willing 
to act.
    Thank you, Mr. Chairman.
    Senator Stevens. Well, thank you, Senator.
    The Senator--you're right, because that is a pot of 
taxpayers' money. Our normal Universal Service is dealing with 
ratepayers' money. And we've had little access, through this 
Committee, to that other pot of money. And the reform bill, we 
ought to find ways to mandate that cooperation so that the 
subsidy fund is used, and used appropriately, to advance rural 
communications. And I thank you for the comments.
    Senator McCaskill. Thank you, Mr. Chairman.
    Senator Stevens. Senator Klobuchar?
    Senator Klobuchar. Thank you, Mr. Chairman.
    To follow up on some of the focus of Senator McCaskill's 
comments, Commissioner Tate, I mentioned that when I traveled 
through my State, I see, repeatedly, the need for more access 
to cell phones, broadband. And, in light of the proposed cap--I 
know, again, you've talked about listening to these other 
panelists, but I'd like to know what you propose, to reform 
Universal Service.
    Ms. Tate. Well, I think that my overall vision is trying to 
move forward to technologically and competitively neutral 
mechanisms that are based on providers' cost, not an embedded 
cost of someone else, and that we will try to incent efficient 
technologies, and that we will try to incorporate some type of 
mechanism that will control the Fund growth over time so that, 
once again, the Fund can do what it was intended to do.
    I'm in a little bit of an odd position, because not only am 
I the head of the Joint Board, I'll be voting on many of these 
recommendations and issues. And so, I have an open mind. I'm 
looking forward to even more concepts that may come forward on 
both the distribution side--like reverse auctions, for 
instance, which would be competitively neutral--as well as over 
on the contribution side--for instance, the numbers-based 
approach that the Chairman and others have suggested.
    So, I think that we can do a better job using more granular 
data. I think, now there's incredible technology, this GPS 
technology that we haven't had in the past, so that we can 
target it to places that you're describing and that are in my 
State, as well.
    Senator Klobuchar. You know, there are many places where 
multiple carriers receive the Universal Service Fund support 
for the same geographic area, and that's especially in town 
centers. And, at the same time, as you mentioned, there's rural 
areas where there's no support at all. And how can we ensure--
and, again, I want to follow up on this, the end of your 
comments there--that the USF targets these underserved areas.
    Ms. Tate. Absolutely. Well, I mean, it is the very purpose 
and essence of what Universal Service is, to target those 
areas. And so, that's precisely what we are trying to do by 
getting to fundamental reform, so that, indeed, we can ensure--
--
    Senator Klobuchar. I'm just looking for your ideas on how 
we do it, because I just haven't seen it happening in the way 
that we want to see it happening. So----
    Ms. Tate. Well, you know, I think that, once again, if we 
moved toward something, such as reverse auctions, then we are 
ensuring that there is a carrier serving an area that is based 
on cost.
    Senator Klobuchar. You know, we talked, before, about 
getting things under control. And, I know, in the past few 
years, both the Commission and the Joint Board have sought to 
limit the number of competitive eligible carriers that were 
eligible for the USF funds. And why didn't this reduce the 
dollar amount of the competitive carrier support? I think it 
grew from--correct me if I'm wrong--something like $15 million 
in 2001 to almost 1 billion in 2006.
    Ms. Tate. Yes, those numbers are right, unfortunately. 
And----
    Senator Klobuchar. And so----
    Ms. Tate.--you know, this----
    Senator Klobuchar.--what went wrong?
    Ms. Tate. Well, Section 214 of the Act provides that the 
states shall designate ETCs. And so, while the Commission has 
tried to encourage more stringent--for instance, criteria, 
eligibility criteria--that was merely voluntary--it could be 
voluntarily accepted by the States. Some States, I think, have 
slowed down on their ETC designations. Some states have, now, 
more stringent requirements. But there are also others that 
have not chosen that path.
    Senator Klobuchar. Did the Joint Board consider other 
interim measures besides a temporary cap on the amount of high-
cost support that the competitive eligible carriers could 
receive?
    Ms. Tate. Well, of course we held an en banc. We had 
numerous comments already in the record. We reviewed all of 
those. But, as I said, I wasn't able to pull the Joint Board 
together to move any farther toward consensus at this 
particular time. We all recognized we had to do something to 
stem the growth.
    Senator Klobuchar. And what do you think's going to change 
in the next few months that will get you to get the kind of 
consensus you think you need to move?
    Ms. Tate. For one thing, because there are even more 
comments and ideas and innovative projects, such as the one 
that I mentioned that Alltel had suggested. I think that there 
continue to be people coming forward, saying, ``What about 
this? What if we did this?'' And that's precisely what we hoped 
would happen. So, we are continuing to, as I said, review all 
that's in the record now. I think the record--the reply 
comments may close tomorrow. And, of course, we'll share all of 
that with you all, as well, and, you know, welcome your input.
    Senator Klobuchar. I'd just like to reiterate what you're 
hearing from the other Senators, just our frustration that we 
haven't been able to hear more from the FCC, in terms of 
reform, and get those ideas moving and going. We hear more and 
more from people throughout our states that we're in this 
amazing technological age, but some of them are still left 
standing with just plain old telephones, and they're not able 
to access this technology that other people in this country are 
sharing in.
    Ms. Tate. I understand.
    Senator Klobuchar. Thank you.
    Senator Stevens. Thank you very much.
    Maybe, Senator, we'll--the Joint Board will have given 
Congress itself an incentive to act.
    Senator Klobuchar. Very good idea, Mr. Chairman.
    Senator Stevens. Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Yes, thank you, Mr. Chairman. And I thank 
you and Chairman Inouye for your efforts in this regard. And I 
know your efforts, consistently, as previous Chair of this 
Committee, in reform legislation, with which I've joined on the 
Universal Service Fund, which is instrumental, undeniably. But, 
regrettably, we're at a point today where I think that it 
handicaps rural America with the proposal that is being put 
forward by both the Joint State Board, Commissioner Tate, as 
well the FCC. I think it has ominous implications.
    And you'll, in the second panel, hear from one of my 
constituents, who is a Chief Deputy of the Kennebec Sheriff's 
Office in Maine, and is lead spokesman for the Maine Sheriffs' 
Association. And he'll be very vocal, as he has in raising, I 
think, awareness of this issue throughout our state, about the 
implications and the consequences of the inability of rural 
America to have access to wireless service. And that's 
essentially what it's all about here today.
    There's no denying we need reform. And, we should certainly 
do our part here in Congress. But it doesn't mean that we have 
to accept a recommendation that disadvantages rural America. 
And that's certainly true in Maine. And I think of the numbers, 
it's staggering, from where we are today, in terms of wireless. 
People having, more than 600,000--my 1.3 million population of 
the State of Maine, from less than 300,000--had wireless, back 
in 2000-2001. But, as a result of this cap on the high-cost 
fund, what is going to happen is that they're going to be fewer 
towers built. In fact, we'll lose five towers from one carrier. 
Another carrier is planning to build 32 towers over the next 
few years, and six of which, last year that were built, were 
based on using funds from the high-cost fund. So, what that 
means is, the rural parts of my State, as across America, as 
indicated by the comments here today of--with my colleagues, 
are going to be denied the very technology that can make the 
difference between life and death. And that's what Sheriff 
Flannery will be talking about. And that's true. It's one thing 
to say, ``Well, I'm sorry, we can't afford this service,'' but, 
at the end of the day, the consequences are that people in 
rural America aren't going to get the benefits, of this 
service, when over half the calls to 9-1-1 come from wireless 
service. So, that's what we're talking about. These are life-
threatening situations; in addition, obviously the economic 
implications when rural areas are denied the state-of-the-art 
technology.
    And so, I think the inherent unfairness, the 
disproportionate burden that it places, on my rural State of 
Maine and rural regions around the country, I think should lead 
the FCC to think about putting this on hold. I just think that, 
frankly, just because we haven't been able to reach a 
comprehensive solution, whether it's in Congress, or whether 
it's within the FCC, that we shouldn't place that burden on 
rural America at this point in time. The world's revolving 
around wireless. And if--that being the case, we can no longer 
say, ``Well, we're just going to continue to have them exist on 
1920s technology, with wirelines,'' because we're in a 
different world today, and I don't think that rural areas 
should face that disproportionally.
    Finally, the point I want to make is, is that wireless 
carriers--and I'd like to have you speak to this question--pay 
more than a third of the contributions to the high-cost fund, 
so, therefore, they should reap the benefits, of being able to 
build-out this infrastructure in rural regions of our country, 
as in two of our major carriers in the State plan to do, but 
will have to postpone those plans--building, for example, five 
towers next year--because they depend on support from the high-
cost fund.
    So, let's start with that. We have a third of wireless 
carriers--the wireless carriers are paying a third into the 
high-cost funds. Why shouldn't they be able to continue to get 
the additional funds that they deserve, and that they have 
contributed to?
    Ms. Tate. Senator, I just have to say, the safety and 
welfare of citizens everywhere has been one of my highest 
priorities. I was a State official, and now I'm a Federal 
official. And I want you to know that. I am concerned.
    At the same time, I think that the premise of your question 
is based on the system being fair right now. There are so many 
inequities in the present system. Some of them we've already 
talked about, and that is the fact that the wireless carriers 
receive funding, not based on their own costs, which, in most 
cases, are much, much less than the ILEC cost, but they 
actually receive cost based on the embedded cost.
    The other thing is that, when we look at that cap--when we 
looked at the cap in the CETC side, that's where the growth 
was. So, we looked for, where is the problem, and how do we try 
and provide a solution to that particular problem?
    And I guess the other thing is that, on the ILEC side, 
there are caps. There's the cap on the high-cost fund, there's 
a cap on interstate access. And we have other caps throughout 
the system, whether it's E-Rate, that you know about, or the 
rural healthcare fund. So, this provided, actually, some parity 
as we made these decisions.
    They are difficult decisions, I agree with you. I'm from a 
very, very rural State. I'm concerned about these decisions, as 
well.
    Senator Snowe. But this is a very piecemeal approach. And 
so, you're asking one sector, and certain parts of America to 
bear the disproportionate burden of this decision because of 
the inability of the FCC to reach a consensus, or this Joint 
State Board, and even the U.S. Congress. But rural America 
should not be put at risk because within the FCC or the Joint 
State Board you have not been able to reach a consensus. An 
interim measure, at the minimum, is going to be 18 months. 
That's not interim, in my view, number one. Second, by imposing 
a cap, I think, frankly, it's going to be a disincentive to 
reaching a consensus within the FCC, because you've made your 
decision to control the costs until you have the ability to 
make that decision, but it's within the FCC. The Joint State 
Board, you don't have to accept their recommendations, frankly. 
The FCC has a responsibility, as well. It's not because they're 
saying, ``Well, we'll wait for the industry to reach a 
consensus.'' It's all well and good, they should try to reach a 
consensus on the question you raised about, ``What are the true 
costs?'' and so on, and we all agree with that. But that 
doesn't mean to say that you have to accept a piecemeal 
approach that unfairly affects, one sector or one part of 
America. And that's what's happening now. And I think you have 
to look at the implications of this decision, which I think are 
enormous and is going to place rural America at a tremendous 
disadvantage. So, do you agree?
    Ms. Tate. Obviously. As I've said, I'm from a very rural 
State, too. I want----
    Senator Snowe. Well----
    Ms. Tate.--rural areas to have evolving levels of services. 
The Joint Board----
    Senator Snowe. So----
    Ms. Tate. Once again, Senator, you know, the Joint Board 
has representatives on it from very rural areas, from Oregon to 
Vermont, to very rural areas. And this was, once again, seven 
reasonable people who came to the decision that the problem was 
on the CETC side, and that's the step that we decided to make 
in order to sustain the Fund at this time.
    Senator Snowe. Well, I think it's ignoring and overlooking 
the magnitude of the impact of that decision, frankly. I mean, 
just in my State, when you're talking about postponing five 
towers, this year, as a result of that cap, I mean, that's just 
the beginning of this process. And so, I think that, obviously, 
it's going to have enormous implications. And I don't think 
that the FCC is being responsible by accepting that decision, 
based on what the implications are, frankly. And it may well be 
that you're all sensitive to rural America, but you're not 
looking at the ultimate consequences. That's why I submitted a 
letter to the Commission. The Maine State Legislature has 
passed a resolution, you know, unanimously opposing, this 
recommendation, because it's going to have enormous 
implications, and it's going to set back rural America by years 
by the time you get around to making that decision. So, I don't 
think it's fair to put them in that position, because a 
comprehensive solution cannot be agreed to.
    And, finally, when you're talking about the charges, I am 
curious about the nature of the charges. From the second 
quarter of 2005 to the third quarter of 2006, the USF surcharge 
hovered between 10.2 percent and 10.5 percent; fourth quarter 
2006, the FCC dropped it to 9.1 percent, and then, in the 
second quarter of 2007, increased it to 11.7 percent. It hasn't 
been that high since early 2005. I mean, so what contributes to 
the erratic nature, of these increases?
    Ms. Tate. I believe the----
    Senator Snowe. And----
    Ms. Tate.--particular instance that you're noting was from 
one-time payments that were underpayments that came in from the 
interexchange carriers, possibly in the range of $500,000. I 
mean, I can find that and provide you the specific information.
    Once again, that was one of the reasons that the Joint 
Board came up with a recommendation regarding a State cap 
rather than caps that might be based on quarterly fluctuations 
because of some payment into the Fund.
    Senator Snowe. Well, obviously we're not going to reach an 
agreement here today, regrettably, but I just want to reiterate 
my opposition, my deepest opposition to this proposal, because 
I don't think it's fair to rural parts of America. And, as 
Sheriff Flannery will tell this Committee, what, he and others 
in the law enforcement community today go through to get a 
signal--and remember, half of the 9-1-1 calls come from 
wireless service. So people depend on it, they expect it. And 
so, the fact that we're going to be denying them these 
additional towers over the next few years, because that's what 
it means, because companies have to make their long-term 
decisions and investments, and if they don't have the 
predictability and the certainty of the support from the high-
cost fund, they're going to postpone and defer those decisions, 
at obviously, the expense of the rural parts of my State and 
across this country. I would hope that the FCC would reconsider 
this decision because of the enormity of the impact it's going 
to have.
    Thank you, Mr. Chairman.
    Senator Stevens. Thank you. No Senator has any further 
questions of Ms. Tate, I hope.
    Thank you very much. You've been----
    Ms. Tate. Thank you.
    Senator Stevens.--very patient. And I think you've 
represented the FCC very well. I'm not saying I agree with the 
FCC, but thank you for your participation.
    Ms. Tate. Thank you, Mr. Chairman.
    Senator Stevens. We'll now call panel 2. You want to recess 
for just a couple of minutes?
    Our next panel is John Rooney, President and Chief 
Executive Officer of U.S. Cellular; Mr. Roger Nishi, Chairman 
of the Organization for Promotion and Advancement of Small 
Telecommunications Companies; Mr. Jonathan Foxman, President 
and Chief Executive Officer of Chinook Wireless; Mr. Joel 
Lubin, Vice President of Regulatory Planning and Policy for 
AT&T and Mr. Everett B. Flannery, Jr., the Chief Deputy of 
Kennebec County Sheriff's Office, Augusta, Maine.
    Gentlemen, the Chairman has adopted the benign policy of 
urging witnesses to keep their statements short, and it seems 
to be working better than my policy of limiting them precisely 
to time limits. So, please proceed, with the idea that others 
are following you, and we would hope we'd have a chance to ask 
you questions.
    Our first witness would be John Rooney.
    Mr. Rooney?

 STATEMENT OF JOHN E. ROONEY, PRESIDENT AND CEO, UNITED STATES 
                      CELLULAR CORPORATION

    Mr. Rooney. Good morning, Mr. Vice Chairman and members of 
the Committee. My name is Jack Rooney, and I'm the President 
and Chief Executive Officer of United States Cellular 
Corporation. I want to thank you for the opportunity to appear 
before you today.
    U.S. Cellular provides wireless service in nearly 200 
markets across the country, including many of the states 
represented in this Committee, including California, Maine, 
Minnesota, Missouri, New Hampshire, Oregon, South Carolina, 
Texas, Washington, and West Virginia. The overwhelming majority 
of the geography we serve is rural in character. We currently 
receive Universal Service support in seven States, including 
Washington, Oregon, and Maine.
    I am here to advocate reform of the Universal Service 
program in a comprehensive and constructive manner. U.S. 
Cellular strongly opposes capping support to wireless carriers. 
Today we are using that support to provide rural consumers with 
access to essential services in ways that would not otherwise 
be possible. For example, in Maine we are using support to 
construct 21 sites in small towns, such as Grand Isle, Union, 
and Peru. In Oregon, we are using funds to build 11 new sites 
in places like Emigrant Lake, Wallowa, and Butte Falls. Every 
cell site we build provides critical public safety benefits. At 
a time when the public is increasingly concerned about having 
E-911 service, it scarcely bears mention that, without a cell 
site, E-911 is useless.
    I believe that there are five factors to consider when 
reviewing the current situation.
    First, freezing support to wireless carriers harms rural 
customers by denying them the improved service that we're ready 
to deliver. According to the FCC's own data, between 1995 and 
2005 the average cost of wireless service dropped from 43 cents 
per minute to 7 cents per minute, while usage increased from 
119 minutes to 740 minutes over that same period. This is great 
news for people living in areas where network service quality 
is high. They see tremendous savings in their phone bills, 
sometimes $50 or more per month. However, these benefits are 
not available to rural Americans who live in areas with poor 
signal quality.
    Second, since 1996, more than $22 billion of consumer 
contributions to the Fund have gone to landline carriers, while 
less than $2 billion have gone to wireless carriers. Consumers 
have a right to know why they're being asked to continue to 
provide $3 billion a year to a service that they are abandoning 
in droves.
    Third, U.S. Cellular's efforts to serve customers in the 
States of Illinois and Missouri are examples of why the cap is 
a bad idea. Under a cap, these states would not draw enough 
funds collectively to put up one cell site. In Missouri, we're 
poised to build 39 new sites in the next 2 years to accelerate 
our network construction. In Illinois, we have committed to 
building 121 new sites over the next 5 years. If a cap is 
imposed, these investments will not happen anytime soon. Rural 
citizens are demanding wireless service, and if the Committee 
has any doubt about this, I'm told that there are over 2,700 
comments on file at the FCC from consumers opposing the cap, 
and that the only comments favoring a cap come from our friends 
in the wireline industry who fear the emergence of high-quality 
wireless services in their territories.
    Fourth, wireline carriers in rural areas have lost 10 
percent of their access lines over the last 3 years. However, 
they continue to draw $3 billion annually. When we lose 
customers, we lost support. And that's the way it ought to be.
    Fifth, the idea of a wireless-only cap is wildly unfair. I 
understand that all the FCC's Universal Service rules must be 
competitively neutral in their effect, and there is no way that 
this discriminatory proposal passes muster.
    I would like to rebut a common misconception, that the 
wireless industry is not accountable. In most States, we file 
detailed reports demonstrating our accountability for what we 
do with these funds, and I assure you that this company uses 
Federal funds very responsibly.
    The Joint Board's rationale for a cap is that the Fund will 
become unsustainable, but they don't explain what that means. 
If the Senators believe the Board's assessments, then why not 
ask the wireline industry to share the burden?
    Mr. Chairman and members of the Committee, I greatly 
appreciate the opportunity to discuss this issue with you 
today, and appreciate your interest.
    [The prepared statement of Mr. Rooney follows:]

       Prepared Statement of John E. Rooney, President and CEO, 
                   United States Cellular Corporation
    Good morning, Mr. Chairman, Mr. Vice Chairman, members of the 
Committee, my name is Jack Rooney and I am President and Chief 
Executive Officer of United States Cellular Corporation--known to our 
customers as U.S. Cellular. Thank you for the opportunity to appear 
before you today to share with you the many benefits our company has 
been able to bring to rural America as a result of the Universal 
Service Fund, and the very harmful effects that will result if the 
current proposal regarding a cap on this Fund is adopted.
    U.S. Cellular provides wireless service in nearly 200 markets 
located in regional clusters across the country, including many of the 
states represented on this Committee such as California, Maine, 
Minnesota, Missouri, New Hampshire, Oregon, South Carolina, Texas, 
Washington and West Virginia. The overwhelming majority of the 
geography we serve is rural in character.
    You should also know that our opinions and perspectives on the 
Universal Service Fund are based on our experience in receiving 
Universal Service support in seven states that include Washington, 
Oregon, and Maine.
    I am here to bring you good news about what wireless carriers like 
U.S. Cellular are accomplishing in rural America with Universal Service 
funding. In addition, I am here to advocate reform of the Universal 
Service program in a comprehensive, constructive manner that promotes 
both the Universal Service and competition mandates of the 
Telecommunications Act of 1996; and, at the same time, holds the entire 
industry accountable for the funds it receives. Specifically, U.S. 
Cellular strongly opposes capping funding only to wireless carriers 
while continuing to fund wireline carriers without reforming the rules.
    Today, we at U.S. Cellular are using Universal Service support to 
provide consumers and communities with access to essential services 
they deserve in ways that would not otherwise be possible. For example, 
in Maine, we are constructing 21 cell sites in small towns such as 
Grand Isle, Union and Peru. USF funds are allowing us to provide 
consumers and communities with access to essential services they 
deserve and pay for--for the first time. In Oregon, we are using the 
funds to build 11 new sites in places such as Emigrant Lake, Wallowa 
and Butte Falls, among others. In every state where we receive 
assistance, we are deploying networks in sparsely populated communities 
where there is no logical business case that can justify the cost.
    Let's also remember that every cell site we build provides critical 
public safety benefits. In every place where we build a new cellular 
site, consumers receive as much as 144 square miles of improved 
coverage, including all the emergency service benefits of wireless, 
such as the ability to make a 911 call, and to access the locating 
features of E-911. At a time when the public is increasingly concerned 
about having E-911 functionality, it scarcely bears mention that 
without a cell site, E-911 is useless.
    I should also highlight the outstanding performance of wireless 
systems during the recent flooding in Missouri, wind storms in 
Washington and Oregon, and many other natural disasters. In each 
instance, our networks either continued to operate without interruption 
throughout the crisis, or were restored quickly with back-up battery 
power or generators so that service disruptions were confined to 
minutes or hours, not days or weeks. In fact, it's worth noting that 
this reliability and ubiquity makes wireless the preferred service for 
displaced people and first responders. Again and again, our wireless 
networks have proven to be much more robust and reliable than wireline 
networks.
    The key issue before us today, however, is what the Joint Board has 
overlooked in its rush to throw a cap on just the wireless portion of 
the fund. I would suggest we look backward, and reflect thoughtfully on 
Congress' intent in enacting the Telecommunications Act of 1996 and the 
successes of Universal Service funding to date, before we talk about 
what should be done going forward.
    Continued growth in Universal Service Fund payments has raised the 
question of whether the program is sustainable given the current 
methodology it uses to collect and distribute funds. What must be 
remembered is that Congress, in its enactment of the 1996 Telecom Act, 
intended for rural consumers to have the same access to advanced 
services and competitive prices as their urban counterparts. This 
access should come from providers in a competitive market, governed by 
technology-neutral rules. In short, the growth of the Fund is not some 
unintended aberration; it is the direct result of a conscious and 
enlightened public policy.
    I believe that there are five factors to consider when reviewing 
the current situation:
1. The Vast Majority of Americans Prefer Wireless Service, and Rural 
        Consumers Want Their Cell Phones To Work Just as Much as Those 
        Living in Urban America
    Freezing support to wireless carriers diminishes our ability to 
invest in rural America and harms rural consumers by denying them the 
improved service that we're ready to deliver.
    Let me explain. According to the FCC's own data, between 1995 and 
2005, the average cost for wireless service dropped from 43 cents per 
minute to 7 cents per minute, while monthly usage has increased from 
119 minutes to 740 minutes over the same period.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 1.
---------------------------------------------------------------------------
    This is great news for people living in areas where network service 
quality is high. They see tremendous savings in their telephone bills, 
sometimes $50 or more per month over wireline calling plans. However, 
these benefits are not available to rural Americans who live in areas 
with poor signal quality. The use of support to drive these consumer 
savings is exactly what Congress intended and the proposal to cap 
support only insulates wireline carriers from competition.
2. Wireline Networks That Were Built and Paid for Decades Ago Have 
        Received 90 Percent of Consumer USF Contributions Since 1996
    Since 1996, more than $22 billion of consumer contributions to the 
Fund has gone to rural landline carriers, while less than $2 billion 
has gone to rural wireless carriers. Consumers have a right to know 
where that $22 billion went and why they are being asked to continue to 
provide $3 billion per year to a service that they are abandoning in 
droves. Support should go to the service that consumers choose--not the 
service that regulators force them to choose.
3. A Freeze Will Disproportionately Harm Consumers in Some States
    U.S. Cellular's efforts to serve customers in the States of 
Missouri and Illinois are examples of why this is a bad idea. A freeze 
on funds to these states means that rural consumers have to pay in, but 
get nothing--or next to nothing--in return. I understand that Illinois 
citizens contribute roughly $265 million per year, while Missouri's 
citizens contribute roughly $126 million.\2\ Yet, Illinois draws out 
less than $2,000 per year for wireless, and Missouri draws out roughly 
$125,000 per year for wireless. Collectively, these states would not 
draw enough funds to put up one new cell site.
---------------------------------------------------------------------------
    \2\ Source: FCC Joint Board Monitoring Report.
---------------------------------------------------------------------------
    Assuming a cap is not instituted in Missouri, we are now poised to 
use support to build 39 new cell sites in the next 2 years to 
accelerate our network construction in underserved rural areas where 
our network requires significant additional investment. In Illinois, we 
have committed to building 121 new sites over 5 years if we are 
designated later this year as expected. This investment will improve 
service to over 2 million rural consumers. And that's just the 
beginning, as we'll continue to invest all available support each 
subsequent year.
    For consumers, this is no small matter. There are substantial 
underserved rural areas in both of these states where people are 
demanding wireless service, and without support they aren't going to 
see that investment. If the Committee has any doubt about this, I am 
told that there are roughly 2,500 comments on file at the FCC from 
consumers opposing the cap, and that the only comments favoring a cap 
come from our friends in the wireline industry who fear the emergence 
of high-quality wireless service in their territories.
4. Support Must Go to the Carrier That the Customer Chooses
    Why should wireline carriers get subsidized even when they lose 
customers? Wireline carriers in rural areas have lost 10 percent of 
their access lines over the past 3 years; however, they continue to 
draw $3 billion annually. When we lose customers, we lose support, and 
that's the way it should be. As consumers increasingly choose wireless 
for their voice needs, we should be receiving an increasing share of 
the Fund so we can provide rural consumers with the high-quality 
service they deserve. If any one sector deserves heightened scrutiny, I 
would argue it's the landline providers that continue to benefit from 
the program while being insulated from financial and market realities.
5. The Cap as Proposed by the Joint Board Is Not Competitively Neutral
    Finally, the idea of a wireless-only cap is wildly unfair in that 
wireless contributes the biggest share to the Universal Service Fund, 
yet we draw out the smallest amount. All of the FCC's Universal Service 
rules must be competitively neutral in their effect, and there is no 
way that this discriminatory proposal passes muster. Nor does the 
unofficial freeze by the FCC on new ETC petitions.
    To be completely frank, while disappointing, the Joint Board's 
decision wasn't all that surprising to us. The FCC has been treating 
our petitions for ETC status as if the cap has already been in place 
for some time. The FCC has not acted on any of our petitions for ETC 
status, despite our obvious qualifications to be designated. Some have 
been sitting there for 3 years. So we cannot deliver the benefits 
described above to rural consumers in New Hampshire, North Carolina, 
Virginia, Tennessee, and New York.
    I would also like to rebut a common misconception I hear repeatedly 
about the wireless industry: that we are not accountable. In most 
states, U.S. Cellular files detailed reports demonstrating our 
accountability for what we do with these public funds. I can assure you 
that this company is using Federal support in the manner that Congress 
originally intended: to provide rural consumers with high-quality 
service that is comparable to what is available in urban areas. Make no 
mistake, we are delivering on our promise and will continue to do so in 
the coming years with support from the USF. Wireline carriers do not 
have the same level of accountability, and we believe the Universal 
Service system is significantly over-subsidizing their networks because 
the system provides support on a ``the more you spend, the more you 
get'' basis.
    The Joint Board's rationale for a cap is that the Fund will become 
unsustainable. It doesn't, however, explain what that means.
    Nor do the Board's numbers add up. We calculate that even if you 
accept the Board's unsupported projection that the Fund could increase 
by another $1 billion in the next year, this would add only 31 cents to 
the monthly Federal Universal Service charge to consumers. Can someone 
please tell me, how does this represent a crisis--especially when 
wireline carriers continue to lose lines but are allowed to draw $3 
billion per year?
    If the Senators believe that such an increase is too much for 
consumers to bear, then why not ask the wireline industry to share the 
burden? After all, wireline carriers draw three times what we do.
    A much more responsible and competitively neutral fix is for the 
system to only provide support to the carrier that serves the customer. 
The FCC is fully capable of figuring out how much USF support is needed 
in a given area to provide consumers with the ability to choose the 
service that best suits their needs. I am told that's what Congress 
promised. Until that happens, Fund growth is not going to be controlled 
and consumers are not going to see the benefits described above.
    Mr. Chairman and members of the Committee, I greatly appreciate the 
opportunity to discuss this issue with you today and appreciate your 
interest. I believe that the Joint Board's ultimate recommendation, and 
the FCC's subsequent decision, will have a profound impact on rural 
Americans in your states, and on the host of competitive service-
providers that are excited about offering the best telecommunications 
services possible. On behalf of U.S. Cellular, we hope that you can 
help ensure that those services are deployed as quickly and efficiently 
as possible without resorting to draconian and ill-conceived solutions.
                               Exhibit 1
                Per-Minute Cost ($) of Wireless Service
                     (Including USF Contributions)
                            (1998-2005) \3\

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Senator Stevens. Thank you, Mr. Rooney.
---------------------------------------------------------------------------
    \3\ Sources: FCC, Trends in Telephone Service, Table 19.17 (Feb. 
2007); Implementation of Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993--Annual Report and Analysis of Competitive 
Market Conditions With Respect to Commercial Mobile Services, WT Docket 
No. 06-17, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10
---------------------------------------------------------------------------
    Our next witness is Mr. Roger Nishi.
    Mr. Nishi?

        STATEMENT OF ROGER NISHI, CHAIRMAN, ORGANIZATION

           FOR THE PROMOTION AND ADVANCEMENT OF SMALL

          TELECOMMUNICATIONS COMPANIES (OPASTCO); VICE

        PRESIDENT OF INDUSTRY RELATIONS, WAITSFIELD AND

        CHAMPLAIN VALLEY TELECOM; ON BEHALF OF NATIONAL

          TELECOMMUNICATIONS COOPERATIVE ASSOCIATION;

            WESTERN TELECOMMUNICATIONS ALLIANCE AND

                 THE INDEPENDENT TELEPHONE AND

                  TELECOMMUNICATIONS ALLIANCE

    Mr. Nishi. Good morning, Mr. Chairman and distinguished 
members of the Committee. I'm Roger Nishi, from Waitsfield and 
Champlain Valley Telecom, in Vermont, and I'm the current 
Chairman of OPASTCO, the Organization for the Promotion and 
Advancement of Small Telecommunications Companies. Our company 
is also a member of NTCA, the National Telecommunications 
Cooperative Association. Today, I will speak on their behalf, 
as well as WTA, the Western Telecommunications Alliance, and 
ITTA, the Independent Telephone and Telecommunications 
Alliance.
    Thank you for inviting me here today to testify on behalf 
of these fine organizations who are the founding members of the 
Coalition to Keep America Connected.
    Let me start by emphasizing that all four organizations 
applaud what the Joint Board has done, and in recognizing that 
the program is in serious jeopardy of becoming unsustainable if 
immediate action is not taken.
    The four organizations strongly support the recommendation 
to immediately impose an interim cap in the high-cost support 
received by competitive eligible telecommunications carriers. 
We urge Congress to also support the recommendation.
    We believe the recommendation is the most logical and 
equitable way in which to rein in the rapid growth of the high-
cost Universal Service program while the FCC and Congress 
contemplate long-term reforms to sustain the viability of the 
whole Universal Service program, which includes schools and 
libraries, rural healthcare, and the low-income programs. So, 
the whole universe, we believe, needs to be looked at, in terms 
of making sure it's sustainable.
    We believe that any entity or person who proclaims support 
for strong and viable Universal Service in the future should, 
and must, support the Joint Board's recommended interim plan.
    The adoption by the FCC of an interim cap on high-cost 
support provided to CETCs is equitable. Since 1993, caps have 
limited the amount of support available to rural incumbent 
local exchange carriers from the high-cost loop support 
mechanism. Since July 2001, when caps were re-based by the FCC, 
rural ILECs have foregone $2.5 billion in Federal high-cost 
support. Waitsfield and Champlain Valley Telecom has lost a 
significant amount of high-cost loop support.
    I will share that this uncertainty in funding levels has 
made it more difficult to budget and also to plan for the long 
term. But our company, like hundreds of rural companies 
throughout the United States, has always had a community-first 
approach to doing business, and this means building to all, and 
serving all of our customers, rather than looking to only serve 
the lucrative and easy-to-serve customers.
    In their recommendation, the Joint Board states that the 
identical support rule is dated, and may not be the appropriate 
approach to calculating support for CETCs. The four 
associations couldn't agree more with this. The identical 
support rule bases the support received by CETCs on the 
unrelated costs of the rural ILECs providing ubiquitous service 
throughout their territories. For years, CETCs--primarily 
wireless carriers--have reaped windfalls of support through the 
illogical identical support rule. Moreover, the rules have 
allowed CETCs, upon designation, to immediately begin receiving 
the rural ILEC's cost-based per-line support amount for all of 
their existing customers in the designated territory whom they 
were more than likely serving successfully without any such 
support. We advocate the elimination of the identical support 
rule, and believe that CETCs should be required to demonstrate 
their own costs in order to potentially qualify for support.
    At the same time, we need to keep in mind that this 
recommendation is only interim. This is only an interim cap. 
Dollars will continue to flow to the CETCs. And, most 
importantly, an interim cap on CETCs will not harm the 
availability of the Universal Service throughout the country, 
since virtually all Americans have access to service from at 
least one eligible telecommunications carrier, and, in most 
cases, more than one.
    The organizations feel that it's important for the FCC to 
adopt the recommendations without modification. The Joint Board 
has done an excellent job, and thought this out in a very 
reasonable manner.
    And, in the long term, Congress and the FCC should expand 
the base of contributors to Universal Service, and, as 
previously stated, the identical support rule should be 
eliminated, and CETCs' support should be based on their own 
costs.
    To conclude, short-term action is required for long-term 
stability. And, therefore, Congress should advocate for the 
FCC's immediate adoption of the Joint Board's recommendation to 
impose an interim cap on high-cost support provided to CETCs 
without modification.
    The recommended cap would effectively and fairly stem the 
rapid growth in support to CETCs caused in large part by the 
identical support rule while Congress, the FCC, and all the 
parties in this room work together to come up with 
comprehensive reforms that will address the issues for the long 
term.
    The Joint Board's recommendation is an interim step to 
protect the Universal Service Fund from exploding even further, 
and will benefit all eligible telecommunications providers, 
both wireline and wireless, in the long term.
    Once again, the organizations believe that anyone who 
claims to be a supporter of Universal Service and the Fund and 
its goal should be a strong advocate for this recommendation.
    Thank you for your time today.
    [The prepared statement of Mr. Nishi follows:]

   Prepared Statement of Roger Nishi, Chairman, Organization for the 
    Promotion and Advancement of Small Telecommunications Companies 
    (OPASTCO); Vice President of Industry Relations, Waitsfield and 
  Champlain Valley Telecom; on Behalf of National Telecommunications 
   Cooperative Association; Western Telecommunications Alliance; and 
         Independent Telephone and Telecommunications Alliance
    Mr. Chairman and members of the Committee, I am Roger Nishi, Vice 
President of Industry Relations for Waitsfield and Champlain Valley 
Telecom headquartered in Waitsfield, Vermont. Also, I serve as Chairman 
of the Board of the Organization for the Promotion and Advancement of 
Small Telecommunications Companies (OPASTCO) and am a member of the 
National Telecommunications Cooperative Association (NTCA). I am also 
speaking for the Western Telecommunications Alliance (WTA) and the 
Independent Telephone and Telecommunications Alliance (ITTA). Thank you 
for inviting me to testify today on behalf of all of these 
organizations who are the founding members of the Coalition to Keep 
America Connected.
    Waitsfield and Champlain Valley Telecom is a privately owned, 
independent company now in its third generation of ownership by the 
Haskins family. We provide local and long distance telephone service, 
high-speed Internet service to the Mad River and central Champlain 
Valley regions and cable television to our customers in the Mad River 
Valley. The company is proud that it has recently achieved one hundred 
percent coverage of broadband service to our telephone customers.
    All four organizations strongly support the Federal-State Joint 
Board on Universal Service's (Joint Board) recommendation to 
immediately impose an interim cap on the high-cost support received by 
competitive eligible telecommunications carriers (CETCs) and we urge 
Congress to also support the recommendation. It is important that the 
Federal Communications Commission (FCC) adopt the recommendation 
without modification. The recommendation is the most logical and 
equitable way in which to rein in the rapid growth of the High-Cost 
Universal Service program while the FCC and Congress contemplate long-
term reforms to sustain the Universal Service Fund (USF).
    The adoption by the FCC of an interim cap on only the high-cost 
support provided to CETCs is equitable. Since 1993, caps have limited 
the amount of support available to rural incumbent local exchange 
carriers (ILECs) from the high-cost loop support (HCLS) mechanism, 
which is the largest of the support mechanisms through which these 
carriers receive funding. Since July 2001, when these caps were ``re-
based'' by the FCC, rural ILECs have forgone over $2.5 billion in 
Federal high-cost support. My company, Waitsfield and Champlain Valley 
Telecom, has lost $6.23 million in high-cost loop support in the last 6 
years. The capping mechanism on HCLS has created significant 
unpredictability for rural ILECs from year to year. This has 
constrained our ability to make further improvements to our local 
network. Yet, we have persevered because of our commitment to our 
community. Our company, like hundreds of rural companies throughout the 
United States, has always had a ``community first'' approach to doing 
business. And this means serving all of our customers rather than 
looking to serve only the lucrative and easy to serve customers as so 
many of our competitors do. We must recognize that since CETCs have 
come into existence, the high-cost loop support they receive has been 
permitted to grow unfettered as the number of CETCs has grown and as 
their line counts have grown. It is baseless to assert that an interim 
cap applied only to support received by CETCs would not be 
competitively neutral.
    In their recommendation, the Joint Board states that the identical 
support rule is dated and may not be the appropriate approach to 
calculating support for CETCs. The identical support rule bases the 
support received by CETCs on the unrelated costs of the rural ILEC 
providing ubiquitous service throughout the area. For years CETCs--
primarily wireless carriers--have reaped windfalls of support through 
the illogical identical support rule. Moreover, the rules have allowed 
CETCs, upon designation, to immediately begin receiving the rural 
ILEC's cost-based per-line support amount for all of their existing 
customers in the designated territory, whom they were successfully 
serving without any support. Imposing an interim cap on CETC support is 
a necessary measure to contain the rapid growth in unjustified 
distributions to these carriers while Congress and the FCC address 
long-term policy changes to the USF. We advocate the elimination of the 
identical support rule and believe that CETCs should be required to 
demonstrate their own costs in order to potentially qualify for 
support.
    AT&T, the largest wireless carrier in the United States, has 
submitted a plan for stabilizing the High-Cost program in the short 
term that proposes much bolder steps for addressing the growth in CETC 
support than the Joint Board's Recommended Decision. Specifically, 
AT&T's plan would immediately halt the approval of new CETCs and impose 
a freeze on the number of lines for which wireless CETCs receive high-
cost support. Also, it would reduce by 25 percent the support that 
wireless CETCs receive through the support mechanisms designed to 
replace access charges. If the Nation's largest wireless carrier is 
willing to acknowledge the source of the runaway growth in the High-
Cost program, and recommend a strong, targeted interim plan to address 
it, the FCC should be willing to adopt the more modest recommendations 
of the Joint Board. And this Committee should encourage the FCC to 
support the Joint Board recommendation.
    The Joint Board points out that as a result of the rapid and 
excessive growth in support received by CETCs, the High-Cost program is 
in serious jeopardy of becoming unsustainable if immediate action is 
not taken. Support for CETCs has grown from $15 million in 2001 to 
almost $1 billion in 2006 and based on current estimates, the support 
received by these carriers will reach at least $1.28 billion in 2007, 
almost $2 billion in 2008, and $2.5 billion in 2009 if action is not 
taken to contain it. In addition, the USF contribution factor for 
second quarter 2007 is 11.7 percent which is the highest it has ever 
been. The chart attached at the end of this testimony illustrates these 
points. The Joint Board's recommendation to impose an emergency, 
interim cap on the support received by CETCs is essential to stabilize 
the size of the High-Cost program until measures can be adopted that 
will sustain the program for the long term. Any entity or person who 
proclaims support for a strong and viable USF in the future should 
support the Joint Board's recommended interim plan.
    The recommended interim cap obviously would not stop funding from 
continuing to flow to CETCs, nor would it adversely affect wireless 
service in rural areas. Most importantly, an interim cap on CETCs 
support would not harm the availability of Universal Service throughout 
the country since virtually all Americans have access to service from 
at least one eligible telecommunications carrier (the ILEC) and, in 
most cases, more than one.
    The organizations that I am speaking for today agree with the Joint 
Board's recommendation for the duration of the interim cap to be 1 year 
from the date of any Joint Board recommended decision on comprehensive 
high-cost Universal Service reform. The Telecommunications Act of 1996 
requires the FCC to act on a Joint Board recommendation within 1 year 
after receiving it. Therefore, by 1 year from the date of a Joint Board 
recommendation on comprehensive Universal Service reform, the FCC will 
adopt an Order that provides a long term approach to addressing the 
excessive and unjustified growth in CETC funding.
    We are also in agreement with the Joint Board's recommendation to 
impose a cap on CETC support for each state. This approach would 
encourage state commissions to be very judicious in their decisions 
regarding applications for eligible telecommunications carrier 
designation, because the designation of any additional eligible 
telecommunications carriers would not draw additional Federal dollars 
into the state; it would simply require a fixed amount of funding to be 
reallocated among all of the CETCs in the state. At the same time, a 
state-based cap would still allow state commissions the flexibility to 
designate additional eligible telecommunications carriers if they 
believe that it will serve the public interest.
    In the long term, Congress and the FCC should expand the base of 
contributors to the USF. And, as previously stated, the identical 
support rule should be eliminated and CETC support should be based on 
their own costs.
    As I stated previously, Congress should urge the FCC to quickly 
adopt the Joint Board's recommendation. The recommended cap will not 
harm rural consumers and will not take support away from rural America. 
As I have pointed out, ILECs are not responsible for escalating the 
size of the program. Consumers are paying more so that a narrow class 
of carriers can receive support that is not based on their costs. The 
Joint Board's recommendation is a vital step toward fixing this 
problem.
    In conclusion, Congress should advocate for the FCC's immediate 
adoption of the Joint Board's recommendation to impose an interim cap 
on high-cost support provided to CETCs, without modification. The 
recommended cap would effectively and fairly stem the rapid growth in 
support to CETCs--caused in large part by the identical support rule--
while Congress and the FCC consider comprehensive reforms to the High-
Cost program that will address the issue for the long term. The Joint 
Board's recommendation is an interim step to protect the USF from 
exploding even further and would benefit all eligible 
telecommunications carriers, including wireline, wireless and broadband 
services. Once again, anyone who claims to be a supporter of the 
Universal Service Fund and its goals should be a strong advocate for 
this recommendation. Thank you.

----------------------------------------------------------------------------------------------------------------
                                                                                          Dollar     % of Total
    Rural  High-Cost  Support      3rd Quarter   3rd Quarter   3rd Quarter   % Change   Change  3Q    Two-Year
             Program                  2005          2006          2007       3Q 2005-    2005-  3Q     Support
                                     Support       Support       Support      3Q 2007      2007       Increase
----------------------------------------------------------------------------------------------------------------
                                                                   ($ Millions)
----------------------------------------------------------------------------------------------------------------
Rural ILEC                             $630.9        $623.8        $634.0       0.49%        $3.1          3.4%
CETC                                   $136.2        $165.8        $225.1       65.3%       $88.9         96.6%
----------------------------------------------------------------------------------------------------------------
Total                                  $767.1        $789.6        $859.1       12.0%       $92.0        100.0%
----------------------------------------------------------------------------------------------------------------
Source: Universal Service Administrative Company


    Senator Stevens. Thank you, Mr. Nishi.
    Our next witness is Mr. Jonathan Foxman.
    Mr. Foxman?

  STATEMENT OF JONATHAN D. FOXMAN, PRESIDENT AND CEO, CHINOOK 
                            WIRELESS

    Mr. Foxman. Mr. Vice Chairman and members of the Committee, 
thank you for the opportunity to be here and testify before 
you. I appreciate your focus on this matter.
    Chinook Wireless is a small to mid-sized company providing 
wireless services to customers throughout Montana and northern 
Wyoming. We also recently acquired licenses to provide these 
services throughout the rest of Wyoming and the western 
Dakotas.
    We own and operate our own network of cell sites and 
switching core, call center, and retail stores all in Montana 
and Wyoming, connecting us intimately with our portion of rural 
America. We believe we are answering the urgent need for better 
telecommunications services and public safety in rural America. 
To date, we have done so without any support from the Universal 
Service program or any other public program; however, with that 
support, we could do so much more to answer what is truly an 
urgent need.
    As a privately funded business, we have to build and 
operate as efficiently as possible. Our lenders and investors 
set very finite limits, and they won't fund infrastructure 
without a business case to support it. In many of the rural 
areas where wireless is most urgently needed, particularly for 
public safety, we wouldn't earn enough revenue to justify the 
necessary investment, yet those citizens deserve and demand the 
benefits of wireless service, too. The fundamental problem is 
that the high cost of deploying cell sites in these areas, 
while so important for public safety, economic development, and 
other reasons, would not generate the necessary revenue. We 
recognize the need, but we simply cannot meet it with private 
funding alone.
    Chinook has applied for State certification to receive 
Universal Service funds precisely so we can answer the unmet 
needs of rural America. For us, and for other CETCs like us, 
the Joint Board's recommended cap would limit, or even 
eliminate, our ability to meet those needs. At the same time, 
though, it would continue to fund incumbent carriers in those 
areas. This is simply not equitable. What best serves the 
public interest is fair competition. Competition brings prices 
down, and service quality up, and increases the choices 
available to consumers. We, therefore, urge Congress to insist 
that any action taken by the Commission be fair and 
competitively neutral.
    We also urge Congress to reconsider whether an interim 
measure is necessary at all. Instead, greater efforts could be 
made to rapidly and diligently fix the Universal Service 
system. The FCC has worked on this issue for 11 years, and has 
more than enough information now to make a fair determination. 
It could easily adopt reforms within 1 year without using a 
cap. It only took a year for the Commission to implement 
spectrum auctions, and the agency implemented local competition 
under the 1996 Act in a single year. This is no different, just 
another complex undertaking that the agency certainly does have 
the staff expertise and resources to accomplish.
    Finally, we would urge Congress to consider that the issues 
relevant for fixing the system, in fact, highlight that what is 
wrong with it today is not the distributions that enable 
wireless to bring the benefits called for in the 1996 Act to 
underserved regions of rural America. Most significant among 
these are duplicative funding and distributions based on a 
cost-plus methodology.
    Regarding duplicative funding, the drafters of the 1996 Act 
knew the size of the Fund would increase for disbursements to 
competitors. They were trying to encourage competition in order 
to lower prices and increase service quality for consumers. 
What they did not anticipate was that existing carriers would 
not lose funding for lines they no longer had to maintain, 
lines for customers that decide to use a competitor's services. 
Duplicate funding was actually slated for elimination by the 
FCC years ago. Acting on it today could save the Fund $300 
million per year or more.
    Regarding cost-plus, it is inherently problematic to reward 
inefficiency by providing support on the basis that the more 
you spend, the more you get. If we were serious about reforming 
USF, then this reward for inefficiency must be eliminated.
    In conclusion, I believe there's so much to be lost by 
implementing the Joint Board's recommended cap. As a tangible 
result, rural Americans would not gain the public safety, 
economic development, and other benefits of wireless service 
that they need, deserve, and demand. As an intangible result, 
the Commission would have failed to meet the competitive 
neutrality standard of the 1996 Act. We view this as a very 
important matter. We ask of our government to level the playing 
field rather than picking winners and losers in a free 
marketplace. Only fair competition will bring the best services 
at the lowest prices to the most consumers.
    Mr. Vice Chairman and Members of the Committee, I greatly 
appreciate your time and attention to this matter.
    Thank you.
    [The prepared statement of Mr. Foxman follows:]

     Prepared Statement of Jonathan D. Foxman, President and CEO, 
                            Chinook Wireless
    Chairman Inouye, Ranking Member Stevens, and Members of the 
Committee, my name is Jonathan Foxman and I am the President and CEO of 
Chinook Wireless. I thank you for this opportunity to be here to 
discuss the Universal Service system.
    Chinook Wireless opposes the cap recommended by the Joint Board, 
and in this testimony provides specific proposals for rapid and actual 
reform of the Universal Service system.
I. Chinook Wireless--Background
    Our company provides wireless services to customers throughout 
Montana and northern Wyoming, and recently acquired licenses to also 
provide these services in central and southern Wyoming and western 
North Dakota and South Dakota.
    We are a fully capable wireless communications company with our own 
network of cell sites and switching core, call center, and retail 
stores, all in Montana and Wyoming, representing a variety of high 
quality jobs in the markets we serve. Over the last 2 years, we have 
made a significant investment to upgrade and greatly expand our network 
and systems to bring state-of-the-art wireless voice and data 
communications to much of Montana. We now provide broadband wireless 
voice and data, including access to the Internet. We believe we are 
answering the urgent need for better telecommunications services and 
public safety in rural America. With Universal Service support, we 
could do so much more to answer what is truly a desperate need.
    The fundamental limitation to addressing this need is that the high 
cost of deploying cell sites in these areas, while so important for 
public safety and other reasons, cannot be paid back by merely a 
handful of customers.
II. Universal Service Funds Are Critical for Extending Wireless Service 
        to Rural Areas
    To date, unlike any wireline carrier we know, we have built our 
business in rural America without subsidies of any kind. We have built 
our business entirely with private investment and loans. We do not have 
a guaranteed rate of return, we have not received government funding, 
and we do not have an embedded subscriber base. As a result, we are 
what I would term, ``business case limited''. We have to build and 
operate as efficiently as possible. Our lenders and investors set very 
finite limits, and they will not fund infrastructure without a business 
case to support it. This constrains how much coverage we can provide in 
rural and remote areas where the need is greatest. Yet, citizens who 
live in and travel through these areas both deserve and demand wireless 
service, particularly for public safety purposes. We have had people 
beg us to build cell sites on their farms so they can have decent phone 
service. We have also had people tell us that they cannot understand 
why there is no wireless service on some of the highways they 
frequently travel. We want to serve these customers. We recognize the 
need, but we simply cannot meet it with private funding alone. 
Therefore, we have asked the Montana Public Utility Commission for 
authority to be eligible for Universal Service Fund (USF) support. This 
support would greatly expand our company's ability to build systems to 
serve areas that we otherwise could not reach. We urge Congress and 
continue to urge the FCC to recognize that there is a critical need in 
rural America for improved telecommunications services, particularly 
the public safety benefits that only wireless service can provide.
III. The Recommended Cap Would Inhibit Competition, Contravene the 
        Intent of Drafters of the 1996 Act, And Would Not Repair Actual 
        Flaws in the Universal Service System
A. Capping Funds Only to Competitive Providers Impairs the Competitive 
        Benefits For Consumers Envisioned By Drafters of the 1996 Act
    We strongly oppose the Universal Service cap recommended by the 
Joint Board. This proposal would limit funding for ``competitive 
carriers'' (CETCs), a group that includes all wireless providers in the 
Universal Service system, but not incumbent landline carriers in the 
same rural areas. Any action taken should be balanced and applied 
equitably to all carriers, the older incumbents as well as their newer 
competitors.
    Among ``the four critical goals set forth for the new Universal 
Service program'' the FCC identified in implementing the 
Telecommunications Act of 1996, was the goal ``that the benefits of 
competition be brought to as many consumers as possible.'' \1\ The cap 
proposed by the Joint Board in the Recommended Decision would directly 
conflict with this goal of bringing the benefits of competition to 
consumers. That would be irresponsible. Where competition exists, it 
has dramatically driven down service prices and increased quality of 
service.\2\ Universal service funding to competitors as well as 
incumbent carriers allows that beneficial competition to take place.
B. The 1996 Act Was Intended To Increase Funding to Competitive 
        Carriers--But it Was Also Expected To Result in Reduced Funding 
        to Carriers That Were Less Efficient and Lost Customers, 
        Whether They Proved To Be Incumbents Or Newer Carriers
    We understand the alarm over increases in the Fund, but those 
increases are caused by permitting surpluses and inefficiencies to 
remain in the program. Increased payouts to competitors were foreseen 
by the drafters of the 1996 legislation.\3\ Growth in the Fund was 
viewed as necessary in order to bring new technologies into rural 
America without materially harming rural ILECs in the short-term.\4\ 
What legislators did not anticipate \5\ was that after competitors 
entered rural markets, there would be a failure of will by policymakers 
to concomitantly reduce funding to carriers who lost customers or used 
funds inefficiently.\6\ We understand that regulatory decisions in 
these matters cannot be universally popular with all industry 
participants, regardless of the choices made--but consumers, not 
carriers, are the intended beneficiaries of Universal Service.
    For the short term at least, we think decreasing phone service 
rates \7\ will ensure customer bills do not increase overall, despite 
increases in the Fund.\8\ But we are concerned that imposition of the 
cap might permit the Commission to again avoid actual reform of the 
Universal Service system. So-called temporary measures often stretch 
into years of prolonged renewals.\9\
    Rather than risk infinite reduction of rural wireless services, we 
urge Congress to strongly suggest that the Commission rapidly and 
finally repair the Universal Service system, keeping in mind the goals 
of reducing inefficiencies and facilitating true competition, as 
mandated by the 1996 Act. It is crucial to level the playing field, 
which will improve prices, service quality and choice for consumers, 
rather than permitting cuts in funding only for newer market entrants.
    The FCC has scrutinized Universal Service reform for years, 
repeatedly requesting comments. The proposed cap would only permit 
maintenance of this cycle. Instead, it is time to fix the system. The 
Commission could adopt meaningful reforms within a year, without using 
a cap that would injure rural citizens' access to wireless service. The 
FCC implemented spectrum auctions within a year, and drafted and 
released its Local Competition Orders under the 1996 Act within a 
single year as well. This is no different--just another complex 
undertaking that the agency certainly does have the institutional 
expertise and resources to accomplish.
IV. Actual Flaws Should Be Repaired, In Order To Reduce Fund Size More 
        Equitably
A. Solve the ``Cost-Plus'' Problem
    Today, some carriers receive support on a ``the more you spend, the 
more you get'' basis, termed ``cost plus.'' There is no scrutiny of 
whether expenditures are efficient or appropriate. In addition, the 
current system guarantees a comfortable rate of return. These factors 
are incentives to inefficiency, motivating more spending on overhead 
and marketing, rather than finding the most efficient method of 
delivering service to a customer.
    If the FCC would modify or eliminate ``cost plus'' support, that 
will reduce the Fund's size and free up resources that instead can be 
invested in broadband or other technologies--because competition will 
help discourage inefficiencies that regulators cannot effectively 
excise. States including Montana do not allow CETCs to serve only low-
cost areas. Therefore, we must be efficient in building and operating 
our network. Support for all carriers should be based on the cost of 
providing an efficient network, in order that any carrier that wants to 
make additional expenditures will do so only out of its own pocket, not 
the public purse.
B. Make Support Fully Portable
    Portable support means support funds that travel with a customer: 
the carrier that retains a customer, receives the support for serving 
that customer's line. And logically, when a carrier loses a customer, 
the support should stop arriving. This approach was upheld by the Fifth 
Circuit Court of Appeals in the case of Alenco Communications, Inc. v. 
FCC:

        . . . [T]he [FCC's Universal Service] order provides that the 
        Universal Service subsidy be portable so that it moves with the 
        customer, rather than stay with the incumbent LEC . . . The 
        purpose of Universal Service is to benefit the customer, not 
        the carrier. ``Sufficient'' funding of the customer's right to 
        adequate telephone service can be achieved regardless of which 
        carrier ultimately receives the subsidy.\10\

    Yet, inexplicably, this course was reversed and now, the cost of 
USF subsidies that are still being paid to wireline carriers for 
customers those carriers have lost (lines that were built long ago and 
paid for many times over) is over $300 million per year. Wireless 
carriers, in contrast, lose support when we lose customers. The 
Commission can reduce waste in the system by requiring that a carrier 
no longer serving a customer give up its claim to funds initially 
relating to that connection.
V. Conclusion: Competition Is Encouraging a Beneficial Paradigm Shift
    In the broader perspective, a nationwide paradigm shift is taking 
place--a shift toward consumer desire for the benefits of competition: 
lower prices, higher quality service, and more options. Some markets 
are already supporting multiple, often complimentary, communications 
technologies. To the extent government chooses to aid extension of 
these technologies to the ``last mile,'' all services should be placed 
on an equal footing, and all market participants should receive equal 
support per customer, based on the costs of building an efficient 
network in a particular area. The FCC reached these conclusions between 
1996 and 2001, and they remain valid today.
    Universal Service improvements should be consistent with the core 
principles of the 1996 Act: that all Americans deserve the benefits of 
competition, and support should work with competition, rather than 
hamper the success of a free market. Support should be distributed 
efficiently, freeing up funds for investments in broadband.
    Government's role is not choosing winners in the world of business. 
Instead, a level playing field can support competition for the benefit 
of consumers. The current focus on new entrants simply distracts 
attention from true issues threatening the future of USF.
    I urge Congress to oppose this inequitable cap on funds for 
competitive carriers. Instead, Chinook Wireless supports rapid and 
diligent reform of the underlying system, in order that the goals 
Congress enacted in 1996 may finally be realized. Competition can 
coexist with a policy of supporting service to underserved areas. By 
encouraging a level playing field and efficiencies in the use of 
funding, regulators can curb Fund growth while providing consumers with 
the benefits of Universal Service and competition.
Endnotes
    \1\ Federal-State Joint Board on Universal Service, Fourth Order on 
Reconsideration, 13 FCC Rcd 5318, 5321-22, para. 2 (1997) (``Fourth 
Reconsideration Order'').
    \2\ As an example of consumer benefits from competition: consider 
the wireless industry, which became highly competitive after the 
introduction of spectrum auctions in 1996. From 1995--2005, the average 
cost per minute for wireless service dropped from 43 cents/minute to 7 
cents/minute. See Implementation of Section 6002(b) of the Omnibus 
Budget Reconciliation Act of 1993--Annual Report and Analysis of 
Competitive Market Conditions With Respect to Commercial Mobile 
Services, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10. 
Factoring in the current 11.7 percent contribution factor, the cost of 
a wireless call for 1995 is calculated at 7.8 cents/minute, as compared 
to the 43 cents of 10 years earlier. In other words, even including 
customers' contributions to the Universal Service Fund, competitive 
forces have driven down the total amounts they pay for wireless 
service, even as those customers make more and longer calls, increasing 
119 to 740 average wireless minutes per month over the same 10-year 
period. Id.
    \3\ If concern over Fund size relates to carrier receipts, consider 
the fact that wireline carriers still receive an enormous share of 
Universal Service funding. In the State of Montana, in 2006, according 
to the Joint Board, incumbent wireline carriers received $69.7 million 
in funding, and competitive carriers such as wireless received $7.2 
million in funding. See Federal-State Joint Board on Universal Service, 
Universal Service Monitoring Report, Table 7.2 (2006), attached hereto 
(``Monitoring Report Attachment''). Incumbent wireline carriers still 
receive more than three times as much funding as their wireless and 
wireline competitors, and in some states, they receive 100 percent of 
Universal Service funding.
    \4\ In fact, the FCC adopted a five-year transition period during 
which rural ILECs would not lose support when CETCs entered. See 
Federal-State Joint Board on Universal Service, Fourteenth Report and 
Order, Twenty-second Order on Reconsideration, and Further Notice of 
Proposed Rulemaking, 16 FCC Rcd 11244, 11294-95 (2001).
    \5\ Joint Board Member Billy Jack Gregg, in testimony before the 
Communications Subcommittee of this Committee, described legislative 
intent and expectations in 1996 as follows:

        It should not be surprising that funding for competitive ETCs 
        has increased. After all, before the advent of competition 
        incumbents received 100 percent of high-cost funding. It was 
        expected that as competitors gained ETC status and won 
        customers in high-cost areas, their high-cost funding would 
        rise. What is surprising is that incumbent support has not 
        dropped by an amount proportionate to the increase in 
        competitive ETC funding. . . .

        Not only was the introduction of competition expected to lower 
        prices of telecommunications services, it was supposed to lower 
        the cost of Universal Service as providers competed for the 
        Universal Service subsidy.

    Testimony of Billy Jack Gregg before Communications Subcommittee, 
Senate Commerce, Science and Transportation Committee, at 6-7 (March 1, 
2007), referencing House Report No. 104-204 (I) (1995), Arnold & Porter 
Legislative History Pub. L. 104-104 (A&P) at 60; Senate Report No. 104-
23, A&P at 254 (1995).
    \6\ In 2006, the FCC extended indefinitely the transition period 
during which rural ILECs would not lose support, without enacting any 
reforms. Federal-State Joint Board on Universal Service, Order, 21 FCC 
Red 5514 (2006).
    \7\ Consumer Price Index data shows that telephone service costs 
are decreasing compared to other services, From 1995 through 2005, the 
annual rate of change in the Consumer Price Index (``CPI'') for all 
goods and services was 2.5 percent, while the annual rate of change for 
all telephone services was -0.2 percent. In 2005, CPI for all goods and 
services rose 3.4 percent, while the increase for all telephone 
services was only 0.4 percent. See Monitoring Report Attachment.
    \8\ The Joint Board decision did not cite any evidence that 
consumers would be harmed absent a cap. And we believe any increase in 
customer bills from increasing contributions will be offset by 
declining rates. According to FCC analysis, average monthly rates for 
wireline and wireless services have decreased, for wireless as much as 
20 percent to 30 percent per year, even when the Universal Service 
charge is taken into account. Average monthly combined charges for 
local and interstate/international long distance telephone service, 
approximately $42 in 1995, declined to approximately $28 in 2004 (the 
most recent year for which average bills can be calculated). FCC, 
Trends in Telephone Service, Table 3.3 (Feb. 2007) (``Trends Report''). 
Average monthly charges for residential local service taken from Trends 
Report at Table 13.3. Average monthly charges for residential 
interstate/international long distance service calculated by 
multiplying average revenue per minute by average monthly interstate 
and international long distance minutes for the same year. See Trends 
Report at Tables 13.4, 14.2. Wireless prices (reflected by average cost 
per minute) have dropped as much as 20 percent to 30 percent per year 
between 1998 and 2005. The overall decline in revenues per minute for 
wireless services from 1993 through 2005 was 84.1 percent. Average 
wireless service monthly bills fell by 18.7 percent from 1993-2005. See 
Implementation of Section 6002(b) of the Omnibus Budget Reconciliation 
Act of 1993--Annual Report and Analysis of Competitive Market 
Conditions With Respect to Commercial Mobile Services, Eleventh Report, 
21 FCC Rcd 10947 (2006), App. A, Table 10.
    \9\ See, e.g., nn. 4 and 6, supra.
    \10\ Alenco Communications, Inc. v. FCC, 201 F.3d 608, 615 & 621 
(5th Cir. 2000).

                                 Table 3.15--Total High-Cost Support Payments By State or Jurisdiction--ILECs and CETCs
                                                                        [Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 1999                        2000                         2001                          2002
        State or Jurisdiction        -------------------------------------------------------------------------------------------------------------------
                                           ILECs         CETCs        ILECs          CETCs         ILECs          CETCs          ILECs          CETCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama                                    36,318,951         0       88,214,302           0       93,882,843            0       99,840,657       21,647
Alaska                                     67,816,605         0       70,315,653           0       74,543,499            0       79,633,434      124,846
American Samoa                                124,410         0          473,151           0          458,928            0          875,238            0
Arizona                                    31,174,674         0       35,577,804           0       48,845,290    1,060,306       56,758,691    4,632,839
Arkansas                                   73,247,163         0       71,691,402           0       75,398,793            0      101,091,641            0
California                                 49,657,305         0       64,070,553           0       82,347,999            0       86,503,022       24,999
Colorado                                   43,789,464         0       53,761,542           0       62,003,540            0       66,143,448      688,329
Connecticut                                   958,953         0          952,617           0        1,192,074            0        1,506,436            0
Delaware                                            0         0          199,512           0          385,947            0          373,665            0
District of Columbia                                0         0                0           0                0            0                0            0
Florida                                    18,547,026         0       49,781,316           0       84,627,004            0       85,609,445            0
Georgia                                    71,765,064         0       79,228,268           0       91,334,696            0      110,244,701            0
Guam                                        2,321,256         0        3,169,872           0        2,318,838            0        1,969,968      356,718
Hawaii                                      1,472,913         0        2,403,015           0        5,348,833            0        7,010,380            0
Idaho                                      29,219,598         0       35,787,777           0       44,531,158            0       49,013,604            0
Illinois                                   38,898,339         0       31,342,473           0       39,137,373            0       48,479,657        5,241
Indiana                                    17,058,453         0       30,488,022           0       42,060,071            0       47,141,468            0
Iowa                                       25,802,260         0       30,643,488           0       35,233,563       66,101       43,224,375      652,816
Kansas                                     64,603,071         0       67,053,729           0       81,019,830        5,967       94,268,913      147,749
Kentucky                                   19,501,563         0       29,807,009           0       36,026,757            0       57,147,036            0
Louisiana                                  63,648,414         0       72,467,664           0       80,748,606            0       87,583,016            0
Maine                                      18,968,121         0       32,099,073           0       30,927,750            0       29,496,861            0
Maryland                                      596,790         0        2,580,717           0        4,657,430            0        4,704,481            0
Massachusetts                                 641,841         0        1,285,080           0        1,657,924            0        1,340,972            0
Michigan                                   34,738,875         0       39,393,036           0       40,431,984       10,688       44,477,695      800,750
Minnesota                                  41,442,858         0       48,130,605           0       49,698,983       94,060       65,788,105      104,776
Mississippi                                26,773,044         0      132,785,751           0      141,139,843            0      149,589,072   20,997,855
Missouri                                   50,654,082         0       65,568,381           0       73,621,807       59,280       84,225,880       90,201
Montana                                    43,346,418         0       45,254,916           0       51,504,570      189,660       62,361,590      470,874
Nebraska                                   21,377,097         0       23,729,919           0       26,378,585            0       31,464,331            0
Nevada                                     10,994,325         0       15,066,537           0       22,846,950           63       22,973,633      289,777
New Hampshire                               8,506,026         0        8,489,304           0        9,433,625            0       11,898,687            0
New Jersey                                    993,234         0        3,688,155           0        6,020,140            0        3,491,193            0
New Mexico                                 34,527,114         0       37,100,202           0       41,421,404            0       46,221,145      210,478
New York                                   37,395,060         0       51,532,557           0       59,460,149      482,043       55,659,061      523,518
North Carolina                             31,719,741         0       33,997,699           0       38,944,285            0       55,742,932            0
North Dakota                               21,703,062         0       25,437,877           0       28,584,627            0       31,654,811       89,341
Northern Mariana Islands                    5,529,978         0        3,257,226           0        3,594,740            0        3,526,267            0
Ohio                                       15,056,667         0       19,503,900           0       29,246,406            0       33,911,495            0
Oklahoma                                   58,345,860         0       67,401,390           0       76,622,223            0       85,800,208       27,921
Oregon                                     36,809,835         0       47,354,850           0       60,851,409            0       67,392,263            0
Pennsylvania                               21,611,712         0       28,472,919           0       35,438,459            0       42,712,402            0
Puerto Rico                               132,925,644   534,012      139,946,898   1,494,642      111,508,014    6,440,727       86,185,212   10,363,326
Rhode Island                                        0         0           25,686           0           96,477            0           60,198            0
South Carolina                             40,003,113         0       46,068,145           0       55,646,667            0       71,350,010            0
South Dakota                               19,478,967         0       22,225,041           0       23,913,594            0       32,003,665      347,297
Tennessee                                  28,449,801         0       34,482,177           0       40,665,639       69,516       46,063,270      292,623
Texas                                     118,600,308         0      138,101,139           0      167,610,051       99,339      188,031,058    1,152,675
Utah                                       10,178,430         0       12,535,251           0       14,109,453            0       18,079,066            0
Vermont                                    11,248,704         0       26,244,471           0       22,593,331            0       25,804,315            0
Virgin Islands                             22,973,160         0       23,786,676           0       25,253,094            0       27,525,044            0
Virginia                                   12,837,387         0       38,477,018           0       64,489,462            0       69,908,969            0
Washington                                 43,165,287         0       53,885,595           0       68,815,275    8,232,717       75,016,670    3,030,131
West Virginia                              22,991,175         0       63,450,822           0       72,163,053            0       80,382,176       83,529
Wisconsin                                  50,982,323         0       54,591,597           0       58,828,654           90       68,344,845      203,841
Wyoming                                    25,954,848         0       29,896,680           0       35,057,650      137,400       41,262,316      348,567
Industry                                1,717,446,369   534,012    2,233,276,459   1,494,642    2,574,679,349   16,947,957    2,888,868,695   46,082,664
--------------------------------------------------------------------------------------------------------------------------------------------------------


                           Table 3.15--Total High-Cost Support Payments By State or Jurisdiction--ILECs and CETCs--(Continued)
                                                                        [Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           2003                           2004                           2005                           2006
    State or Jurisdiction    ---------------------------------------------------------------------------------------------------------------------------
                                   ILECs           CETCs          ILECs           CETCs          ILECs           CETCs          ILECs           CETCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama                            89,293,506     2,988,331       94,588,334     6,250,779       97,678,778    11,663,899      102,251,011    14,647,370
Alaska                             88,850,054     1,403,390       95,096,980     4,973,083      100,627,607    19,646,224       98,674,638    39,994,917
American Samoa                      1,230,722             0        1,860,943             0        2,317,903             0        1,496,616             0
Arizona                            62,265,191     5,816,508       66,572,006    13,627,513       61,804,813    12,745,645       68,565,687    15,811,998
Arkansas                          112,277,219       816,659      104,291,859    30,012,436      103,476,130    37,521,103      106,173,927    29,826,012
California                         92,059,403       123,276       95,186,762        52,770       98,674,387       191,115      106,390,695       131,412
Colorado                           73,651,142     2,876,978       74,987,264     8,311,404       72,049,895     7,226,901       71,123,691     8,381,643
Connecticut                         2,242,663             0        2,445,617             0        2,248,744             0        2,032,395             0
Delaware                              320,397             0          266,283             0          259,146             0          254,508             0
District of Columbia                        0             0                0             0                0             0                0             0
Florida                            80,109,504             0       81,841,610     1,939,141       81,140,368    10,309,805       76,734,600     7,593,162
Georgia                           110,373,162             0      105,771,772     1,656,436      102,637,923     9,055,385       99,096,693     5,551,857
Guam                                4,572,924     1,382,807        7,434,786     2,143,229       11,427,375     7,737,989        7,884,885     7,349,487
Hawaii                              9,967,573             0       13,889,383       249,173       17,568,456    11,956,190       22,606,476    18,579,186
Idaho                              51,909,601             0       53,012,454             0       55,055,167             0       53,095,818             0
Illinois                           55,080,459         2,406       57,479,277            45       63,505,452           981       65,663,013         1,971
Indiana                            53,149,059        12,474       55,299,595       173,552       54,481,006     2,151,459       57,492,699     3,325,992
Iowa                               54,547,156    15,891,086       55,841,707    26,729,545       55,618,671    34,717,359       60,925,257    40,373,526
Kansas                            108,785,249     2,692,475      121,727,826     7,838,024      132,251,224    46,433,044      132,055,755    53,349,474
Kentucky                           59,757,468        15,999       71,749,739       276,334       75,144,011     8,456,057       75,210,951    21,800,331
Louisiana                          91,029,193             0       88,157,077    14,094,355       85,913,185    25,327,599       86,366,865    40,404,837
Maine                              29,725,830       832,312       27,779,495     2,241,525       24,533,155     4,278,734       25,349,043     4,860,493
Maryland                            3,451,702             0        2,936,899             0        4,326,582             0        4,361,691         1,098
Massachusetts                       2,120,262             0        2,493,872             0        3,634,062             0        2,707,494             0
Michigan                           44,379,093     1,553,320       43,022,294     6,163,546       43,744,197     9,830,363       44,631,927    14,154,780
Minnesota                          78,599,334     2,039,645       75,428,194    18,903,254       81,420,327    31,931,697       82,321,251    38,474,865
Mississippi                       145,961,305    24,339,170      146,413,078    41,255,118      147,106,117    62,144,436      140,588,648   109,744,027
Missouri                           92,095,987        75,773       90,894,928       168,316       85,025,623       119,889       88,435,827       122,451
Montana                            65,692,180       622,224       70,960,584     1,192,629       72,677,550     4,053,156       69,709,249     7,245,084
Nebraska                           44,359,887             0       49,107,561        62,706       54,422,214     1,467,516       54,668,200     2,112,482
Nevada                             26,224,437     3,907,911       24,211,672     3,540,695       24,451,060     5,187,803       25,630,626     6,445,818
New Hampshire                      11,384,021             0        9,372,836             0        8,731,668             0        9,568,887       103,782
New Jersey                          1,533,302             0        1,442,797             0        1,332,013             0        1,289,640             0
New Mexico                         46,776,559     3,770,150       47,227,016     3,538,855       49,491,285     9,019,927       48,698,361    12,158,745
New York                           51,104,130       729,603       49,633,569       180,316       47,160,351     4,672,277       49,473,066     4,193,142
North Carolina                     71,561,647             0       79,089,350     1,180,132       72,920,918     7,258,337       76,169,451     5,181,300
North Dakota                       39,959,801    11,056,151       38,869,743    14,946,255       36,413,361    26,304,977       42,433,701    37,368,354
Northern Mariana Islands            1,652,912             0          709,640        64,674          436,572       231,156          810,480       255,954
Ohio                               38,248,134             0       40,738,649             0       37,754,247             0       38,602,698             0
Oklahoma                          106,262,224      (18,225)      102,410,238       538,541      108,602,175    11,585,872      107,356,983    14,789,604
Oregon                             70,843,149             0       66,199,436     3,973,730       64,914,449     3,554,296       64,870,959    10,060,758
Pennsylvania                       55,174,266             0       58,321,676       327,750       63,459,742     2,043,871       64,707,909     1,754,400
Puerto Rico                        85,955,805    13,672,345       58,567,786    22,843,398       66,047,054    67,738,447       47,407,680    75,966,315
Rhode Island                           46,491             0           56,457             0           44,472             0           37,287             0
South Carolina                     79,517,759             0       78,116,203             0       76,322,172             0       82,243,845             0
South Dakota                       40,952,744     7,612,395       47,824,157    13,937,378       54,108,387    23,679,409       55,972,318    27,797,012
Tennessee                          52,740,553       139,741       54,408,927       337,048       53,510,220     1,174,125       52,456,962     1,547,229
Texas                             211,301,637     2,278,421      229,221,439     1,111,597      226,230,724     3,786,279      205,497,036    10,678,173
Utah                               23,912,518             0       22,675,062             0       23,301,638       277,767       23,719,365       240,558
Vermont                            27,501,079       638,436       27,158,041     3,032,809       28,418,389     6,825,562       26,045,892     5,958,141
Virgin Islands                     26,869,011             0       25,972,598             0       22,617,908             0       25,185,111             0
Virginia                           76,629,469           261       75,789,178     2,887,069       72,048,998    15,263,371       67,111,638    12,167,124
Washington                         72,354,489     7,939,390       68,107,492    19,806,072       65,989,527    28,397,734       64,046,469    34,724,406
West Virginia                      76,909,660     1,539,760       64,041,014     4,420,527       58,577,740     7,739,910       60,104,661     9,190,040
Wisconsin                          83,112,053     7,835,222       82,756,156    15,664,820       90,078,586    40,146,445       87,712,566    49,767,426
Wyoming                            43,036,041     5,034,146       43,156,564    15,090,302       41,935,807    14,662,256       38,708,744    16,259,942
Industry                        3,129,421,116   129,620,540    3,152,615,875   315,736,881    3,185,669,531   638,516,367    3,172,731,845   820,446,678
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Senator Stevens. Thank you, Mr. Foxman.
    Our next witness is Mr. Joel Lubin.
    Mr. Lubin?

STATEMENT OF JOEL E. LUBIN, VICE PRESIDENT, REGULATORY PLANNING 
                AND POLICY, AT&T SERVICES, INC.

    Mr. Lubin. Thank you. Good morning. Thank you, Mr. Chairman 
and Members of the Committee, for inviting us this morning to 
speak on this panel.
    AT&T is a long-term supporter of national Universal Service 
policy. We thank you for your leadership.
    AT&T is the single largest provider of telephone service in 
rural America. We serve more than 7 million lines in rural 
America, approximately one-third of the Nation's rural lines. 
Other carriers have divested their high-cost lines or declined 
to serve rural areas. We, however, have committed to serve all 
customers, wherever they live. With proper support, this 
commitment could and should include the deployment of next-
generation services. But, as AT&T and other carriers across 
America have experienced firsthand, insufficient and unstable 
Universal Service funding not only threatens the continued 
quality of today's legacy services, it also is a major 
deterrent to investment in advanced broadband facilities and 
services.
    The current Universal Service high-cost system is broken 
and badly needs reform. For this reason, we support both the 
short-term recommendations and the long-term goals contained in 
the Federal-State Joint Board Recommended Decision. High-cost 
funding has reached an annual high water mark of $4 billion, 
and is already racing to exceed that level. As the high-cost 
fund has careened out of control, it has become increasingly 
impossible to consider, much less implement, long overdue 
reform measures. The Joint Board proposes to rein in the 
explosive growth by imposing an interim emergency cap on 
support of competitive eligible telecommunication carriers, 
CETCs. The Board's interim solution provides a temporary and 
tailored reform measure that should bring needed discipline to 
the Fund. Today, competitive ETCs received almost $1 billion in 
2006. Five years ago, it was $15 million. And at this point, 
the funding is not targeted to underserved areas. I'm going to 
repeat that point. The targeting today is not targeted to 
undeserved areas. Consumers are, in many cases, footing the 
bills to subsidize multiple competitive ETCs vying for the same 
customers in the same neighborhoods, and often as many as three 
or four wireless ETC lines in the same household. Because high-
cost support to competitive ETCs is expected to increase to $2 
billion next year, $2.5 billion in 2009, an interim cap is 
important to prevent further increases due to current rules.
    We support this measure, even though there will be some 
adverse impacts. Many carriers, including AT&T, our wireless 
enterprise, will be required to shoulder at least a short-term 
reduction in otherwise certain funds. In light of this, we have 
provided specific comments to the FCC on ways to minimize 
disruptions to existing carrier investment plans. Let's not 
forget, there will be money, still, the following year, that 
still could be used for cell sites.
    In the end, however, the short-term challenge is a small 
price to pay for immediate Fund stabilization and headroom to 
engage in reasoned exploration of comprehensive reform, 
including the right way to promote broadband deployment and 
wireless coverage in rural, underserved areas without 
overburdening an already overburdened system. AT&T would like 
to share with you its vision of Universal Service reform, for 
if we don't move to a long-term solution, we've not really 
accomplished much.
    The second aspect of the Joint Board's recommendation is 
looking at long-term solutions. In addition to the interim cap 
on competitive ETC funding, comprehensive reform must embrace 
the following three elements:
    Number one, replacement of the existing revenue-based 
contribution mechanism with a telephone-numbers connections-
based solution.
    Number two, reform intercarrier compensation to preserve 
Universal Service during the transition to a fully deployed 
broadband environment. Let me be very clear on this point. When 
broadband gets fully deployed, the current access charges 
vaporize. They go away. This needs to be addressed.
    Number three, reform of existing Federal high-cost funding 
mechanism to promote deployment of next-generation broadband 
and expanded and improved wireless service in rural areas. 
Let's focus on the third element. We specifically propose that 
the FCC make available funding in a pilot program designed to 
support deployment of lower-cost higher-speed broadband 
alternatives in underserved rural areas. Similarly, the FCC 
should identify areas that currently lack reliable mobile 
wireless service. Each pilot program that we suggested should 
be addressed by and created by the Commission, a single 
provider would be eligible to obtain funding within a specific 
geographic area in order to provide service to the underserved 
areas. Such pilot programs would provide the FCC much-needed 
experience and information about funding levels and other 
issues that will enable the Commission to craft the right 
incentives to support deployment to underserved areas.
    Thank you. And I look forward to your questions.
    [The prepared statement of Mr. Lubin follows:]

    Prepared Statement of Joel E. Lubin, Vice President, Regulatory 
                Planning and Policy, AT&T Services, Inc.
    Good morning. Thank you, Chairman Inouye, Vice Chairman Stevens, 
and members of the Committee for inviting me here today. AT&T is a 
long-time supporter of our national policy of Universal Service and of 
recent efforts to sustain that policy through meaningful reform. In 
this regard, we salute the leadership of Chairman Inouye, Vice Chairman 
Stevens, and the work of the entire Committee.
    AT&T is the single largest provider of telephone service to rural 
America. We serve more than seven million rural access lines, nearly 
one-third of the rural lines in the Nation. At the same time, AT&T 
receives a disproportionately lower share of high-cost funding to 
provide this service. Under similar conditions, other carriers have 
divested their high-cost lines, or declined to serve rural areas. AT&T, 
however, remains committed to serve all customers, wherever they live. 
With proper support, this commitment could--and should--include the 
deployment of next-generation services. But as AT&T and other carriers 
across America have experienced firsthand, insufficient and unstable 
Universal Service funding not only threatens the continued quality of 
today's legacy services; it also is a major deterrent to investment in 
advanced, broadband facilities and services.
    The current Universal Service high-cost support system is broken 
and badly needs reform. For this reason, we support both the short term 
recommendations and the long term goals contained in the Federal-State 
Joint Board Recommended Decision. High-cost funding has increased 54 
percent in the last 5 years--and is already racing to exceed that 
level. As the high-cost fund has careened out of control, it has become 
increasingly impossible to consider, much less implement, long-overdue 
reform measures. The Joint Board proposes to rein in the explosive 
growth by imposing an interim, emergency cap on support to competitive 
Eligible Telecommunications Carriers (``ETCs'').
    The Board's interim solution provides a temporary and tailored 
reform measure that should bring needed discipline to the fund. In the 
past 5 years, funding for competitive ETCs has increased sixty-seven 
fold from $15 million (roughly .5 percent of the overall Fund) to $1 
billion (25 percent of the overall Fund). And this funding is not 
targeted to underserved areas: consumers are in many cases footing the 
bill to subsidize multiple competitive ETCs vying for the same 
customers in the same neighborhoods and often as many as three or even 
four wireless ETC lines in the same household. Because high-cost 
support to competitive ETCs is expected to increase to $2 billion next 
year, an interim cap is necessary to prevent further increases due to 
the designation of additional competitive ETCs as well as line growth 
among current ETCs.
    We support this measure even though there will be some adverse 
impacts. Many carriers, including AT&T, will be required to shoulder at 
least a short-term reduction in otherwise certain funding. In light of 
this, we have provided specific comments to the FCC on ways to minimize 
disruptions to existing carrier investment plans. In the end, however, 
this short-term challenge is a small price to pay for immediate Fund 
stabilization and the breathing space to engage in reasoned exploration 
of comprehensive reform, including the right way to promote broadband 
deployment and wireless coverage in rural underserved areas without 
overburdening an already overburdened system.
    AT&T would like to share with you its vision of Universal Service 
reform, the second aspect of the Joint Board's Recommended Decision. In 
addition to the interim cap on competitive ETC funding, comprehensive 
reform must embrace the following elements:

        1. Replacement of the existing revenues-based contribution 
        mechanism with a telephone numbers/connections based mechanism.

        2. Reform of intercarrier compensation to preserve Universal 
        Service during the transition to a fully deployed broadband 
        environment. Let me be very clear on this point. When broadband 
        gets fully deployed current access charges vaporize. They go 
        away. This needs to be addressed.

        3. Reform of the existing Federal high-cost funding mechanisms 
        to promote deployment of next-generation broadband, and 
        expanded and improved wireless service, in rural areas.

    Let's focus on this third element. We specifically propose that the 
FCC make available funding in a pilot program designed to support 
deployment of lower-cost, higher-speed broadband alternatives in 
underserved rural areas. Similarly, the FCC should identify areas that 
currently lack reliable, mobile wireless services. In each pilot 
program created by the Commission, a single provider would be eligible 
to obtain funding within a specific geographic area in order to build 
new facilities to provide service to underserved populations. Such 
pilot programs would provide the FCC much needed experience and 
information about funding levels and other issues that will enable the 
Commission to craft the right incentives to support deployment to 
underserved areas.
    Finally, policymakers should not be enticed by seemingly easy 
solutions. For instance, there has been much attention placed on the 
so-called ``identical support'' rule, which allows all competitive ETCs 
to receive the same per-line support in a particular study area that 
the ILEC receives, regardless of their own costs, service territory or 
circumstances. We agree that this rule is not in the public interest, 
but the problem cannot be addressed by modifying this rule alone, as 
the root of the problem runs deeper. Rather, the problem is that the 
rules fail to identity rural areas where the support is most needed to 
preserve Universal Service. The result is that many rural areas receive 
no funding at all, and other areas that are not particularly rural or 
high cost receive significant support.
    The identical support rule exacerbates this problem by allowing all 
ETCs that serve a given area to receive the same support that is poorly 
distributed in the first instance. Thus, the only places a competitive 
ETC can receive support are where the underlying incumbent LEC is 
already supported, regardless of the competitors' costs and build-out 
plans. But simply changing the identical support rule without 
addressing the fundamental problem of the poorly targeted support is a 
mistake. It may change the incentives facing competitive carriers 
interested in becoming ETCs, but it will not advance Universal Service 
goals for the consumers in rural areas.
    There are four big questions that need to be answered in order to 
develop a robust Universal Service policy: what areas need to be 
supported; what services do you want to support; who are you going to 
pay to deliver those services; and how much are you willing to pay? The 
identical support rule goes to the fourth and final question. 
Addressing it in isolation will virtually guarantee that the funds are 
not sent to the areas most in need.
    Thank you and I look forward to your questions.

    Senator Stevens. Thank you, Mr. Lubin.
    The last witness is Mr. Everett B. Flannery, Chief Deputy 
of Kennebec County.

STATEMENT OF EVERETT B. FLANNERY, JR., CHIEF DEPUTY, SHERIFF'S 
OFFICE, KENNEBEC COUNTY, STATE OF MAINE; REPRESENTATIVE, MAINE 
                     SHERIFFS' ASSOCIATION

    Mr. Flannery. Thank you, Mr. Vice Chairman.
    Mr. Vice Chairman and Members of the Committee, I'm Everett 
B. Flannery, Jr., the retired Sheriff for Kennebec County. I've 
been a law enforcement officer in the State of Maine for almost 
30 years, currently acting as Chief Deputy for Kennebec 
County--and that's a story, upon itself, which I can tell you 
later.
    The Maine Sheriffs' Association has designated me as their 
spokesman to provide you with a rural public safety official's 
perspective on the importance of continuing, and, if possible, 
expanding, Universal Service Fund support for the build-out of 
our Nation's wireless network into the many poorly served areas 
of Maine.
    My message is very simple: although wireless service 
appears to be outstanding in the urban and suburban portions of 
our Nation, there are many rural areas of the State of Maine 
that suffer greatly from the lack of quality wireless service. 
In fact, there are many communities that have no wireless 
service at all. I understand that this problem is common in 
other rural communities in the United States, as well.
    All of us who live and work in rural Maine struggle with 
the problem of inadequate wireless service. For example, I have 
no wireless service at my home in Clinton, Maine. Also, I 
understand from members of her staff that the Senator from 
Maine serving on this Committee has frequent difficulty staying 
in touch with her office and her constituents as she travels 
about the State of Maine.
    The absence of good wireless service prevents those of us 
responsible for public safety in America's rural areas from 
doing our job properly. Poor wireless service exposes both 
rural law enforcement officers and the public to unreasonable 
health and safety risks. Poor mobile service makes it less 
likely that citizens will be able to give timely notification 
to public officials of an emergency, whether it is a car crash, 
an accident in a logging operation, a hunting mishap, an ATV or 
snowmobile accident, or any other emergency that needs to be 
reported.
    The nonavailability of wireless service represents a danger 
both for public safety officials and the public alike. For 
example, when our dispatch center receives a 9-1-1 domestic 
violence call, the deputy assigned will call into dispatch and 
be connected directly to the caller. Deputies are trained to 
use their cell phones to call ahead to determine what's going 
on and whether the deputy should call for assistance or not, 
looking for answers like, ``Has someone made a threat? Are 
drugs or alcohol involved? Are children present? Does someone 
have a weapon?'' Oftentimes, just speaking with a deputy will 
calm the situation down. However, poor cell service in Kennebec 
County means that the deputy will often be unable to get 
through to the residents. As someone who has handled rural 
patrol duties, I can assure you that you would really prefer to 
know whether someone inside the residence has a gun before you 
knocked on the door.
    Bad as this--excuse me--as bad as this is, I get even more 
concerned when I consider our readiness to manage a disaster 
like September 11 or a Hurricane Katrina. Maine's public safety 
officials are trained, equipped, and staffed to handle major 
incidents, but the absence of quality mobile service to enable 
the public to communicate with us, and we with them, leads us 
to conclude that we may not be able to deliver the services 
that people need and deserve in such situations.
    I urge you to review the White Paper included as an exhibit 
to my testimony which documents the critical role played by a 
USF-supported wireless carrier in the recovery from Hurricane 
Katrina. The white paper explains that the FCC funded the 
distribution of thousands of mobile phones to Katrina victims. 
Why? Because, in the immediate aftermath of the storm, the 
Universal Service-supported wireless carrier had the only 
operating communications system on the Gulf Coast of 
Mississippi. If we, in rural Maine, were to be hit with such a 
disaster of this magnitude, I feel that we would have no means 
of communication at all.
    In Maine, the level of support going to rural wireless 
carriers from the Universal Service Fund will determine our 
ability to cope with a disastrous situation. Maine's public 
safety officials cannot understand why the Federal Government 
would consider capping rural wireless expansion funding just as 
it is beginning to achieve the results intended by the Congress 
in its landmark Telecommunications Act of 1996. Avoiding a cap 
on wireless Universal Service funding is a very important issue 
for Maine. That is why our entire Congressional delegation has 
gone on record opposing the cap in the letters filed with the 
FCC. Also, earlier this month, the legislature of the State of 
Maine enacted a joint resolution memorializing Congress and the 
FCC in opposition to this cap. As this illustrates, achieving 
improved wireless service for our State is a thoroughly 
bipartisan effort.
    In closing, I want to extend my thanks to the Committee and 
its staff for providing me with the opportunity to share the 
perspective of Maine's rural public safety officials with you 
at this hearing. I especially want to thank Senator Snowe and 
her excellent staff for their assistance in connection with my 
appearance here today.
    Thank you.
    [The prepared statement of Mr. Flannery follows:]

Prepared Statement of Everett B. Flannery, Jr., Chief Deputy, Sheriff's 

    Office, Kennebec County, State of Maine; Representative, Maine 
                         Sheriffs' Association
    Mr. Chairman and members of the Committee, I am Everett B. 
Flannery, Jr., and I am a career law enforcement officer in Kennebec 
County, a largely rural portion of the State of Maine. Currently, I 
serve as the Chief Deputy Sheriff for the County. I was the elected 
Sheriff of Kennebec County from October 5, 2001 to December 31, 2006, 
but I stepped down in January of this year in order to shift my focus 
from management and administration of the Sheriff's Office to computer 
forensics and information technology. My resume is attached as Exhibit 
1 to this Testimony.
    I am here today both in my own capacity and as a representative of 
the Maine Sheriffs' Association (``MSA''). The Maine Sheriffs have 
designated me as their spokesman to provide you with a rural public 
safety official's perspective on the importance of continuing and, if 
possible, expanding, Universal Service Fund (``USF'') support for the 
build-out of our Nation's wireless network into the many poorly served, 
rural areas of the United States. On Friday of this week, the MSA will 
take up a Resolution formally opposing the cap on competitive ETC 
funding proposed by the Federal State Joint Board on Universal Service. 
A draft of this Resolution is attached as Exhibit 2. I am confident 
that it will be adopted, and I ask permission to supplement the record 
with the final version of the Resolution, as adopted.
    My message is very simple: although wireless service appears to be 
outstanding in the urban and suburban portions of our Nation, there are 
many rural areas of the State of Maine that suffer greatly from the 
lack of quality wireless service. In fact, there are many communities 
in Maine that have no wireless service at all. I understand that this 
problem is common in other rural communities in the United States.
    The ``Wireless Gap'' between urban and rural America was not 
supposed to happen. As I understand it, the 1996 Telecom Act set up the 
Universal Service Fund to ensure that telecommunications services in 
rural and urban areas would be ``reasonably comparable'' in terms of 
price and service availability. Adequate support from the USF remains 
the key to closing the Wireless Gap in America. Until the Gap has been 
closed, those of us living in the rural areas of the United States have 
a right to expect, and do expect, that Universal Service Fund will 
continue to provide support for rural wireless service.
    The absence of good wireless service prevents those of us 
responsible for public safety in America's rural areas from doing our 
job properly. For reasons I will explain later, poor wireless service 
exposes both rural law enforcement officials and the public to 
unreasonable health and safety risks and greatly compromises the public 
safety community's ability to carry out our homeland security duties in 
the event of a natural or man-made disaster. I will also explain why 
this condition stifles any hope of much-needed economic development in 
rural areas.
    Right now, our only hope of correcting this terrible situation 
rests on continued and, if possible, expanded support from the 
Universal Service Fund for rural wireless expansion. We in rural Maine 
cannot understand why the Federal Government would consider capping 
rural wireless expansion funding just as it is beginning to achieve the 
results intended by the Congress in its landmark Telecommunications Act 
of 1996. I would hope that the FCC could be convinced of the importance 
of expanded rural wireless funding. If not, then I would hope that 
Congress would take action to override the FCC.
    This is my third trip to Washington as the MSA's spokesman on this 
issue. (On my two prior trips I met with FCC Commissioners and their 
staff and with the members of Maine's Congressional delegation and 
their staff, in each case to discuss the need for expanding USF support 
for rural wireless expansion.) Whenever I am in Washington I begin to 
understand why it might be difficult for some policymakers in this city 
to appreciate the importance of rural wireless funding to those of us 
in Maine. Here in Washington, I notice that my mobile phone shows a 
strong signal wherever I go. The signal quality remains excellent as I 
travel around the city and I rarely drop a call here. Folks here in 
Washington do not experience poor wireless service, and I am tempted to 
recommend that the Congress require the FCC to move its offices to 
rural Maine, and require the Commissioners to live and try to work 
there, so that they can experience what we experience every day. I am 
confident that we would enjoy much more reasonable policy treatment 
should you decide to take this step.
    My point, of course, is that wireless service where I live and work 
in Kennebec County, Maine, is not at all comparable to what I find here 
in Washington. I have very poor wireless service at my home in Clinton, 
in the northern part of the County, and service is generally spotty 
unless you are in the Augusta area (Maine's capital) or on one of the 
County's major roads. The smaller towns in the County, such as Albion, 
Benton, Mount Vernon, Fayette, Rome, and Vassalboro have very poor or 
no service.
    Now let me explain why this presents a serious public safety 
problem. Poor mobile service makes it less likely that citizens will be 
able to give timely notification to public safety officials of an 
emergency, whether it is a car crash, an accident in a logging 
operation, a hunting mishap, ATV/snowmobile accident or any other 
emergency that needs to be reported.
    Here's a specific example. My son is a paramedic in Somerset 
County, another rural area of our State. He is often the first 
responder, for example, when a logging truck with a full load overturns 
on the highway. His job is to evaluate any injuries on the scene, do 
what he can to stabilize the injured party and transport the injured to 
the hospital in Skowhegan. In many cases, there is no VHF or cell 
service at the accident scene. This means that he has to flag down 
passing motorists and ask them to drive to a house with wireline 
service and call for assistance. The alternative is to climb a nearby 
hill and hope he can catch a signal, leaving the injured in the hands 
of a single paramedic. The delay in arranging care and/or 
transportation by helicopter can often be life-threatening.
    Poor wireless service also prevents public safety personnel from 
carrying out their day-to-day responsibilities in an efficient and 
effective way. For example, the dispatch center in our office 
frequently gets 9-1-1 calls regarding domestic violence, and a deputy 
in a cruiser will be sent to the scene. Our deputies will call into 
dispatch to be connected directly to the caller. Often a domestic 
incident will resolve itself when the parties involved know that law 
enforcement will be arriving shortly.
    Also, during the call the deputy tries to determine whether anyone 
at the scene has a weapon, whether alcohol or drugs are involved, and 
whether children are in the house. This enables the deputy to decide 
whether to arrange back-up both for his or her own safety and for the 
safety of the citizens at the scene. I myself handled rural patrol 
responsibilities such as this earlier in my career, and I can tell you 
that you would really prefer to know before you knock on a strange door 
whether anyone inside the house is armed.
    In the many areas of Kennebec County where mobile service is poor, 
our deputies either cannot make these calls at all, or the calls are 
dropped frequently. So, does the deputy assume the call was dropped or 
was the phone ripped out of the wall? The result is a very unsafe 
condition both for the citizens we are trying to protect and for the 
public safety people who are trained to deliver these vital services.
    Because modern digital technology is secure, we often rely on cell 
phones in our surveillance and undercover work. These very valuable 
tools are useless in rural towns where service is unreliable.
    These are just three examples of the kinds of problems public 
safety people in Maine face every day in our struggle with inferior 
wireless service. Bad as this is, I get even more concerned when I 
consider our readiness to manage a disaster on the scale of a September 
11 or a Hurricane Katrina. We are trained, equipped and staffed to 
handle major incidents like these, but the absence of quality mobile 
service to enable the public to communicate with us (and we with them), 
leads me to conclude that we may not be able to deliver the services 
that people need in such situations.
    In training scenarios involving natural or man-made disasters we 
will deploy our mobile command post to the area. Often times we must 
place the command post not at the best location for the incident, but 
to obtain a wireless signal to have access to the Internet and needed 
information, i.e., weather and wind conditions, posting emergency 
public alerts, etc.
    Last year, I participated in the preparation of a White Paper 
covering the homeland security aspects of Universal Service Fund 
support for rural wireless expansion. The White Paper, which is 
attached as Exhibit 3 to this testimony, focused on the impact of 
Universal Service Fund support for a wireless service provider serving 
the Gulf Coast of Mississippi. The White Paper found that although 
Hurricane Katrina knocked out much of the wireline network in this area 
for several weeks, the wireless network, supported by steady infusions 
from the Universal Service Find, proved remarkably resilient. Indeed, 
the FCC, which today seems poised to limit funding for wireless 
carriers, exercised its emergency authority over the USF to fund the 
distribution of hundreds of thousands of free mobile phones to storm 
victims, since no other means of communication was available in the 
area.
    The White Paper also found that public safety personnel relied on 
the wireless network almost exclusively in the aftermath of the storm 
and for some time thereafter. For example, here is a quote from a 
dispatcher in the Gulf Coast area:

        I work as a dispatcher for the Ocean Springs Police Department. 
        During the storm my Cellular South [mobile] phone was the only 
        phone I could count on to be working at all times. I never lost 
        a signal and was able to use the phone as needed. Also, the 
        police officers were able to use the phone to check on family 
        and loved ones.

    As this shows, USF support for rural wireless build-out will not 
only help public safety officials in our day-to-day task, but will 
permit us to deliver critical services in disaster situations.
    At a time when we are considering whether to implement an Emergency 
Alert System that will enable us to text message citizens with disaster 
reports or warnings of imminent weather or other emergencies, it should 
be obvious that these tools will be useless in areas where there is 
poor cell service. Likewise, for all of the investment that is going 
into 9-1-1 and E-911 technologies, both at the carrier level and on the 
public safety side, the lack of service availability will make these 
technologies useless in many rural areas.
    Although my field is public safety, I am also very aware that poor 
mobile service hamstrings rural areas in our efforts to attract new 
businesses vitally needed to counteract the departure of our 
traditional manufacturing industries. I discussed this frequently with 
Sheriffs in other parts of Maine and the story is the same all over: no 
business wants to locate to an area with poor mobile service. The 
Sheriff of Oxford County in Maine told me a story that makes this point 
better than anything I could say. He told me that an economic 
development official in his County was taking a businessman to a 
location to try to interest him in relocating his business. On the way 
there, the prospect took out his cell phone, noticed that he had no 
service, and asked to be taken right back to the airport.
    Aside from the significant public safety and business development 
concerns posed by poor mobile service, I would hope that the Committee 
would consider the countless daily frustrations that this condition 
inflicts on the people of rural America. To try to make this point, I 
would refer you to Exhibit 5 of United States Cellular's Comments filed 
on the issue of the cap with the FCC. (A copy of these Comments were 
submitted to the Committee with Mr. Rooney's testimony.) This Exhibit 
consists of the testimony of thirty-six people from three small Maine 
towns: Bingham, Fort Fairfield, and Jonesport. This testimony was 
submitted in 2004 by United States Cellular Corporation to the Maine 
Public Utilities Commission in support of its Eligible 
Telecommunications Carrier application. Here you will find the stories 
of common, every day rural people struggling to cope with poor mobile 
service:

   the mussel farmer who cannot contact his customers while 
        harvesting,

   the business consultant who cannot make calls as he travels 
        around the State,

   the shop owner who has to share his store's phone five times 
        a day with passing travelers,

   the ambulance service operator who has trouble communicating 
        with his drivers,

   the operator of a hydro-electric plant who cannot 
        communicate with crew members working in dangerous areas away 
        from the office,

   the wood fuel purchaser who cannot communicate with his 
        power plant customers or with his truck drivers,

   the potato farmer who cannot communicate with his wife from 
        his tractor,

   the operator of a horse feed operation who cannot 
        communicate with her employees in satellite facilities,

   the hardware store owner who cannot call his store or his 
        customers from the road,

   the contractor who cannot call his workers, his customers, 
        his suppliers, or the local building inspector from the job 
        site,

   the husband who worries when his wife, who works the night 
        shift 20 miles away, has to drive home in the pitch dark of a 
        January night in an ice storm over roads where cell service is 
        unavailable,

   the fisherman who cannot order a part or call his wife from 
        his boat,

   the fisherman's wife who would like to be able to call her 
        husband when his boat is overdue, or to tell him that the new 
        grandchild has arrived.

    I also understand from members of her staff that a Maine Senator 
serving on this Committee frequently has difficulty in staying in touch 
with her office and her constituents as she travels around Maine.
    I am very pleased to say that the Maine PUC granted ETC status to 
United States Cellular, that U.S. Cellular has begun receiving proceeds 
from the USF, and that with those proceeds, it has expanded its mobile 
network into Bingham, Fort Fairfield and Jonesport, Maine, improving 
the lives and livelihood of citizens in these areas. The Maine PUC has 
certified to the FCC (most recently in October of last year) that U.S. 
Cellular and Unicel, the only other wireless ETC in Maine, are 
complying with all USF requirements. This shows that USF support for 
rural wireless can really work just as Congress intended.
    But in fact the work is just beginning. We still have many areas in 
our State that the wireless infrastructure does not reach, and thus 
continued and expanded USF support is imperative if we are to create a 
safe and modern environment to attract business and keep our young 
people in the State of Maine.
    Avoiding a cap on wireless USF funding is a very important issue 
for Maine. Illustrating this is the fact that our entire Congressional 
delegation has gone on record opposing the cap in letters filed with 
the FCC. (These letters are attached as Exhibit 4.) Governor Baldacci 
has likewise written to Senator Snowe urging her to continue her much 
appreciated efforts in this regard. Also, earlier this month the 
Legislature of the State of Maine enacted a Joint Resolution 
memorializing Congress and the FCC in opposition to the cap. I have 
attached this Resolution as Exhibit 5 of my testimony, and I have an 
original of the Resolution here to present to Senator Snowe at the 
conclusion of this hearing.
    As this illustrates, achieving improved wireless service for our 
State is a thoroughly bipartisan effort.
    In closing, I want to extend my thanks to the Committee and its 
staff for providing me with the opportunity to share the perspective of 
Maine's rural public safety officials with you at this hearing. I 
especially want to thank Senator Snowe and her excellent staff for 
their assistance in connection with my appearance today.
                               Exhibit 1
Resume of Everett B. Flannery, Jr.
    (This is retained in the Committee's files.)
                               Exhibit 2
                      Maine Sheriffs' Association
Resolution in Opposition to Proposed Limitation on Federal Universal 
        Service Funding for Rural Wireless Expansion
    WHEREAS, the Maine Sheriffs' Association finds that in at least a 
portion of each County of the State of Maine, and in significant 
portions of the rural areas of the State of Maine, wireless service is 
either non-existent or unreliable, and
    WHEREAS, due to the large size and largely rural character of the 
State of Maine, this lack of reliable cellular service puts the health 
and safety of Maine citizens at great risk, and
    WHEREAS, the Telecommunications Act of 1996 provides that 
telecommunications services in rural areas of the United States shall 
be reasonably comparable in price, availability, consumer choice and 
quality of service to that available in the non-rural portions of the 
United States, and for that purpose established the Federal Universal 
Service Fund (``USF''), and
    WHEREAS, the lack of adequate wireless service in Maine's rural 
areas indicates that the promise of ``reasonable comparable service'' 
included in the Telecommunications Act of 1996 has not been met, at 
least in much of rural Maine, and
    WHEREAS, according to the Public Utilities Commission:

        (a) wireless subscribership has in Maine grown from 368,000 to 
        630,000 between 2001 and 2006, and

        (b) in 2006, approximately fifty percent (50 percent) all E-911 
        calls were placed by wireless subscribers.

    Based on this, the Maine Sheriffs' Association concludes that 
Maine's inadequately served rural areas are falling farther and farther 
behind the non-rural areas of the state both in services and in the 
basic capacity to meet public safety requirements, and
    WHEREAS, the continued expansion of cellular service throughout 
rural Maine is therefore of vital importance to the ability of the 
sixteen sheriff's departments of Maine to adequately protect the health 
and safety of the citizens we serve, and
    WHEREAS, on May 1, 2007, the Federal-State Joint Board on Universal 
Service issued a Recommended Decision recommending that the Federal 
Communications Commission (``FCC'') impose a cap on USF support for 
competitive carriers, almost all of whom are wireless carriers, and
    WHEREAS, the proposed cap would limit USF funding for wireless 
expansion in Maine by an estimated amount of $2 million per year in 
2007 and more in succeeding years, and
    WHEREAS, in the opinion of the members of the Maine Sheriffs 
Association the Joint Board's proposed cap would be harmful to the 
health, safety and welfare of Maine's citizens,
    NOW, THEREFORE, the MAINE SHERIFFS' ASSOCIATION hereby unanimously 
adopts the following resolution:

    (A) That the Maine Sheriffs' Association hereby finds that the 
continued expansion of cellular service is in the best interest of the 
health and safety of Maine citizens. The current lack of dependable 
cellular service in rural Maine often

        (1) Prevents Maine law enforcement officers from carrying out 
        their Homeland Security responsibilities and other large-scale 
        operations;

        (2) Prevents Maine law enforcement officers from calling for 
        back-up assistance when confronting a violent offender,

        (3) Prevents Maine law enforcement officers from contacting 
        complainants prior to arriving at a scene to determine the 
        seriousness of the situation and the need for back-up or other 
        emergency services,

        (4) Prevents Maine law enforcement officers and other ``first 
        responders'' from contacting either physicians or LifeFlight of 
        Maine when dealing with a life-threatening injury requiring 
        immediate attention, and

        (5) In general, hampers the efficient and safe discharge of the 
        duties of law enforcement officers in rural Maine; and

    (B) That the Maine Sheriffs' Association hereby unanimously opposes 
the May 1 Recommended Decision of the Federal-State Joint Board and 
instead urges the FCC to reject the proposed cap on funding for rural 
wireless expansion so as to redeem the promise of the 
Telecommunications Act of 1996 to provide telecommunications services 
in rural areas of the United States that are reasonably comparable in 
price, availability, consumer choice and quality of service to that 
available in the non-rural portions of the United States; and
    (C) That the Maine Sheriffs Association directs its officers to 
take such action as they may deem appropriate to bring this Resolution 
to the attention of the Maine Congressional delegation and the FCC, and 
to undertake such other actions as they deem appropriate to effectuate 
the purposes of this Resolution.
    IN WITNESS WHEREOF, I hereby certify that the above Resolution has 
been unanimously adopted by the Maine Sheriffs' Association.
                                   Sheriff James P. Madore,
                                                         President,
                                                       Aroostook County
                               Exhibit 3
                              White Paper
Federal Universal Service Fund Support for Rural Cellular Carriers: A 
        Homeland Security Perspective Based on the Experience Gained 
        from Hurricane Katrina
                              October 2006
    This White Paper will review the homeland security implications of 
continued Federal Universal Service Fund (``USF'') support for wireless 
carriers serving the rural portions of the United States. The Paper 
discusses the remarkable performance of the rural wireless 
infrastructure in the areas affected by Hurricane Katrina and the vital 
role played by rural wireless carriers in meeting the short- and long-
term communications needs posed by that disaster. The paper also 
reviews the FCC's use of its emergency powers to make USF funds 
available to provide wireless handsets to hundreds of thousands of low-
income storm victims. The Paper concludes, based on this experience, 
that USF funding for rural wireless carriers serves an important 
homeland security function, and urges policymakers in the homeland 
security area to strive to ensure continued USF support for rural 
wireless carriers. A Congressional affirmation that qualifying rural 
wireless carriers will have predictable, ongoing, and guaranteed access 
to USF support until they can complete the build-out of America's rural 
areas will allow Federal, state and local public safety officials to 
design their disaster response plans on that basis. This will help them 
to achieve the elusive goal of developing interoperable communications 
systems for use in disaster situations.
I. Universal Service Support for Rural Wireless Carriers
    The Telecommunications Act of 1996 (the ``Tel Act'') reaffirmed the 
``Universal Service'' policy of the United States, which, at that time, 
had been a hallmark of American telecommunications policy for over 
sixty years. To accomplish the Tel Act's goal of ensuring that the 
rural portions of the United States have a level of telecommunications 
service comparable in quality and price to that found in the urban 
portions of the country, 47 U.S.C.  254(b), Congress included 
provisions in the Tel Act establishing the Universal Service Fund. 
America's rural wireline carriers promptly secured Eligible 
Telecommunications Carrier (``ETC'') status under the Tel Act, allowing 
them to obtain USF funding. Since the passage of the Tel Act, rural 
wireline carriers have received almost $20,000,000,000 in USF support 
payments. As almost all of these carriers have fully built-out land-
line systems, the wireline carriers have used USF support payments 
primarily to improve the affordability of rural wireline service.\1\
---------------------------------------------------------------------------
    \1\ In other words, the wireline carriers and their state 
regulators treat wireline USF funds as an operating subsidy, resulting 
in rates for local exchange service that are lower than they would be 
without the USF subsidy.
---------------------------------------------------------------------------
    Over the past 5 years, many rural wireless carriers have obtained 
ETC status, most in contested case proceedings at state public utility 
commissions, with local wireline carriers actively participating. 
Wireless ETCs have been certified in all but one rural state. Unlike 
their wireline counterparts, most rural wireless carriers have immature 
networks that require substantial additional capital expenditures to 
develop fully built-out systems. Consequently, Wireless ETCs use most 
of their USF funding to expand service in the rural areas that they 
serve. These carriers typically file build-out plans with state public 
utility commissions, which must re-certify the carriers annually in 
order to maintain their ETC status and, hence, their USF funding.
    Although wireline carriers have taken in almost $20 billion in USF 
support payments since the passage of the Tel Act in 1996, Wireless 
ETCs over the same time period have taken in just over $1 billion in 
the aggregate.\2\ The severe under-funding of Wireless ETCs serving 
rural America (as compared to their wireline counterparts) has 
undermined the Tel Act's objective, as embodied in Section 254, of 
having service in rural areas that is ``comparable'' in quality and 
price to that found in urban America. Thus, although urban and suburban 
America enjoy virtually ubiquitous wireless service, today, 10 years 
after the enactment of the Tel Act, many portions of rural America 
suffer from poor or non-existent wireless service. For example, a 
report on rural Washington County, Maine, commissioned by Maine 
Governor John E. Baldacci found that
---------------------------------------------------------------------------
    \2\ As of December 21, 2005.

        For any business engaged in interstate and/or international 
        commerce, a comprehensive network of broadband and wireless 
        interconnection is as necessary as the telephone--as the 
        computer and cell phones have become indispensable to business. 
        Such infrastructure, however, has established only a tentative 
        toehold in Washington County.\3\
---------------------------------------------------------------------------
    \3\ Report on an Economic Development Strategy for Washington 
County, Prepared by David Flanagan, Governor Baldacci's Special 
Representative to Washington County, November 17, 2005, at p. 52. 
(http://www.maine.gov/Governor/baldacci/issues/washington_county/WC
Report.doc).

    Although USF support has enabled Wireless ETCs to expand their 
service into many rural communities, the above-quoted Washington County 
Report, issued in the fall of 2005 (nine years after the Tel Act became 
effective) describes conditions that are typical in many portions of 
rural America. For these communities, continued USF support for 
Wireless ETCs is the only realistic hope for building the wireless 
infrastructure needed to allow them to remain economically viable in 
the 21st century.
    Lack of adequate wireless service also creates adverse public 
safety conditions in rural America even in non-disaster situations: to 
cite just a few examples, emergency medical technicians cannot place 
wireless calls to arrange for medical care and transportation for 
injured motorists, deputy sheriffs responding to a domestic violence 
report cannot call ahead to determine whether someone in the house has 
a gun, and ordinary citizens enduring a landline phone outage during a 
flood or blizzard are completely cutoff from any assistance. Obviously, 
should a terrorist incident or a natural disaster, such as a hurricane, 
occur in an under-served rural area, the public safety implications of 
inadequate wireless service would be catastrophic.
    The service provided by wireless carriers in the wake of Hurricane 
Katrina, discussed below, demonstrates the positive impact, from a 
public safety standpoint, of adequate wireless service in coping with 
the disruption caused by a disaster.
II. The Role of Wireless Carriers in Hurricane Katrina
    Despite the widespread devastation caused by Hurricane Katrina, the 
wireless infrastructure in the Gulf Coast demonstrated a remarkable 
resiliency. An independent panel convened by the Federal Communications 
Commission (``FCC'') reported that although more than 1,000 wireless 
base stations were affected by Katrina, only about 1 percent (1%) of 
the cell towers in the area affected by all of the storms that wracked 
the Southeastern and Gulf Coast in 2005 (including both Katrina and 
Rita) suffered any significant damage.\4\ In general, the cell sites 
that ceased to function as a result of Katrina lost service either due 
to a power outage or to the loss of connectivity to the landline 
telephone network. Within a week after Katrina hit, approximately 80 
percent of the cell sites within the affected area were operating.\5\ 
Wireless carriers restored service to many areas on a temporary basis 
using over 500 mobile cellular base stations.\6\
---------------------------------------------------------------------------
    \4\ Report and Recommendations to the Federal Communications 
Commission, Independent Panel Reviewing the Impact of Hurricane Katrina 
on Communications Networks, June 12, 2006 (``FCC Katrina Panel 
Report''). The Report and additional information regarding this panel's 
work can be found at: http://www.fcc.gov/eb/hkip/.
    \5\ FCC Katrina Panel Report at 9.
    \6\ These consisted of about 100 ``cellular on wheels'' (or 
``COWs'') facilities and 427 ``cellular on light trucks'' (or 
``COLTs'') installations. Statement of Peter Fonash, Deputy Manager, 
National Communications System, to Senate Homeland Security and 
Government Operations Committee, February 6, 2006, available at http://
kyl.senate.gov/legis_center/subdocs/030805_fonash.pdf.
---------------------------------------------------------------------------
    On the landline side of the equation, Katrina and the floods it 
caused knocked out service to over 3,000,000 landline customers. 
Although Bell South and the other affected landline companies restored 
service to about 90 percent of these lines within 10 days after 
Katrina's landfall, the hardest-hit areas suffered prolonged outages 
(weeks or months without service) due to flooded switches, multiple 
fiber breaks and chronic power outages. In these areas, wireless 
service was virtually the only means of communications available to 
public safety personnel and the general public. (See Section III 
below.)
    Many first responders and other public safety workers involved in 
Katrina-related operations took advantage of Wireless Priority Service 
(``WPS''), which was developed following 9/11 to address wireless 
network congestion problems encountered in emergency situations. In the 
World Trade Center incident, as in Katrina, many people in the affected 
area found themselves displaced from their homes and places of work. 
They and their loved ones flooded the wireless network trying to 
contact each other, often causing delays in completing wireless calls. 
Consequently, public safety personnel encountered substantial 
difficulties in completing emergency calls on the wireless network 
during these congested periods.
    The WPS program is administered by the National Communications 
System (``NCS'') a Federal agency with various communications-related 
public safety responsibilities. Dr. Peter Fonash, an NCS official, 
explained in his statement to the Senate Committee on Homeland Security 
and Government Operations that, ``The need [for a priority program] was 
recognized after 9/11 because many Federal and State and local 
Government and industry leaders utilize wireless as a primary means of 
mobile communications.'' \7\ In the WPS program, public safety and 
other critical personnel can enter a pre-assigned WPS number when 
making wireless emergency calls during congested periods and get 
priority service: they are ``moved to the head of the line,'' and are 
assigned the next channel opening up on the wireless system. The NCS 
provided WPS service to over 4,000 emergency workers during Hurricanes 
Katrina and Rita.\8\
---------------------------------------------------------------------------
    \7\ Fonash Statement at 4.
    \8\ Id. at 5.
---------------------------------------------------------------------------
III. The FCC's Use of Universal Service Funding To Provide Wireless 
        Service to Low-Income Storm Victims
    Hurricane Katrina displaced thousands of Gulf Coast families. As a 
result, the restoration of landline phone service in a given area made 
little or no difference in the lives of the families whose homes in 
that area had been destroyed and who were living in a series of 
temporary quarters. As the FCC observed in an Order issued 6 weeks 
after the storm, ``Thousands of people--many evacuated to neighboring 
states--remain without telecommunications service, unable to contact 
loved ones, make new living arrangements, or find post-hurricane 
employment.'' \9\
---------------------------------------------------------------------------
    \9\ FCC Hurricane Katrina Order, October 14, 2005 (``FCC Hurricane 
Katrina Order''), at 2. The FCC noted that ``Unless addressed, this 
lack of access to telecommunications will lengthen the already-long 
period of time anticipated for recovery from the damage caused by 
Hurricane Katrina.'' Id. at 4.
---------------------------------------------------------------------------
    Recognizing that many of the storm's victims were low-income 
families, the FCC exercised its emergency powers to make $39 million 
available from the Universal Service Fund to reimburse wireless 
carriers willing to provide a free wireless handset and 300 free 
minutes to low-income storm victims. The FCC estimated that about 
300,000 households would be eligible for this benefit.\10\ The FCC's 
Order underscores both the role played by the Universal Service Fund in 
making wireless service available to low income consumers and their 
extraordinary need for wireless service:
---------------------------------------------------------------------------
    \10\ ``We estimate that this will have approximately a $39 million 
impact on the low-income fund, based on an estimated $130 per 
approximately 300,000 eligible evacuee households without telephone 
service.'' FCC Hurricane Katrina Order at n. 23.

        We note that this relief, combined with the action we took 
        earlier with regard to waiver of the geographic porting 
        requirements, would allow evacuees to maintain their home phone 
        numbers, and promote continuity with regard to personal 
        contacts, employment, education, and housing. Under the unique 
        and devastating circumstances caused by the hurricane and its 
        aftermath, we conclude that provision of this support, 
        including a free wireless handset, is consistent with the 
        purpose of section 254 [of the Tel Act] because it is 
        reasonably necessary to ensure that low income consumers have 
        immediate access to telecommunications services. We further 
        find that this support fulfills the Commission's broader 
        mandate to make wire and radio communication service available 
        to all people of the United States, and to promote the safety 
        of life and property.\11\
---------------------------------------------------------------------------
    \11\ Id. at 8.

    Under the terms of the FCC's Hurricane Katrina Order, the temporary 
relief afforded under that Order originally expired on March 1, 2006. 
In advance of that date, the Louisiana Public Service Commission and T-
Mobile successfully petitioned the FCC for an extension of the program. 
T-Mobile's Petition noted that it had distributed over 25,000 handsets 
under the program. (By the time T-Mobile filed its Comments with the 
FCC's Hurricane Katrina Panel in May of 2006, the number of handsets 
distributed by T-Mobile alone exceeded 44,000.) The FCC's March 1, 2006 
Order extending the term for USF funding of wireless service for low-
---------------------------------------------------------------------------
income Katrina victims (``FCC Extension Order'') observed that:

        The purpose of the original relief was to provide some 
        stability and continuity of access to telecommunications for 
        Hurricane Katrina victims while they were away from their 
        destroyed homes and transitioning to a more permanent living 
        situation. Because many of the hurricane victims remain 
        displaced, we find that it is in the public interest to extend 
        the provision of the Federal Lifeline Katrina relief until June 
        1, 2006.\12\
---------------------------------------------------------------------------
    \12\ FCC Extension Order at 5.

    The FCC's October 2005 Hurricane Katrina Order and its March 1, 
2006 Extension Order exemplify the compelling need for continued USF 
funding to support wireless service under disaster conditions. In the 
case of Katrina, USF-funded wireless service proved invaluable not only 
in meeting the public-safety-related communications needs of first 
responders and personnel involved in storm clean-up activities, but 
also to afford some means of communications for the hundreds of 
thousands of average Americans displaced by the catastrophe. For these 
people, a USF-funded wireless handset was the sole means of 
communications with other family members, employers and government 
relief agencies. Continuing and prudent investment of high-cost support 
funds for wireless infrastructure in rural areas will improve the 
availability of these important health and safety benefits.
IV. Cellular South: Portrait of a Wireless ETC's Role in Katrina and 
        its Aftermath
    Located in Jackson, Mississippi, Cellular South provides wireless 
service to 5.8 million customers in both rural and urban portions of 
the State of Mississippi. It also provides service in four other states 
in the southeastern United States. The State of Mississippi certified 
Cellular South as an ETC in 2001, and the company began receiving USF 
support shortly thereafter.
    The USF support has allowed Cellular South to convert much of its 
network to modern CDMA technology, increase substantially the capacity 
of its system, and expand its service through the construction of 
numerous new cellular sites in many rural communities that would 
otherwise not have high-quality mobile service. In 2006 alone, Cellular 
South plans to add approximately 225 new cell sites at a cost of $126 
million, a significant portion of which will be funded through USF 
support.\13\
---------------------------------------------------------------------------
    \13\ Article: Cellular South: An Honest Approach & No Excuses, 
Wireless Week, April 1, 2006 (Wireless Week Article) at 3.
---------------------------------------------------------------------------
    As an ETC, Cellular South has provided Federal Lifeline and Link-Up 
benefits to low income customers. Consequently, eligible low-income 
rural customers living within Cell South's ETC territory have a choice 
of providers, and can obtain Cellular South wireless service for as 
little as $7.00 per month.\14\
---------------------------------------------------------------------------
    \14\ Testimony of Carson Hughes (CEO of Cellular South's parent 
company) before the Subcommittee on Communications, Committee on 
Commerce, Science, and Transportation, U.S. Senate, at 2-3, April 2, 
2003.
---------------------------------------------------------------------------
    Thanks to careful planning and the extraordinary dedication of its 
workforce, sixty percent (60%) of Cellular South's Gulf Coast network 
was operational 1 day after Katrina hit, and full service was restored 
to the entire network within 2 weeks after landfall. In many of the 
hardest hit areas, Cellular South had the only operational 
communications network in the weeks following the storm's coming 
ashore. Remarkably, Cellular South did not lose a single tower on the 
Mississippi coast, and never lost wireless service at any time in some 
of the hardest-hit areas such as Hattiesburg, Biloxi and Bay St. 
Louis.\15\ On the day after the storm hit, Cellular South handled a 
record 1,000,000 calls, and over the next few weeks its daily volume 
surged to 2,600,000 calls per day.
---------------------------------------------------------------------------
    \15\ Wireless Week Article at 3.
---------------------------------------------------------------------------
    In the first week after the storm, Cellular South assisted over 
7,000 storm victims and evacuees at various phone banks it established, 
and offered free cellular calling and free handset charging to all 
wireless customers regardless of the customer's carrier. More than 90 
percent of the company's retail locations were open after the storm, 
with storefronts in Biloxi, Bay St. Louis and Hattiesburg operating out 
of tents.\16\ Realizing that it had the only operational communications 
network available on the Gulf Coast, the company distributed over 500 
handsets at no charge to public safety personnel in the Gulf Coast 
region.\17\
---------------------------------------------------------------------------
    \16\ Blog: Eyes on Katrina, a South Mississippi Hurricane Journal, 
September 8, 2005.
    \17\ Cellular South website: ``Storm Stories'' http://
www.cellularsouth.com/hurricane/storm
Stories.jsp.
---------------------------------------------------------------------------
    Cellular South's ability to maintain the continuity of its service 
despite the storm's wholesale destruction enabled public safety 
officials to carry out their disaster relief responsibilities in a 
remarkably efficient manner, given the wholesale disruption of the 
region's landline telecommunications infrastructure. George Scholl, the 
Director of the Jackson County (Mississippi) Emergency District, 
explained:

        Throughout the worst of the storm, I used my Cellular South 
        phone to stay in touch with Bell South to coordinate 9-1-1 
        coverage and with Motorola officials to coordinate repair of 
        our primary 800 MHz radio system. After the storm, even with 
        the 800 MHz system restored to full capability for operational 
        use by first responders, there was a continuing need by county 
        and city command structures for an ``administrative'' system to 
        either replace destroyed landline phones or to enable workers 
        to move immediately into alternate facilities that had no 
        communications capabilities. Cellular South was vital in 
        helping to fulfill this need and continues to do so.\18\
---------------------------------------------------------------------------
    \18\ Id.

    Likewise, Jim Catchot, the E-911 Dispatcher for the Ocean Springs, 
---------------------------------------------------------------------------
Mississippi, Police Department stated:

        I work as a dispatcher for the Ocean Springs Police Department. 
        During the storm my Cellular South phone was the only phone I 
        could count on to be working at all times. I never lost a 
        signal and was able to use the phone as needed. Also, the 
        police officers were able to use the phone to check on family 
        and loved ones.

    Mr. Catchot's remark regarding the average citizen's need for 
Cellular South's highly resilient wireless service for communicating 
with loved ones was echoed over and over again throughout the 
beleaguered Gulf Coast. For example, a Biloxi woman who was evacuated 
to Hattiesburg wrote to Cellular South thanking the company for its 
outstanding service and provided the following typical story:

        I never lost cell phone service through the entire storm and 
        after. I was able to stay in contact with my father on the 
        coast on his Cellular South cell phone--although he did lose 
        his ability to call out I could still call him. After the storm 
        while walking down the streets of what was left of my town I 
        came across crying people standing on what used to be their 
        homes. So many people were able to use my cell phone to call 
        their families in other states to let them know they were okay. 
        I came across a 79 year old woman crying on the side walk. I 
        offered to let her use my phone to call her family. She was 
        amazed that my phone worked, she lost her house and was able to 
        call her family in LA to come and get her. She hugged me and 
        cried and thanked me. Of all the cell phone services I am so 
        happy to have Cellular South. Without my working cell phone I 
        would have not known if my family or friends were okay. Thank 
        you.\19\
---------------------------------------------------------------------------
    \19\ Id.

    Recognizing the extraordinary performance of Cellular South, its 
management and its employees, in providing outstanding wireless service 
through the Katrina disaster, the Mississippi Legislature enacted a 
---------------------------------------------------------------------------
Resolution commending:

        the executives and employees of Cellular South for their 
        exemplary service, conduct and performance rendered prior to 
        and subsequent to Hurricane Katrina's unprecedented destruction 
        on and near the Mississippi Gulf Coast in August and September 
        2005, and we offer our thanks to these individuals for their 
        assistance in providing communications during this critical 
        time, as we endeavor to rebuild our state and restore its 
        economy.\20\
---------------------------------------------------------------------------
    \20\ The full text of the Resolution is attached to this White 
Paper.

    Based on the lessons learned from Katrina, Cellular South plans to 
invest an additional $8 million to enhance the resiliency of its 
network even further through the installation of measures such as 
microwave links that will allow it to bypass the landline network to 
complete calls in the event of another disaster and a mobile command 
center.\21\
---------------------------------------------------------------------------
    \21\ Article ``Cell Companies Beefing Up In Preparation For 
Hurricane Season,'' San Diego Union-Tribune, June 1, 2006.
---------------------------------------------------------------------------
    In its Comments filed with the FCC's Katrina Panel, Cellular South 
emphasized that its status as an ETC, and its receipt of USF support, 
was a critical factor in its ability to provide vital wireless service 
during and after Katrina.

        Cellular South has used USF to deploy and operate Cellular 
        South's CDMA network in rural, high-cost areas of Mississippi 
        and Alabama, including many of the areas affected by Hurricane 
        Katrina. Without USF, Cellular South's response to Hurricane 
        Katrina and the access and capacity that Cellular South 
        provided to first responders and CDMA users would have been 
        significantly reduced.\22\
---------------------------------------------------------------------------
    \22\ Comments of Cellular South, Inc. and Cellular South Licenses, 
Inc. to FCC Katrina Panel, May 11, 2006, http://www.fcc.gov/eb/hkip/
PubCom/ACT3066.pdf.
---------------------------------------------------------------------------
V. Conclusion: Homeland Security Considerations Alone Warrant 
        Continuation of USF Support for Rural Wireless Carriers
    This White Paper has demonstrated that:

        (a) wireless carriers provided a critical communications 
        service during and after Hurricane Katrina. Specifically, 
        Cellular South, a rural wireless carrier ETC, had the only 
        operational communications network in many portions of the Gulf 
        Coast in the period during and after landfall;

        (b) first responders and other public safety personnel rely 
        extensively (and in many cases solely) on wireless service, 
        including the service provided by Wireless ETCs, to meet their 
        emergency and administrative communications needs in the wake 
        of Katrina;

        (c) the widespread availability of wireless service in the 
        areas hit by Katrina effectively mitigated the 
        ``interoperability problem'' that plagued public safety 
        personnel in the World Trade Center and other disasters, since 
        wireless service was virtually the only telecommunications 
        service available in many areas;

        (d) the FCC's Wireless Priority System, implemented after the 
        World Trade Center disaster, further enhanced the effectiveness 
        of wireless service as the primary communications mode for 
        public safety personnel working in the Gulf Coast area;

        (e) Federal high-cost USF support for Cellular South and other 
        ETCs serving the areas affected by Katrina enabled the 
        supported carriers to install a broad and resilient network in 
        many rural areas that would not otherwise have the benefits of 
        mobile service;

        and

        (f) Supplemental low-income USF support provided by the FCC for 
        wireless ETCs was critical in making free handsets and 300 
        minutes of wireless network time available to hundreds of 
        thousands of low-income Katrina victims.

    These facts alone should be sufficient to compel the conclusion 
that continued Federal USF funding for rural wireless ETCs should be an 
urgent homeland security priority.
    The FCC's actions in making millions of USF dollars available to 
wireless carriers to furnish Katrina victims with the means to purchase 
and use wireless telephones also underscores the fact that in disaster 
situations, commercial mobile wireless service is the best reasonably 
available means of communications for the general public. The FCC 
recognized that people displaced from their homes and businesses and 
moving from place to place must have good mobile service to provide the 
continuity of communications needed to function in today's world.
    The Gulf Coast region was fortunate in that it enjoyed a fairly 
robust wireless network--thanks, in significant part, to the USF 
funding previously provided to rural Wireless ETCs such as Cellular 
South. Should a powerful and disruptive storm, or a terrorist incident, 
strike an area of the United States that suffers from limited or no 
mobile service, the absence of adequate wireless communications would 
leave public safety personnel, such as first responders, and the 
general public in a communications vacuum. A Katrina-level storm 
hitting Washington County, Maine, for example, where mobile service 
``has established only a tentative toehold,'' \23\ would be 
devastating.
---------------------------------------------------------------------------
    \23\ See Section 1 above at n. 1.
---------------------------------------------------------------------------
    Continued USF funding of rural wireless carriers will ensure that 
over time, the Universal Service promise of the Tel Act will be 
achieved: rural areas will have a mobile communications system 
comparable to that enjoyed in non-rural areas. This, in turn, will 
ensure that the people living in rural areas will likewise have a 
communications system adequate to see them through the kind of man-made 
and natural disasters that have struck the more settled areas of the 
United States. With roughly $7 billion of Federal USF being distributed 
annually, Federal policies that accelerate wireless infrastructure 
development in rural areas must be pursued.
    On the other hand, discontinuing this funding will consign 
communications in rural America to permanent second-class status, with 
obvious implications for rural America's economic vitality as well as 
its ability to survive significant natural or man-made disasters.
    Public safety in America's rural areas, both in disaster and non-
disaster situations, requires Congressional action, in the homeland 
security context, reaffirming that USF support for rural Wireless ETCs 
will continue at least until the build-out of America's wireless 
network has reached all of the rural portions of the United States.
                                 ______
                                 
                        Mississippi Legislature
                          2006 Regular Session
    By: Senator(s) Hewes, Browning, Butler, Carmichael, Chaney, Clarke, 
Dearing, Frazier, Gollott, Harden, Hyde-Smith, Jackson (11th), Jackson 
(15th), Jackson (32nd), Jordan, King, Mettetal, Pickering, Posey, Ross, 
Simmons, Thames, Thomas, Walls, White
                    Senate Concurrent Resolution 538
                    (As Adopted by Senate and House)
A Concurrent Resolution Commending Cellular South Network for 
        Performing Exemplary Service on the Mississippi Gulf Coast 
        During the Hurricane Katrina Crisis.
    WHEREAS, founded in 1988, Cellular South is the Nation's largest 
privately held wireless company and the only wireless company 
headquartered in Mississippi; and
    WHEREAS, Cellular South announced that its wireless network in 
South Mississippi, including the Mississippi Gulf Coast, was fully 
operational as of Friday, September 9, 2005, 3 days earlier than 
previously estimated. Despite Hurricane Katrina's destruction, the 
Mississippi-based company never lost service in parts of the most 
storm-ravaged areas, particularly in Hattiesburg and Biloxi and had 
teams in place that began immediate repairs of cell sites and 
infrastructure following the storm; and
    WHEREAS, on Monday, August 29, 2005, Hurricane Katrina, a Category 
Four Hurricane, crashed with unrelenting and violent force onto the 
entire Mississippi Gulf Coast, making landfall at or around Waveland, 
Mississippi. In 1 day, the worst natural disaster in our history struck 
us a grievous blow, leaving a 90-mile swath of destruction along the 
coast and causing severe damage throughout central and north 
Mississippi; and
    WHEREAS, the reliability of the Cellular South network after the 
storm is reflected in the fact that the company has seen a 256 percent 
increase in the number of minutes carried on behalf of other carriers' 
customers since the storm in the affected area. The increase equates to 
more than 8.5 million minutes of usage (MOUs) from other carriers' 
customers, following the storm; and
    WHEREAS, ``Cellular South employees, some of whom were dealing with 
their own personal losses, knew that communication was critical for 
hurricane victims and evacuees and they did everything they could to 
fully restore our customers' ability to reach loved ones or call for 
emergency help in the aftermath of the storm,'' said Hu Meena, company 
President. ``As just one example, The Washington Post noted in one of 
its stories a Cellular South network technician in Biloxi who literally 
crawled out of his home that had been destroyed by a fallen tree, got 
his family to safety and then traveled to the nearest cell site to 
begin repair work;'' and
    WHEREAS, Cellular South utilized 300 generators and 20,000 gallons 
of fuel, as well as over 400 employees dedicated to restoring the 
network as quickly as possible. Through the dedication and hard work of 
the team, the network was restored ahead of schedule, and reported 
record minutes of use upon restoration of service. Cellular South 
donated over 1,000 phones to local, state and Federal officials who 
worked and are still working to rebuild Mississippi, as well as to many 
Red Cross Shelters so that hurricane victims would have a way to 
communicate with their loved ones. Cellular South donated a total of 50 
million free relief minutes to customers in the hardest hit of areas; 
and
    WHEREAS, while it is still early to complete a full assessment, 
estimates indicate the financial impact of Hurricane Katrina on 
Cellular South are likely to be in the range of $8 to $12 million; and 
yet, the company's goal was to do whatever it took to restore service 
for customers and take care of employees--both those affected by 
Hurricane Katrina and those working to restore wireless service:
    NOW, THEREFORE, BE IT RESOLVED BY THE SENATE OF THE STATE OF 
MISSISSIPPI, THE HOUSE OF REPRESENTATIVES CONCURRING THEREIN, That we 
do hereby commend the executives and employees of Cellular South for 
their exemplary service, conduct and performance rendered prior to and 
subsequent to Hurricane Katrina's unprecedented destruction on and near 
the Mississippi Gulf Coast in August and September, 2005, and we offer 
our thanks to these individuals for their assistance in providing 
communications during this critical time, as we endeavor to rebuild our 
state and restore its economy.
    BE IT FURTHER RESOLVED, That this resolution be forwarded to Mr. Hu 
Meena, President of Cellular South, and be made available to the 
Capitol Press Corps.
                               Exhibit 4
   Letters from Maine Public Officials in Opposition to Proposed Cap

                                                       June 6, 2007
Hon. Kevin J. Martin,
Federal Communications Commission,
Washington, DC.

Dear Chairman Martin:

    I am writing to express my concern regarding the recent 
recommendation by the Federal-State Joint Board on Universal Service 
that the Commission impose a temporary cap on the amount of support 
that competitive eligible telecommunications carriers (ETCs) may 
receive through the Universal Service Fund (USF).
    While I understand the Joint Board's concern that the rapid growth 
in high-cost support is unsustainable and places the Fund in jeopardy, 
I believe that the impact of the proposed interim cap would be felt 
disproportionately by Maine.
    Two wireless ETCs serve high-cost rural areas of Maine with the 
assistance of USF support. These companies have told me that they had 
planned to invest a total of $15 million in new service towers and 
other infrastructure in Maine this year. If the cap is implemented, 
these companies may be forced to curtail investments by $2 million, and 
will likely forego construction of five cell towers, sacrificing 
desperately needed coverage in hard to reach areas of my home state.
    I am hopeful that the Commission can find an alternative means of 
reforming the Universal Service Fund without adopting the interim cap 
proposed by the Joint Board.
    Thank you for your attention to this matter.
            Sincerely,

                                          Susan M. Collins,
                                             United States Senator.
                                 ______
                                 
                                                       June 5, 2007
Hon. Kevin J. Martin,
Chairman,
Federal Communications Commission,
Washington, DC.

Dear Chairman Martin:

    I understand that the Federal Communications Commission is 
currently considering whether to adopt the recent recommendations of 
the Federal-State Joint Board on Universal Service that would place a 
cap on payments from the Universal Service Fund (USF) for competitive 
eligible telecommunications carriers (CETCs). Most CETCs are wireless 
carriers serving rural areas of the country, including much of my home 
State of Maine, and have used USF funding to expand wireless 
infrastructure in regions which continue to suffer from cellular 
telephone coverage that is far below the quality experienced in urban 
areas of the United States. Because the proposed cap would unduly deter 
continued investment in expanding wireless service in rural America, I 
urge the Commission to reject the Joint Board's recommendations.
    The Telecommunications Act of 1996 established the USF in order to 
ensure that our rural areas would have a level of telecommunications 
service reasonably comparable, in terms of prices and availability of 
modem services, to that found in urban areas of the United States. Most 
Maine residents and visitors would agree that this promise has not been 
kept with respect to wireless service, which is either spotty or non-
existent throughout many of the state's rural communities. This is not 
a mere inconvenience. Poor mobile telephone service undermines the 
ability of Maine's law enforcement officers to deliver basic public 
safety services. Moreover, the public increasingly relies upon wireless 
service to contact public safety officials during an emergency: 
according to the Maine Public Utilities Commission, nearly 50 percent 
of 9-1-1 calls placed in 2006 were dialed with a cellular telephone. 
The inability to get a signal on one's mobile phone could very well be 
a matter of life and death.
    Maine's substandard wireless coverage also hinders our rural 
communities' efforts to attract new economic development. A cap on 
funding for wireless service expansion, as proposed by the Joint Board, 
will have a disproportionately negative impact on these endeavors. In 
today's world, telecommunications means more than just a landline 
telephone connection. The technological advancements of the past 
decade, as well as those expected in the decade to come, have long been 
viewed as a key mechanism for reducing the economic competitiveness gap 
between urban and rural areas. The Joint Board's recommendations, if 
adopted, could very well have the reverse effect, and exacerbate this 
gap.
    As an author of USF legislation in each of the last three 
Congresses, I am keenly aware of the financial strains the Fund is 
experiencing and the need for a solution to provide it long-term 
stability. The Joint Board's recommendation, proffered as a short-term 
solution, is also short-sighted. If implemented, investment in the 
wireless infrastructure so desperately needed in rural America will 
almost certainly be curtailed. If belt-tightening is truly warranted, 
it should be done in a manner that equally affects all segments of the 
industry and regions of the country, not imposed solely on wireless 
carriers who serve rural customers.
    In stabilizing and strengthening the USF, the Commission's goal 
should be to craft equitable and permanent solutions that reflect 
Congressional intent as embodied in the 1996 Telecommunications Act, to 
develop Universal Service mechanisms that provide rural consumers with 
choices in advanced telecommunications services, and to develop 
strategies that encourage all stakeholders to meaningfully contribute 
to the process. The Joint Board's recommendations do not measure up to 
these standards, and I therefore urge you to reject them.
            Sincerely,
                                          Olympia J. Snowe,
                                             United States Senator.
cc: Commissioner Jonathan S. Adelstein
Commissioner Michael J. Copps
Commissioner Robert M. McDowell
Commissioner Deborah Taylor Tate
                                 ______
                                 
                                                       June 5, 2007
Hon. Kevin Martin,
Chairman,
Federal Communications Commission,
Washington, DC.
                                           Re: WC Docket No. 05-337
Dear Chairman Martin:

    I am writing in opposition to the proposed cap on Universal Service 
Fund support to competitive eligible telecommunications carriers 
(CETCs) as recommended by the Federal-State Joint Board on Universal 
Service.
    The Universal Service Fund faces a fiscal challenge, and I 
appreciate the FCC's attention and commitment to comprehensive reform 
of the Fund. However, I am concerned that approval of a cap on CETC 
support, though meant to be a temporary measure, could further delay 
needed reform. Though the Joint Board has stated its intention to make 
further recommendations within 6 months, I am concerned that a cap, 
even if temporary, would set a precedent of singling out one sector of 
the telecommunications industry.
    Maine has two wireless ETCs that have productively used Universal 
Service funds to expand service to remote areas in our largely rural 
state. The growth in Maine's support has been moderate, not explosive. 
I believe the cap as proposed would negatively impact the expansion of 
modern telecommunications services of all types to residents in rural 
Maine.
    I appreciate your attention to this matter and look forward to your 
response.
            With warmest regards,
                                        Michael H. Michaud,
                                                Member of Congress.
                                 ______
                                 
                                                       May 22, 2007
Hon. Kevin Martin,
Chairman,
Federal Communications Commission,
Washington, DC.
                                           Re: WC Docket No. 05-337
Dear Chairman Martin:

    I am writing to voice my opposition to the proposed cap on 
Universal Service support to competitive eligible telecommunications 
carriers (CETCs) as recommended by the Federal-State Joint Board on 
Universal Service.
    I appreciate the fiscal situation facing the Universal Service Fund 
and understand the desire to institute urgent measures to address the 
financial issues. While the cap on CETC support is proposed as a 
temporary measure, I am concerned that its approval could act as a 
pressure valve that could lead to further delay of comprehensive 
reform.
    It is true that payments to CETCs are the fastest growing element 
of the high-cost fund By its nature, freezing CETC contributions 
improves the fiscal outlook of the overall fund. My worry is that this 
action will act as a pressure valve and decrease the urgency for 
broader reform. While I appreciate the Joint Board's intention to make 
further recommendations within 6 months, if it does not, we could see a 
``new norm'' within the high-cost fund that leaves one sector of the 
industry unfairly singled out.
    Maine has two wireless ETCs that have productively used Universal 
Service funds to expand service to remote areas in our largely rural 
state. The growth in Maine's support has been moderate, not explosive. 
It is not fair that residents in rural Maine should lose the access to 
modern telecommunications services under a one-size-fits-all cap.
    Again, I urge the Commission to reject the proposed cap on CETC and 
work toward comprehensive solutions to control cost growth in Universal 
Service funds.
            Sincerely,
                                                 Tom Allen,
                                                Member of Congress.
cc: The Honorable Michael J. Copps
The Honorable Jonathan S. Adelstein
The Honorable Deborah Taylor Tate
The Honorable Robert M McDowell
                                 ______
                                 
                                                        May 8, 2007
Hon. Olympia J. Snowe,
Russell Senate Office Building,
Washington, DC.
                      Re: Proposed Cap on Universal Service Funding
Dear Senator Snowe:

    Last July, I wrote to you asking your help in ensuring that 
telecommunications reform legislation then before the Senate would not 
have an adverse impact on much-needed Federal Universal Service Fund 
payments. As my July 24, 2006 letter indicated (copy attached), Unicel 
and United States Cellular, Maine's two wireless Eligible 
Telecommunications Carriers (``ETCs''), are moving aggressively to 
implement their ambitious build-out programs in Maine using these 
funds. Public understanding of the role of Federal Universal Service 
involvement in rural wireless infrastructure improvement is growing, as 
demonstrated in the attached editorial, which appeared in the January 
30 edition of the Bangor Daily News.
    I was pleased to learn of your successful efforts on last year's 
bill--I understand that the final version of Sen. Stevens' legislation 
was benign, if not favorable, in this regard. Unfortunately, I again 
need to request your assistance on an issue relating to wireless ETC 
funding.
    As I understand it, hearings recently conducted by the Senate and 
House committees overseeing the Federal Communications Commission 
(``FCC'') revealed that the Federal-State Joint Board may recommend 
that the FCC ``cap'' Universal Service funding--but only to competitive 
ETCs (CETCs) operating in rural areas--pending a reform of the FCC's 
Universal Service distribution mechanism. I am advised that this rural 
funding cap would stay in place for as long as 2 years while the Joint 
Board and FCC consider possible changes to the distribution mechanism 
for Universal Service support.
    Given rural Maine's significant need for infrastructure 
development, I am deeply troubled by the notion of capping rural CETC 
funding just when our two wireless ETCs are aggressively building new 
rural network facilities. I certainly understand the need for proper 
stewardship of the Universal Service mechanism. However, even if FCC 
Chairman Martin's estimate--that funds to CETCs will grow by $300 
million in 2007--comes to pass, the projected growth would be less than 
5 percent of the total $7 billion fund--hardly an emergency situation.
    Also, I cannot understand why rural people should bear the full 
brunt of any cap, especially in light of the enormous health, public 
safety and economic development disadvantage that rural areas suffer 
due to the lack of wireless infrastructure.
    Accordingly, I urge you to advise the Joint Board that funding to 
CETCs should not be capped, even on an interim basis. There are other 
ways to control Fund growth and ensure competitive neutrality without 
impeding the investment in our rural infrastructure that Maine citizens 
so desperately need.
            Sincerely,
                                          John E. Baldacci,
                                                          Governor.
                               Exhibit 5
 Resolution of the Legislature of the State of Maine in Opposition to 
                                  Cap
Joint Resolution Memorializing the U.S. Congress and the Federal 
        Communications Commission to Forego Imposing a Cap on Federal 
        Universal Service Fund Support for Maine's Rural Wireless 
        Carriers
    WE, your Memorialists, the Members of the One Hundred and Twenty-
Third Legislature of the State of Maine now assembled in the First 
Regular Session, most respectfully present and petition the U.S. 
Congress and the Federal Communications Commission as follows:
    WHEREAS, the Federal Telecommunications Act of 1996 through the 
establishment of the Federal Universal Service Fund was intended to 
promote the availability of quality services at just, reasonable and 
affordable prices, increased access to advanced telecommunications 
services throughout the Nation and the availability of quality services 
to all consumers, including those in low-income, rural, insular and 
high-cost areas, at rates that are reasonably comparable to those 
charged in urban areas; and
    WHEREAS, the intended goals of that legislation have not been met 
in the State of Maine, and many of Maine's communities have no wireless 
services or inadequate wireless service; and
    WHEREAS, the failure to achieve the goals of improved and high-
quality services has, and will continue to have, a direct and 
substantial negative impact on the health and safety of the people 
living and working in Maine's rural areas; and
    WHEREAS, the failure to achieve this goal of high-quality wireless 
services at just, reasonable and affordable rates to everyone is a very 
significant barrier to the economic development of much of rural Maine; 
and
    WHEREAS, there are 2 rural wireless carriers in Maine that have 
successfully sought certification as eligible telecommunications 
carriers and have used the Federal Universal Service funding they have 
received to construct significant additional wireless infrastructure in 
rural Maine; and
    WHEREAS, the Maine Public Utilities Commission has certified that 
these Maine rural wireless carriers have used the funds received from 
the Federal Universal Service Fund in a manner consistent with all laws 
and regulations governing the funds; and
    WHEREAS, the Federal-State Joint Board on Universal Service has 
recommended that the Federal Communications Commission impose a cap on 
funding for competitive eligible telecommunications carriers; and
    WHEREAS, this recommended cap would limit Federal Universal Service 
Fund support for Maine's rural wireless carriers currently receiving 
these funds; and
    WHEREAS, the proposed cap on funding would serve to undercut the 
purpose and objective of the Federal Telecommunications Act of 1996 by 
impairing the ability of Maine's wireless eligible telecommunications 
carriers to expand infrastructure into rural Maine so that rural and 
urban wireless service is equal, as promised by that Act; now, 
therefore, be it
    RESOLVED: That We, your Memorialists, on behalf of the people we 
represent, take this opportunity to request that the Federal 
Communications Commission reject the cap proposed by the Federal-State 
Joint Board on Universal Service; and be it further
    RESOLVED: That We, your Memorialists, respectfully urge and request 
that the United States Congress take action to repeal the cap if it is 
adopted by the Federal Communications Commission; and be it further
    RESOLVED: That suitable copies of this resolution, duly 
authenticated by the Secretary of State, be transmitted to the 
Honorable Kevin J. Martin, Chairman of the Federal Communications 
Commission, to the President of the U.S. Senate, to the Speaker of the 
U.S. House of Representatives and to each Member of the Maine 
Congressional Delegation.
                                 ______
                                 
                             State of Maine
                                                       June 6, 2007
Hon. Marlene H. Dortch,
Secretary,
Federal Communications Commission,
Washington, DC.
                                               Re: Docket No. 96-45
Dear Secretary:

    Forwarded herewith are Comments of the Maine Public Utilities 
Commission in the above docket with regard to the Recommended Decision 
of the Universal Service Joint Board.
    Should you have additional questions, you may contact Trina M. 
Bragdon, the primary staff person in this docket.
            Sincerely,
                                           Trina M. Bragdon
                                 Maine Public Utilities Commission.
Enclosure
                                 ______
                                 
              Before the Federal Communications Commission
                             Washington, DC
In the Matter of Federal-State Joint Board on Universal Service
High-Cost Universal Service Support
CC Docket No. 96-45
WC Docket No. 05-337
Comments of the Maine Public Utilities Commission
    The Maine Public Utilities Commission (MPUC) is a state regulatory 
agency charged with ensuring that there is a regulatory system 
consistent with the public interest and with State law. It is the 
policy of the State of Maine to ensure that access to advanced services 
be made available to all communities without regard to geographic 
location, 35-A M.R.S.A.  7101. With these duties in mind, the MPUC 
files these initial comments in response to the Notice of the 
Commission published in the Federal Register on May 23, 2007.
    We recognize that the existing Universal Service Fund mechanism for 
providing support to competitive carriers is causing the Federal 
Universal Service Fund to grow substantially in some areas of the 
country. We also recognize that the ``equal support rule'' which bases 
support payments for Competitive Eligible Telecommunications Carriers 
(CETCs) on the support payments of the incumbent carrier is causing the 
Fund to grow dramatically. The ``equal support rule'' is also providing 
more total support than is needed in some states because in those 
states the incumbent's costs are much greater then those incurred by 
the wireless CLEC to provide full rural area wireless coverage. 
Furthermore, in some states the CETC support is not being used by 
carriers for rural ``build-out'' purposes.
    Nevertheless, there are states, such as Maine, where the current 
CETC support is not excessive. This occurs because the costs of rural 
wireless build-out are higher than the national average and in many 
cases are higher than the costs for providing wireline service. The 
MPUC also requires that all CETC support be used to build-out rural 
systems and it monitors compliance with that requirement.
    The capping of the CETC support at 2006 average payment level will 
likely cause delay in the construction of towers in Maine that have 
been planned for the next year, even if Maine designates no additional 
CETCs. These planned towers would generate little if no revenue for the 
wireless carrier because the areas they serve have very few fixed 
customer locations. Nevertheless, the public health and safety requires 
remote areas to be provided with mobile wireless service and Universal 
Service support for such service should be continued.
    Instead of capping the CETC fund nationally at average 2006 levels 
for each state, the MPUC suggests capping the Fund only in those states 
where growth has been excessive and where state commissions have not 
established mechanisms to insure that all CETC support is used for 
rural build-out purposes. If the growth in CETC support for each state 
were limited to provide funds needed to cover planned rural build-out 
projects and states were required to certify that the support was both 
needed and being used for rural build-out purposes, the growth in the 
Fund should be controlled. Rural wireless build-out could then continue 
at a moderate price while support mechanisms for CETCs are reexamined.
    The solution to controlling rapid growth of the CETC USF should 
focus on those areas causing the problem and not penalize those areas, 
such as Maine, where the growth in the Fund has been moderate and all 
funds have been used for their intended purpose. Since the FCC has not 
acted on meaningful Universal Service reform since 2001, we are very 
skeptical that the proposed emergency cap will, in reality, last for a 
short time as the concept's advocates suggest. Rather, we believe an 
extended moratorium will occur that will significantly delay rural 
infrastructure investment in advanced services. Therefore, a cap at 
average 2006 levels is likely to irreparably harm rural residents of 
Maine.
    Accordingly, the MPUC respectfully suggests that the Commission 
give serious consideration to the approach suggested above so that 
wireless rural build-out may continue in Maine and other similarly 
situated areas.
            Respectfully submitted,
                                    Trina M. Bragdon, Esq.,
                                 Maine Public Utilities Commission.

    Senator Stevens. Thank you very much.
    On behalf of the Chairman, let me ask you his questions.
    This first question would be to all members of the panel. 
One criticism of the so-called ``identical support rule'' for 
Universal Service is that it results in an overly generous 
support to wireless carriers because levels of support are 
based on the cost of providing wireline services. In light of 
this, Chairman Inouye wants three questions answered. ``Do you 
believe that Universal Service should support both wireline and 
wireless service in rural America? Would it be possible to 
construct a model for wireless carriers that would calculate 
support based upon the cost of wireless carriers? Third, what 
effect would tying wireless support to wireless cost have on 
the size of the Fund?''
    Mr. Rooney?
    Mr. Rooney. Let me take it in order. First of all, I would 
say that it would be in the interest of the government, the 
U.S. Government, and good policy, to have the lowest-cost 
provider of service being the primary provider of service in 
the area. I think technology has overtaken things that have 
taken place in the past. If wireless service provides service 
in the most economical and reasonable fashion--those costs 
should be used, but they should be used for everyone that is 
providing that service in those areas. In other words, this is 
to use the highest cost to justify recompense is sort of 
turning the whole idea of competition upside-down.
    So, yes, this whole thing needs to be reworked. And we're 
not at all opposed to a complete review of this particular 
situation. I've been on both wireless and wireline sides of 
this thing, and basically you go back to the days where, you 
know, wireline service was the only dependable service. 
Wireless service now is as dependable as any service in the 
world. And it can be delivered at a much lower cost. And to 
continue to subsidize the provision of the high-cost provider, 
rather than the low-cost provider, seems to me contrary to 
everything that we stand for. And, yes, I'm pushing wireless, 
because I happen to be in the wireless industry, but I also 
know the capabilities of the wireless carrier.
    Senator Stevens. Thank you.
    Mr. Nishi?
    Mr. Nishi. We believe that the services--wireless and 
landline service--they're complementary in nature. So, yes, we 
believe that there should be support for both types of services 
so that both networks are sufficiently built out. And in the 
long-term, we believe that will benefit all the citizens of the 
U.S.
    As to the second question, whether a model can be developed 
for wireless support, we believe that one can be developed. Our 
models for wireline companies today are based on our cost of 
doing business. And we do come up with our costs, and the funds 
are adequately distributed from those costs.
    So, I do believe the wireless industry can come up with a 
plan. And, when they do come up with a plan or a costing type 
of model, I believe that their costs will be less, given the 
fact that they have not had carrier-of-last-resort obligations 
and they have not been regulated in the same fashion we have 
been through all the years. So, I think that is a possibility.
    Your third question, as to what effect it would have on the 
size of the Fund, I think the Fund for the wireless industry 
would be less than what they're receiving today, based on the 
identical support rule. As I've said, the identical support 
rule is illogical, it's based on our costs, not on the costs of 
the wireless companies and their cost of doing business.
    Senator Stevens. Mr. Foxman?
    Mr. Foxman. Yes. To your first question, ``Should both 
wireless and wireline be supported?'' I think the perspective 
on that should be that it's not so much about the delivery 
mechanism as it is about the supported service, because, just 
as we're having this discussion here today, a year from now, 2 
years from now, there may be a new technology that's able to 
deliver those services to customers, too, and they shouldn't be 
excluded from the public interest, for the benefit of the end-
user, there shouldn't be a restriction based on what our 
technology and delivery mechanism is. So, yes.
    And tying in, I guess, with the second question, too, 
about, ``Is it possible to do a model for wireless?'' I think 
the issue of competitive neutrality comes up in that. If we 
have a different model for each different kind of company that 
comes and proposes to deliver a service, how long does that 
take? When is the right stage, when a new technology is 
offered, to build that model? I think that would get very 
challenging to be able to manage.
    That said, we certainly could come up with a model. You 
know, we, as operators, know our own costs, and I don't think 
we would have problems sharing that information.
    As it relates to what that actually means for the size of 
the Fund, and what our costs would be, I think a complicating 
issue there is, it really depends on what stage of development. 
So, if the public-interest benefit that we're trying to get to 
is building networks in places that are underserved and have a 
great need today, the cost of doing that for any service 
provider can be very high. The cost of, for example, edging out 
a new network into more rural places is one thing, the cost of 
deploying new service, wireless or any other technology, in a 
completely underserved area is going to be much greater than 
that.
    Senator Stevens. Mr. Lubin?
    Mr. Lubin. Thank you.
    With regard to the first part of the question, ``Should 
Universal Service support both wired and wireless?'' from my 
point of view, I would say that is a clear public policy 
question that the public policymakers must answer. If the 
answer is yes, then AT&T Wireless will be very eager to serve 
those rural areas. Just as we are an ETC in five states today, 
we will be very eager.
    The question gets to be somewhat more complicated once a 
policy decision is reached if you want to support wireless, and 
that is, what is most critical. I believe there are four 
questions to be answered. Do you want it supported? If the 
answer is yes, which I assume it is, given this discussion, the 
next question is, what areas do you want to serve? And I assume 
it's the underserved rural areas. And so, then you would have 
to make sure that we have a plan that's designed to support, 
truly, the underserved areas. The third part of that question 
is, am I going to support one CETC or multiple CETCs? It's a 
critical question to be answered. And the final question is, 
the identical support rule, do you want to use the same cost 
structure as the incumbent? Probably the same cost structure is 
not appropriate, but the point is, once you answer all four 
questions, the final point is, do we have any idea how big the 
size of the Fund will be? Well, depending on how you answer 
these questions, the size of the Fund could become extremely 
large. That is why AT&T has put a pilot on the table, to say, 
``Let's begin to learn, specifically, answering your specific 
questions.''
    And the final point here is, not only is this addressing 
wireless, but there was a panel here about a month or two ago 
before you talking about broadband deployment. So, now the 
issue is, how much funding can we have, and how much are 
customers ultimately going to pay? Because it's all about what 
is seen on the customer's line of their bill. And so, 
ultimately, we're going to have to answer these questions, but 
we're going to have to ultimately prioritize, depending on how 
big the size of the Fund gets, if we are truly interested in 
serving underserved areas, which AT&T is, and that's why we've 
put the two pilots on the table.
    Thank you.
    Senator Stevens. Chief Flannery?
    Mr. Flannery. Well, Mr. Vice Chairman, I'm certainly not a 
policymaker in this discussion, but I will tell you how this 
looks from the law enforcement standpoint in the rural State of 
Maine.
    Should there be support for both in the Universal Service 
Fund? I definitely think the formula needs to be adjusted to 
take care of the underserved wireless parts of rural areas. I 
think that your comments, made earlier, at the beginning, that 
the FCC had the power beforehand to--Ms. Tate had said that she 
knows the issues and the problems that need to be addressed, 
but yet, there was no action taken to do that, but just to make 
this cap on primarily the wireless carriers.
    How does this affect us in the State of Maine to accomplish 
our homeland security initiatives? It pretty much handcuffs us 
to do that. We're currently, right now, working on being able 
to establish different training sessions to carry out mass 
casualty and mass disasters in the area of central and northern 
Maine. And we're having a problem right now identifying areas 
of where there's wireless service to implement and place our 
command posts for communications to be able to get weather 
broadcasts and Internet access. So, you can see that that 
portion of it is a very crucial aspect for the State of Maine 
and other rural areas.
    So, I guess the question is--the model to calculate should 
be based more on what Mr. Lubin had said about where the actual 
need is, and identify that. Things change in law enforcement, 
day in and day out, as much as they do at the FCC. And it's 
important for you to prioritize and to recognize where your 
priorities are, and take action toward resolving these. I 
haven't seen that done.
    Senator Stevens. Well, thank you.
    I just want to ask one of my questions and then let the 
other Senators ask questions, and I'll come back to the Senator 
Inouye's questions later.
    One of the problems I have with this situation is that we 
have, in these small communities, legacy carriers that are 
basically fixed-wire distribution hooked into satellite 
communications, in many instances. The new wireless services 
are--those services, by the way, are primarily local people who 
started these small systems, and have improved them as much as 
they could under the circumstances of the income that they're 
receiving plus the Universal Service support they get--when the 
wireless services come in and compete, they get the money from 
the Universal Service Fund based upon the legacy carrier's 
costs. And there's a windfall there. But with the windfall 
comes a situation where they destroy the local legacy carrier 
and local employment is gone, the local investment's gone, and 
we find that there's a distant carrier--in terms of 
emergencies, they're not there.
    How do you answer that? Somehow or other, I think we have 
to find some way to preserve the local carriers, where they 
perform more of a service than just delivering a hookup. They 
are part of the emergency system, the local legacy carrier, 
resident in the area, and I think that it's the worst problem 
that we face, along comes a new carrier, primarily from a 
company miles away, and there's no attempt to restore service 
in the local area in the event of an emergency, as there would 
be from the people who are resident there and trying to restore 
service. Am I getting across, Mr. Rooney?
    Mr. Rooney. Well, with all due respect, Senator, wireless 
service, at least in the experience that I've had, generally 
speaking, has responded to emergencies better than the wireline 
services.
    Senator Stevens. How far away is your wireless service 
compared to where the people are?
    Mr. Rooney. Well, can I talk about a prior life for a 
minute?
    Senator Stevens. Sure.
    Mr. Rooney. Because Senator Inouye would be very, very 
familiar with this. But in a prior life, when Iniki hit 
Kaua`i--the company that I was president of was headquartered 
in Chicago--we effectively were the only telecommunications 
supplier up and operating in Kaua`i through the hurricane and 
through its recovery period. The landline service went down, 
and the other wireless service went down.
    In the case of Missouri, back in the 1990s, when they had 
the flooding that basically broke down every dam and berm in 
the area, our wireless service was serving the Red Cross and 
other places when the landline service was down.
    Excuse me, but there's one more point. In current service, 
in New England, when they had the flooding last year, and in 
Missouri again this year, when the services went down, we 
operated, because we're now building what they call ``hardened 
sites.'' And our engineers live in the communities that they 
work in, so the repair people, the people that service these 
places, are part of the communities we serve. This isn't like 
having guy come in with a satchel and put up a terminal and 
then walk away from the area that they serve. I think wireless 
basically has demonstrated, time and time again, its viability 
and its ability to operate quickly and over a period of time in 
service areas where there is trouble.
    Senator Stevens. Well, I don't want to prolong it, but I 
have the vision that the wireline services have local people 
involved, local investment, and the newcomers are basically 
from outside those communities. I understand what you're 
saying, during an emergency, but during just routine operation, 
I have the vision that, with these new situations, they just 
come in and put up an automated thing somewhere on a hill near 
the community, and that's the communications service, there's 
nobody that goes with it, there's no one local at all.
    Mr. Rooney. With all due respect, that's not the way we 
operate.
    Senator Stevens. Is that true, Mr. Nishi?
    Mr. Nishi. I can't speak to Mr. Rooney's company, but I do 
know that, for the rural ILECs, we are in the communities we 
serve, we are part of the community. We're proud to be a part 
of the community, and we make contributions to the communities.
    Senator Stevens. Well, I won't prolong this, but I'll get 
back to Senator Inouye's questions. I believe we have to have 
modernization, and I don't understand this cap, on the CLECs, 
because they're bringing in new service, and not having any 
caps at all on existing service. On the other hand, I do not 
understand why we should take away from the smaller communities 
their local investment and their--the people who have pioneered 
communications simply because someone else comes in under the 
existing rules and gets paid the same thing that the wireline 
service carrier gets, in terms of Universal Service support 
where their costs are so much lower. It's not really a fair 
competitive advantage that they have when they come into the 
community.
    Senator McCaskill?
    Senator McCaskill. Thank you, Mr. Chairman.
    I'd like to ask the representatives--Mr. Rooney and Mr. 
Nishi and Mr. Foxman--if any of your companies are taking 
advantage of the RUS program in USDA, the program to expand 
broadband service that is available, the loan program that is 
available there.
    Mr. Rooney. I'm not aware that we are.
    Mr. Foxman. We're not, either.
    Senator McCaskill. Mr. Nishi, is your company?
    Mr. Nishi. I know that there are various rural exchange 
carriers throughout the U.S. They are taking advantage of the 
plan. We are currently reviewing a lot of the rules and 
regulations with the plan to see if there are ways that can 
enhance rural carriers to make it more of a value to them.
    Senator McCaskill. Could any of you explain why you are not 
utilizing the RUS program within USDA that we have appropriated 
hundreds of millions of dollars to support?
    Mr. Rooney. To be very honest with you, I wasn't aware of 
it.
    Senator McCaskill. Yikes. OK.
    Mr. Foxman. I've spent a little bit of time, and we're 
investigating it. But, frankly, one of the challenges we've had 
is that it's extremely complicated to navigate, so, with some 
assistance, we're trying to do that now, but, frankly, 
struggling with it.
    Senator McCaskill. Let me ask you, Mr. Nishi, if we got rid 
of the identical support rule, would you then oppose this cap?
    Mr. Nishi. I think getting rid of the identical support 
rule is key. And if we did get rid of the identical support 
rule, I'm not sure we would need a cap at this point in time. I 
do believe that a cap will spur people to really work on this 
issue. I think people are working on this issue very seriously 
now, given everything that's been said in this hearing and in 
other hearings dealing with Universal Service funding. We're 
taking what you're saying very seriously, and what the Joint 
Board is saying very seriously.
    May I add one thing----
    Senator McCaskill. Sure.
    Mr. Nishi.--in terms of what Mr. Rooney said regarding 
wireless networks? One thing that we do--all networks are 
interconnected. And anytime there is an emergency, for wireless 
service to be working, our networks are also working. And I do 
need to note that is because we do provide backhaul for many, 
many of their wireless cell sites.
    Senator McCaskill. I think the points Mr. Rooney made were 
good about wireless being there in times of natural disaster. I 
think a lot of people think of the 9-1-1 system when they think 
of an emergency, they think of the individuals that are calling 
for help in an individual law enforcement setting.
    I would also point out that the wireless has become very 
important in terms of law enforcement because of the tracking 
capability of cell phones. We just had a horrendous abduction 
and murder of a young woman in the Greater Kansas City area, on 
the Kansas side of the line, and it was too late, but they were 
able to find her body quickly and apprehend the suspect because 
they were able to ping her phone. So, I think it's important to 
remember that the wireless world is a contributor, in terms of 
the law enforcement community. And I think, with technology, 
it's going to continue to be an even bigger player as it 
relates to the more traditional role of law enforcement, aside 
from the kind of natural disasters that you referred to, Mr. 
Rooney, in terms of hurricanes or floods or things of that 
nature.
    Mr. Rooney. If I fell into a ditch in the middle of 
Missouri, I'd sure as heck be very grateful that I had E-911 
service that could help find me.
    Senator McCaskill. They can find you, in terms of a GPS 
system. I think a lot of Americans don't realize that there is 
a built-in GPS capability on their cell phones at this point.
    You've got my attention, Mr. Foxman, when you said ``cost-
plus.'' That's like for me, as a former auditor, that's like 
fingernails on a blackboard.
    [Laughter.]
    Senator McCaskill. And that term, in and of itself, will 
bring my attention back to whatever is being said. And so, I 
would like to ask questions of the other representatives of the 
companies that are in this for ultimately--I mean, we have to 
be honest here--I know all of you want to talk about serving 
community first, but all of you have to make a profit, you're 
in business to make a profit, you wouldn't be in business if 
you weren't making a profit. And so, I want to talk to the 
other reps about the fact that we have no downward pressure 
whatsoever on the average cost to deploy, the way this is set 
up. Do you all agree with Mr. Foxman's analysis that the way 
this is set up right now, we are not incentivizing anyone to 
try to do this at the lowest cost in the most efficient way?
    Mr. Rooney?
    Mr. Rooney. I think my understanding of landline accounting 
is that it's completely upside-down. You can go back a few 
years ago, when the Congress was trying to work out access to 
landline service, and deal with accounting for local loops and 
TELRIC and all that kind of stuff. Instead of having a nice 
simple generally accepted accounting principle definition of 
costs, you went through tremendous law readings, and then, you 
know, you'd come up with an answer, and then it went to the 
appellate courts. And, you know, landline accounting is all 
convoluted, and I mean, when you look at the accounting that we 
use for our cellular business, it's GAAP. So, what you see is 
what you get. And I'm perfectly willing to have everybody use 
GAAP accounting to try and determine what the cost of 
deployment is. And, yes, it should be lowest-cost winner.
    Senator McCaskill. Mr. Nishi?
    Mr. Nishi. When Mr. Foxman referred to ``cost-plus,'' I'm 
assuming that he means an adequate return on our investment. I 
can say that when we build networks, we build them as 
efficiently as possible, as we try to get advanced services out 
to the customers we serve. I will add that, since the cap was 
reindexed in 2001, and when $2.5 billion didn't come to the 
rural ILECs, that that did directly impact our bottom line at 
Waitsfield and Champlain Valley Telecom. We had to make hard 
decisions on where we were going to deploy our new networks. 
And, in fact, that's one thing which--I think many people fail 
to realize that there's the whole issue of sections 201 and 
254, and the sufficiency principle, and affordable and 
comparable rates. The high-cost loop-support mechanism--in 
Vermont, on an annual basis, we send out a letter to our 
consumers, saying, ``Without such high-cost support funding, 
your rate would be such-and-such dollars higher.'' So, that 
amount we have received from the Fund has gone to help keep 
local rates lower. So, it has impacted our operations over 
time.
    I'm not sure I got to the heart of your question, but----
    Senator McCaskill. I think you danced a little, but I'm not 
going to hold you responsible for that.
    Yes, Mr. Lubin?
    Mr. Lubin. Thank you.
    I'd like to take your question apart a little bit, because 
a lot of things get said, and generalizations are being made, 
and I'd like to unpack it.
    Right now, the ILECs, incumbent local exchange carriers, 
are generating roughly $3 billion of the $4 billion, using 2006 
values. Of that $3 billion, there's something known as, let's 
say, ``nonrural companies,'' who are getting access to the 
Universal Service, but under a different set of rules. These 
are generally what is known as price-cap companies. For those 
companies, it is not cost-plus. It is not. Even further, if one 
of those companies loses a line, they lose money. Again, a 
point that was somewhat misleading here today.
    Then, there's $2 billion of the $3 billion that go to rural 
companies.
    Senator McCaskill. Right.
    Mr. Lubin. Of that $2 billion, $1 billion of it, 
approximately, is from the high-cost loop fund. That fund is 
capped. And if lines decline, the aggregate dollars decline. 
And what we're seeing today in rural America, generally, is 
rural lines are declining, and the aggregate is going down.
    The rural lines may be declining for a couple of reasons, 
one of which is second lines are declining because of 
broadband.
    Senator McCaskill. Right.
    Mr. Lubin. And you have some wireless substitution, albeit 
possibly not as great as people think, because the growth of 
wireless is really another service, called mobility. We can 
debate that point, but that's OK, because if people want 
mobility, right now that is being allowed. But there's another 
point of why mobility is growing so much. In this country, 21 
percent of the households have probably three or four wireless 
connections. So, the identical support rule does have a 
problem. It has a problem, because it's created off of an 
incumbent LEC that doesn't have 21 percent of their households 
with three or four lines, causing the overall cost to 
potentially go up. How much higher, we can debate all these 
things.
    Now, what about the remaining $1 billion, right? Because I 
said there's $3 billion, and I've now said, hey, there's $1 
billion.
    Senator McCaskill. Right.
    Mr. Lubin. That $1 billion is something known as ``cost-
plus,'' which is rate-of-return regulation. And I want to give 
you the plus and the minus of that.
    The minus could be, well, hey, there's a mentality of you 
can put in more dollars.
    Senator McCaskill. Right. I get the minus part. Give me the 
plus part. That's what I'm asking----
    Mr. Lubin. I'll give you the plus part. The plus part 
again, it all depends where you stand or where you sit whether 
it's a plus or not, but the rural companies have been doing a 
pretty good job--and I think you alluded to it in your opening 
statement, whereby they're deploying more and more 
infrastructure that potentially could help them for broadband 
deployment. Some people would call that a plus, some people may 
say that's not a plus. But the point here is, if we think 
broadband deployment is a good national goal, then they've got 
a mechanism in place that, in fact, is encouraging them to do 
that. Now, whether it's gold plating, that issue always comes 
about, and, from my observation--I'll let Roger Nishi speak to 
it--these companies are trying to figure out how to survive in 
the new world as we move from a circuit-switched world into a 
broadband world with VoIP application and many other 
applications.
    Senator McCaskill. Well, thank you for that.
    And thank you, Mr. Chairman. There is a little irony, that 
the plus part of the billion that you referred to is actually 
not part of the legislative intent of this Fund, which is kind 
of what I alluded to before. Your explanation as to why the 
cost-plus part of the program, the billion dollars, which is, 
you know, a lot of money that consumers are paying--is helping 
something that, frankly, the RUS program is supposed to be 
helping, but this money wasn't even designed to help. So, that 
just goes to the point that we've got to get at this broadbased 
reform in the whole area.
    Thank you all very much.
    Thank you, Mr. Chairman.
    Senator Stevens. You're absolutely right, Senator, and I 
don't think it can be solved without legislation. I'm not sure 
the FCC has the power to reach over to the other Department and 
say, ``You've got to coordinate with us and do it the way we 
say.''
    Senator Snowe?
    Senator Snowe. Yes, thank you, Mr. Chairman.
    Sheriff Flannery, I thank you for being here today, and I 
want to thank you, as well, for your 29 years of service to the 
State of Maine law enforcement. And I appreciate your views 
here today, because I think it does give the dimension of the 
realities, you know, on the ground in law enforcement and 
homeland security, which is of, obviously, our national 
interest.
    Can you speak to some of the realities of this technology 
gap, you know, between accident responses and domestic violence 
responses, for example? I know you've included that in some of 
your filed testimony, but I think it also is illustrative of 
the problems that we face in the areas that have neither 
subsidy in a nonexistent wireless service.
    Mr. Flannery. Right. I have three sons, and they're all in 
some type of public service or another--one, the Army; one, the 
Navy; and one's a paramedic in Somerset County, which, as 
you're aware, is just north of Kennebec County. Just before I 
came down to D.C., I spoke with my son, who is the paramedic up 
in Somerset County, and asked him ``What is one of the biggest 
impacts on you, involving wireless service, and the lack 
thereof?'' And, of course, he talks about Route 201 coming 
right up from Skowhegan all the way up into Jackman and the 
Canadian border, having accident scenes there--and some of them 
are quite horrific, between tractor trailers with logging 
trucks and severe recreational accidents--not being able to 
call the hospital to speak with the doctor in the emergency 
room to be able to provide them with information on the injured 
party so that they can treat the patient the way the patient 
needs to be treated at that time. So, what they have to do is, 
they do the best they can at the ground level, load the patient 
up, and drive, if possible, to an area where they have cell 
service, so that they can communicate with the hospital as to 
what's going on with the patient. And I will tell you that, at 
times, he has said that that has made a difference in life and 
death. And we should be resolving that problem when these 
people--there's no reason not to.
    Senator Snowe. Well, I--go ahead.
    Mr. Flannery. We've had numerous hostage situations lately, 
where the hostage negotiator wants to be able to establish a 
view of the residence or building where the hostages are 
located, so that he or she can see the scene as it's playing 
out, while they're negotiating with the subject on the phone. 
Many times, we have to send that hostage negotiator off, you 
know, 2 or 3 miles up and down the road to be able to get a 
signal to talk to the person to be able to commence with 
negotiations. That's kind of a ``haphazard'' way of doing 
things, because it now takes that hostage negotiator out of 
seeing what's going on, and now you have a radio in one ear, 
telephone in the other, to try to see what's going on, on the 
scene, with--you have to mute, and as you can see, it creates a 
major problem when things are happening at lightning speed.
    What's going on in the State of Maine right now with this, 
is that the legislature has made new laws allowing for private 
business to negotiate and work with the State government on 
working with private property, their own property, and State 
property, to be able to utilize putting up wireless information 
systems so that the entire Department of Public Safety system 
is based on their MDTs, mobile data terminals, are based on 
wireless communication through the cell phone service, and they 
have never had yet to get it to work because of the 
inefficiencies in the wireless system in the State of Maine. 
So, for us to be able to fulfill our obligations of homeland 
security, we have reached an obstacle where we can't do it that 
way. Some of us have gone with radio frequency to try to get 
over that hurdle for now; but what that does, it limits you 
into your own system, not being able to get into outside 
systems, as far as the Internet goes. So, it helps with going 
over the state's communication system to check on wants and 
warrants for individuals, but we're also starting to eat up 
that bandwidth, because the only way we can access other 
services in the system--we can't use wireless, so we have to go 
through the state's metro system to be able to do that, so 
there's a big caution right now of eating up all that 
bandwidth. So, we're trying to get around it, but yet, we're 
going to hit a wall here eventually on that. And that's only 
for those areas that have decent wireless service in their 
communities. Aroostook County, as you well know, doesn't. And 
they have a very, very difficult problem, as well does Somerset 
County, where I was talking about my son. He's had 
opportunities where they've been off-trail into ATV or 
snowmobile accidents, and had to send his partner up a hill to 
get a signal so that he could tell LifeFlight the GPS 
coordinates, so they could fly in to a particular area to pick 
up the patient. And, of course, all that takes time.
    One that really sticks in my mind, he told me about, was a 
rafting accident on Kennebec River. The raft turned over, 
everybody went in the water. One person had swallowed a lot of 
water, and the rafting guide got the person onshore, began CPR, 
and sent another rafter off to the--there's no cell signal 
there on the water--so, sent him off to the road. No cell 
signal on the road. Stopped the first car coming by to have him 
give him a ride to the next house to get to the phone line, 
make the phone call. My son got a call 45 minutes later, after 
the incident happened, arrives there 20 minutes later, and was 
unsuccessful in reviving the person.
    Senator Snowe. Well, I appreciate that. And, obviously, I 
think, your examples, I think, illustrates the point, frankly, 
that the lack of wireless service is not just mere 
inconvenience, it's a matter of life and death. And, obviously, 
even, you know, creating perilous circumstances for our country 
with respect to homeland security, as we are trying to 
integrate that national response, as well, and that includes 
the rural areas of America.
    Mr. Rooney, your plans for Maine--I know--and I think this 
is indicative of the other states in which you serve--
obviously, are going to be put on hold as a result of this cap, 
as I understand, from what I've----
    Mr. Rooney. The new service would be. And one of the 
inequities of the cap is Maine gets hurt, going forward. But we 
have three states that we serve--Illinois would be eligible--if 
they froze the cap--ineligible to--competitive communications 
operation would be eligible for $2,000 of funding, because 
that's what they've got right now. And in Missouri it would be 
$120,000. This is the total.
    Senator Snowe. Total.
    Mr. Rooney. And in New Hampshire, where Senator Sununu's 
from, it's $103,000. So, there's inequity between the states. 
Each one of these three states, by the way--when we look at 
going into these areas, we're going into what I call ``virgin 
territory.'' There isn't anybody--we're talking about where 
there is no cell service. In some of the other States, like 
Washington and Oregon, it's going to get complicated when 
analog service goes away, because a lot of the areas in Maine, 
when we built the system, back in the 1980s, were set up for 3-
watt bag phones. We don't use 3-watt bag phones anymore. The 
phones that we have are six-tenths of a watt. Analog service 
isn't being supported by anybody anymore, so that goes away 
next year. And, effectively, now, to fill in those areas and 
provide any kind of service that would be called reasonable, we 
have to build another group of towers to effectively fill in 
the areas where these little six-tenths-of-a-watt phones 
wouldn't reach. So, there's the capital requirements to 
sustain, and, especially in rural areas, build further, are 
very significant, and I think you know some of the areas in 
Maine. There's not enough traffic on an ongoing basis to 
justify a $350,000 investment.
    Senator Snowe. I appreciate that, and I appreciate the 
panel here today. And I'd say that this is a matter of public 
interest, as well. I know that Commissioner Tate indicated 
that--hope that the industry would reach a consensus on some of 
the questions, and, obviously, the dimensions on identical 
support rule and so on. And I think that's a real issue, as to 
whether or not the industry is in a position. But I happen to 
think that the cap is going to be a disincentive to doing that, 
because it's going to affect, singularly, one sector of the 
industry.
    Is it possible to reach a consensus within the industry on 
this question, between wireless and wireline? Mr. Lubin, 
finally?
    Mr. Lubin. Thank you.
    AT&T possibly is in a unique situation, both a wired 
company and a wireless company. And, as I said before, we're 
currently in five States, as a competitive ETC and we have 
applications in five other States. And so, on one hand, we're 
very eager to try to figure out how to get this done so that we 
can go in and put in the right infrastructure, be it for 
wireless. On the other side, the reason why AT&T is supporting 
the cap, which means we're going to take money away, and we're 
going to have the problem that Mr. Rooney's highlighting in 
selected areas--by the way, it doesn't mean, since we're going 
to still get some money--there are some places where we still 
could invest, but not as much as we otherwise would. And so, 
the only reason AT&T, in my opinion, is supporting the cap is 
to figure out a long-term solution. So, now the issue that 
you're asking is, will there be the ability to reach consensus? 
I think it's going to be, (a) difficult, because there's 
obviously a lot of money on the table, and (b) if there is no 
cap, my fear is, we lose an opportunity, because we don't get 
the parties to come to the table with real passion to try to 
figure out a compromise. And that's my fear, with it being 
uncapped.
    Bottom line is, if we don't figure out a long-term 
solution, we've just lost one super opportunity to try to 
figure out how to really get the money, as Mr. Flannery 
highlights, into the underserved areas, if that's what the 
public policy decisionmakers elect to do.
    Senator Snowe. OK.
    Yes, Mr. Foxman, yes, very quickly.
    Mr. Foxman. Very--sorry, I just----
    Senator Snowe. Yes, thank you.
    Mr. Foxman.--wanted to respectfully disagree that I think 
that the nature of the cap accomplishes the exact opposite. If 
we wanted to fix the problem properly, then--everyone works 
best with a deadline--put the pressure on the Commission, on 
the industry, whoever, to get it done.
    Senator Snowe. Yes, because it's not balanced, as it 
stands. And, frankly--hopefully, the industry would, but 
certainly FCC's action shouldn't be predicated on that, and 
should, defer this rule and try to reach an agreement.
    Senator Stevens. We're going to have to call it off. I 
don't know if you realize it, the President's coming up. The 
halls will be closed soon. And we have to get back to the 
Capitol before the doors close.
    So, I do appreciate very much your appearances here today, 
and I think we all have a better understanding of the problem. 
I'm not sure we've got the solution, but we understand the 
problem. Thanks for your courtesy in coming and joining us 
today.
    We will submit the Chairman's questions and the ones I 
would ask. They're very few. I would ask you to respond to 
them, if you will, please.
    Thank you very much.
    [Whereupon, at 12:20 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement by Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Today the Committee revisits a familiar topic: Universal Service.
    More than a decade ago, in the Telecommunications Act of 1996, as a 
Congress, we made clear that we are committed to the principle of 
Universal Service. We stated that in all regions of the nation--rural, 
urban and everywhere in between--consumers are entitled to comparable 
services at comparable rates. The Federal Communications Commission was 
charged with translating this lofty principle into concrete action. To 
do so, they set up the Universal Service Fund.
    But today, that fund faces some difficult challenges. If the Fund 
continues to expand at its current pace, some say we may jeopardize 
Universal Service itself. Incumbent carriers urge us to place limits on 
the ability of other carriers to access these funds. How is it 
feasible, they ask, for the Universal Service Fund to support so many 
different carriers serving so few customers in rural areas?
    Still other carriers, many of them wireless providers, ask if it is 
fair to reduce support that may be necessary to serve large swaths of 
rural America. In order to provide comparable services at comparable 
rates, they say they need access to these funds.
    Last month, the Federal-State Joint Board on Universal Service 
weighed in on this matter. It recommended that the Commission cap the 
amount of funds available to competitive providers as an interim 
measure, pending broader Universal Service reform.
    In the end, we cannot let short-term proposals free us from the 
need to address long-term reform. If comprehensive reform requires a 
more vigorous review of the identical support rule or any other aspect 
of existing policy, we should proceed down that road. After all, 
ensuring the long-term sufficiency and stability of the Universal 
Service Fund means ensuring that all of our citizens have the 
communications capabilities they need to compete in the global economy.
                                 ______
                                 
              Before The Federal Communications Commission
                             Washington, DC
                                                       June 6, 2007
In the Matter of High-Cost Universal Service Support
Federal-State Joint Board on Universal Service
WC Docket No. 05-337
CC Docket No. 96-45
                         Comments of ComspanUSA
    ComspanUSA (``Comspan'') files the following Comments in response 
to the Federal Communications Commission's (the ``Commission'') Notice 
of Proposed Rulemaking issued on May 14, 2007.\1\ Specifically, the 
Commission has requested and Comspan offers these comments on the 
recommendation of the Federal-State Joint Board on Universal Service 
(``Joint Board'') that the Commission impose an interim cap on the 
amount of high-cost support that competitive eligible 
telecommunications carriers may receive.\2\
---------------------------------------------------------------------------
    \1\ In the Matter of High-Cost Service Support Federal-State Joint 
Board on Universal Service, WC Docket No. 05-337, CC Docket No. 96-45, 
Notice of Proposed Rulemaking, FCC 07-88, (rel. May 14, 2007) (NPRM).
    \2\ Federal-State Joint Board on Universal Service, WC Docket No. 
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1, (rel. May 
1, 2007) (Recommended Decision).
---------------------------------------------------------------------------
I. Introduction and Summary
    Comspan is a wireline competitive local exchange carrier (``CLEC'') 
and a competitive eligible telecommunications carrier (``CETC'') 
delivering broadband voice, data, and video services to rural 
communities and small towns in the State of Oregon. Through its state-
of-the-art fiber-to-the-home (``FTTH'') networks, Comspan is fulfilling 
the central goals of the Telecommunications Act of 1996 (the ``Act'') 
\3\ by bringing competition, higher quality services, lower prices, and 
the rapid deployment of innovative telecommunications technologies to 
Oregon markets.\4\ And significantly, Comspan is directly addressing 
the Universal Service goals of the Act by delivering these services to 
those high-cost areas of the state that have largely been ignored by 
the incumbent local exchange carriers (``ILECs'') and the local cable 
companies.\5\
---------------------------------------------------------------------------
    \3\ 47 U.S.C.  251 et seq.
    \4\ Id.
    \5\ See generally, id.  254(b).
---------------------------------------------------------------------------
    Comspan has already completed FTTH networks in two Oregon cities 
and has plans to build networks in an additional ten small towns and 
rural communities throughout the state within the next year. However, 
Comspan cannot fund the substantial capital needs of these fiber builds 
without support from the Federal Universal Service Fund (the 
``Fund'').\6\ Accordingly, if the temporary caps recommended by the 
Joint Board are adopted by the Commission, Comspan's expansion plans 
will be stopped in their tracks, and citizens in Oregon's underserved 
communities will be denied precisely those benefits and services that 
the Act was intended to promote.
---------------------------------------------------------------------------
    \6\ Comspan is also certified to and does receive support from the 
Oregon Universal Service Fund.
---------------------------------------------------------------------------
    It is a fundamental premise of the Act that competition and 
Universal Service are mutually supportive and reinforcing goals.\7\ 
With this understanding, the Commission has held ``competitive 
neutrality'' as a guiding principle in implementing Universal Service. 
In the face of the pressure of a growing Fund, the Joint Board is now 
asking the Commission to abandon the principle of competitive 
neutrality by adopting caps that favor the incumbent local exchange 
carriers and are likely to put many CETCs out of business.
---------------------------------------------------------------------------
    \7\ In the Matter of Implementation of the Local Competition 
Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98, 
First Report and Order, 11 FCC Rcd 15499, (rel. August 8, 1996) 
(``Local Competition First Report and Order''),  4.
---------------------------------------------------------------------------
    Comspan recognizes that the Fund is growing at an unsustainable 
pace and that reform is necessary. However, wireline broadband CETCs 
such as Comspan are the solution--not the problem. These carriers are 
serving high-cost communities in efficient and effective manners. If 
the FCC adopts a permanent solution that eliminates carriers such as 
Comspan from the marketplace--if the FCC denies carriers such as 
Comspan equal access to the same high-cost support as is available to 
the incumbents--it will have sacrificed the goals of the Act in order 
to achieve a quick, and ultimately ineffective, fix.
    Comspan therefore urges the Commission to reject the Joint Board's 
proposed caps and instead act to adopt mechanisms for reforming the 
Universal Service that preserve the ability of CETCs to continue to 
draw support from the Fund on the same terms as the ILECs, and by so 
doing, to continue to encourage the provision of advanced services to 
all citizens.
II. ComspanUSA
A. History of the Company
    Comspan is a wireline competitive local exchange carrier 
headquartered in Roseburg, Oregon--a small town in southern Oregon. 
Comspan was formed in 2002 by a group of local business people intent 
on providing a competitive alternative to the incumbent local exchange 
carrier, Qwest Communications (``Qwest''). Five years later, Comspan 
provides local exchange and long distance service to a significant 
percentage of the households in Roseburg, and in the neighboring 
communities of Sutherlin and Winston as well.
    Based on its experience in Roseburg, Comspan became convinced that 
it could offer advanced telecommunications services to Oregonians 
living in small towns throughout the state, and that it could offer 
these services at affordable prices. In order to realize its plan, 
Comspan teamed up with the LTS Group of Companies (``LTS''), which 
serve the telecommunications, utilities, and industrial sectors in 
Canada and the United States. LTS's network development arm specializes 
in system designs and development of ``triple play'' networks, 
delivering voice, data, and television services. Together, the two 
companies have embarked on an ambitious plan to construct, deploy and 
manage FTTH networks in small towns and rural areas throughout Oregon. 
LTS has since purchased Comspan, lending the company LTS's significant 
financial strength and technical expertise.
B. Bandon and Coquille
    After some preliminary market research, Comspan chose to deploy its 
first FTTH network in Bandon, Oregon. Bandon is a town with a 
population of approximately 3,100 residents located on the Southern 
Oregon coast, and Comspan's preliminary market research revealed that 
it was an underserved area. Although the local ILEC did advertise DSL 
services, Comspan received reports that approximately 50 percent of the 
households lived too far from the ILEC central office to be eligible 
for DSL. And the local cable company made it known that it had no plans 
to upgrade its network to allow it to offer broadband services to 
Bandon for another 20 years.\8\ For these reasons, Comspan determined 
that Bandon was a perfect spot to test its market strategy.
---------------------------------------------------------------------------
    \8\ Since that time, the cable company is now estimating it will be 
in a position to provide broadband services in 3, not 20, years.
---------------------------------------------------------------------------
    Comspan broke ground on the project in February 2006, and turned up 
its first customer in August 2006. The Bandon network is built around a 
central office and video head-end located in Bandon, connected to 
approximately 90 percent of the households in Bandon via Comspan's 
passive optical network (``PON''). Over this state-of-the-art 
architecture, Comspan offers Bandon's citizens not only basic local 
exchange and long distance service, but high-speed data \9\ and video 
as well. And Bandon's citizens have welcomed Comspan's services with 
open arms. In less than a year, Comspan now serves a full 35 percent of 
the households in Bandon, and is gaining new customers every day. The 
company expects to achieve a 50 percent market share by mid summer and 
a 65 percent market share within 2 years.
---------------------------------------------------------------------------
    \9\ Comspan's network offers commercial data speeds of up to 7 
mbps, with technical capabilities of 100 mbps.
---------------------------------------------------------------------------
    Once the network in Bandon was completed, Comspan immediately began 
building in Coquille--a slightly larger town of approximately 5,000, 
located about 17 miles away. Like Bandon, Coquille residents had few 
choices when it came to broadband services. The local ILEC offers DSL 
but only to those households close in to the central office, while the 
local cable company neither offers nor has plans to offer broadband 
services in the foreseeable future. It is not surprising, then, that 
Comspan has had remarkable success ``preselling'' its services in 
Coquille. The company expects to turn up its first customers in 
Coquille this month.
    Based upon its success in Bandon and Coquille, in the next 12 
months Comspan is planning to begin building FTTH networks in an 
additional 10 small towns located across the state.
C. The Role of Universal Service Funding in Comspan's Plans
    Small towns like Bandon and Coquille are significantly less dense 
than mid-to-large cities, and are therefore costlier to serve. 
Moreover, because the customer pool is small, it is impossible to 
achieve the same economies of scale associated with cities with larger 
populations. Thus, from the beginning, Comspan has depended on 
anticipated support from the state and Federal Universal Service funds 
in order to build its FTTH networks. Accordingly, Comspan applied for 
and received Federal ETC status in Bandon and Coquille in order to use 
the relatively modest, but not insignificant, funding to help to pay 
for the infrastructure essential for the delivery of basic voice 
services in those communities. It has also applied for ETC status in 
the nearby communities of Reedsport, Veneta, Myrtle Creek and Oakridge, 
and will file additional applications as it prepares to build-out 
additional cities.
    The continued availability of Fund support is critical to Comspan's 
ability to deliver its advanced services to underserved communities 
throughout Oregon. Indeed, if Universal Service funding becomes 
unavailable to Comspan, or if it is significantly diminished from 
current levels, Comspan will be unable to complete its expansion plans 
beyond those communities it is currently serving. The elimination of 
CETCs such as Comspan--who are providing advanced broadband services--
would constitute a real loss to consumers in small towns and rural 
communities who will otherwise have only limited (if any) access to 
broadband. Indeed, wireline broadband CETCs like Comspan, more than 
those of any other class of ETC, serve the goals of the Act and should 
be ensured continued Fund support:

   First, Comspan is bringing new technologies to small towns 
        and rural areas. The Act specifically declares: ``Access to 
        advanced telecommunications and information services should be 
        provided in all regions of the Nation.'' \10\ By providing 
        state-of-the-art, fiber-based voice, video and high-speed data, 
        Comspan is doing precisely that--and importantly, Comspan is 
        delivering these new technologies in areas of the country that 
        would not otherwise receive these services. And the benefits of 
        these services can make a remarkable difference in these 
        communities. The availability of true broadband brings with it 
        opportunities for advances in healthcare through telemedicine 
        applications, educational opportunities through e-learning 
        applications, and economic development.
---------------------------------------------------------------------------
    \10\ 47 U.S.C.  254(b).

   Second, Comspan encourages competition in small towns and 
        rural areas. In adopting the Act, Congress did not call for a 
        two-tier society that promotes competition in large urban 
        markets, while monopolies retain their grasp on Americans 
        living in small towns. On the contrary, Congress envisioned 
        that all Americans would reap the benefits of competition in 
        local telecommunications markets. Comspan is fulfilling the 
---------------------------------------------------------------------------
        Act's vision of competition for rural Americans.

   Third, Comspan services compete head-to-head with and serve 
        as complete substitutes for ILEC services. That is, when a 
        consumer purchases Comspan service, that consumer will drop the 
        ILEC service. Thus, the support provided to CETCs such as 
        Comspan would not cause the Fund to increase at all if the 
        current system did not provide continued support to the ILEC 
        even after the ILEC loses the customer.
III. The Joint Board's Proposed Caps
    The Joint Board's proposal to cap high-cost support to CETCs 
represents an extreme and unwarranted departure from the Commission's 
principle of competitive neutrality in the implementation of Universal 
Service, and should therefore be rejected.
A. The Proposed Caps Violate the Act's Principle of Competitive 
        Neutrality and Thereby Subvert the Act's Pro-Competitive Goals
    The Act expressly rejects the previously-held belief that 
telecommunications services are natural monopolies, best delivered by a 
single incumbent carrier.\11\ In drafting the Act, Congress instead 
offered the vision of a vibrant marketplace in which carriers compete 
with one another to bring to customers the latest technological 
innovations at the lowest cost. And while Universal Service remains an 
equally important goal, it was never intended to be furthered at the 
cost of competition. On the contrary, competition and new technologies 
were expected to further the goals of Universal Service as they would 
``greatly reduce the actual costs of providing Universal Service over 
time.'' \12\
---------------------------------------------------------------------------
    \11\ Local Competition First Report and Order,  1.
    \12\ Telecommunications Competition, S. Rep. No. 104-23 at 26 
(1996).
---------------------------------------------------------------------------
    In implementing the Act, the Commission has remained true to this 
vision. In its First Report and Order,\13\ the Commission declared 
``competitive neutrality'' a ``guiding principle'' for the preservation 
and advancement of Universal Service. The Commission stated:
---------------------------------------------------------------------------
    \13\ Federal-State Joint Board on Universal Service, CC Docket No. 
96-45, Report and Order, 12 FCC Rcd 8776 (rel. May 8, 1997) (``First 
Report and Order'').

        ``Universal Service support mechanisms and rules should be 
        competitively neutral. In this context, competitive neutrality 
        means that Universal Service support mechanisms and rules 
        neither unfairly favor nor disfavor one provider over another 
        and neither unfairly favor one technology over another.'' \14\
---------------------------------------------------------------------------
    \14\ First Report and Order,  46-47.

    The Commission not only adopted competitive neutrality as ``an 
additional principle'' under 254(b), but it also found the principle to 
be embodied in several of the Act's explicit requirements--including 
254(e)'s requirement that Universal Service support be explicit, 
section 254's requirement that state Universal Service contributions be 
equitable and nondiscriminatory, and section 214(e)'s requirement that 
any carrier can become an eligible telecommunications carrier if it 
meets certain statutory criteria.\15\ Accordingly, the Commission found 
that ``an explicit recognition of competitive neutrality in the 
collection and distribution of funds and the determination of 
eligibility in universal support mechanisms is consistent with 
Congressional intent and necessary to promote a `pro-competitive, 
deregulatory national policy framework.' '' \16\
---------------------------------------------------------------------------
    \15\ The Commission also noted that section 254(h)(c) requires the 
Commission to establish competitively neutral rules relating to 
advanced telecommunications and information services for eligible 
schools, healthcare providers and libraries. Id.  48.
    \16\ Id.  48.
---------------------------------------------------------------------------
    The Commission certainly recognized that strict adherence to the 
principle of competitive neutrality would be difficult to achieve, even 
suggesting that there would be times when disparities between types of 
carriers would exist. However, the implication was that these 
disparities would be small and would exist only where they could not be 
eliminated. The Commission explained:

        ``Our decisions here are intended to minimize departures from 
        competitive neutrality, so as to facilitate a market-based 
        process whereby each user comes to be served by the most 
        efficient technology and carrier. We conclude that 
        competitively neutral rules will ensure that such disparities 
        are minimized so that no entity receives an unfair competitive 
        advantage that may skew the market place or inhibit competition 
        by limiting the available quantity of services or restricting 
        the entry of potential service providers.'' \17\
---------------------------------------------------------------------------
    \17\ Id.

    In contrast, the Joint Board's recommended caps are like throwing a 
hand grenade at a kidnapper. You may stop the kidnapper, but at too 
great a cost. Similarly, the caps may halt the growth of the fund, but 
they are also likely to inflict severe damage on CETCs such as Comspan. 
And, in so doing, they will subvert the Act's pro-competitive goals.
B. The Proposed Caps Are Likely to Drastically Reduce the Amount of 
        Support Available to CETCs Such as Comspan
    The Joint Board proposes to cap total support to CETCs, by state, 
at the amount distributed in 2006. So, as the number of lines served by 
CETCs grows in any state, the amount of per-line support will decrease. 
It is impossible for Comspan to calculate with precision how much the 
caps may reduce the support available to it in Oregon. That said, 
Comspan has analyzed publicly available information in order to make a 
good faith estimate. The results are alarming.
    According to the Universal Service Administrative Company 
(``USAC''), Oregon CETCs were the recipients of approximately $10 
million in high-cost support in 2006.\18\ However, two new carriers--
Cingular and Eagle Telephone--were certified by the Public Utility 
Commission of Oregon (``OPUC'') in late 2006 and early 2007; \19\ in 
that same time period, Comspan received ETC certification in two new 
wire centers in the state.\20\ In forecasts provided to USAC, Oregon 
CETCs have projected that by the third quarter of 2007 they will 
receive over double the amount received by CETCs in 2006, assuming 
current support levels.\21\ In other words, Oregon CETCs are projecting 
that they will more than double their number of lines over the first 
three quarters of 2007. If the caps are adopted and the total amount 
distributed remains constant, then the per-line support received by the 
CETCs in Oregon will be less than half of what it is now. And if 
history is any predictor, the disparity will continue to grow as these 
CETCs gain a foothold in the high-cost markets.
---------------------------------------------------------------------------
    \18\ Recommended Decision, Appendix B.
    \19\ Eagle Telephone received ETC certification in Oregon on 
December 21, 2006. See In the Matter of Eagle Telephone Systems, Inc., 
Application for Designation as an Eligible Telecommunications Carrier, 
OPUC Docket UM 1237, Order No. 06-680. Cingular received ETC 
certification in Oregon on March 29, 2007. See, In the Matter of 
Cingular Wireless, LLC, Application for Designation as an Eligible 
Telecommunications Carrier, OPUC Docket UM 1253, Order No. 07-111.
    \20\ See In the Matter of Wantel Inc.'s Application for Designation 
as an Eligible Telecommunications Carrier in the Bandon Wire Center, 
OPUC Docket UM 1255, Order No. 06-681 (Dec. 21, 2006); see also In the 
Matter of Wantel Inc.'s Application for Designation as an Eligible 
Telecommunications Carrier in the Coquille Wire Center, OPUC Docket UM 
1307, Order No. 07-210 (May 29, 2007).
    \21\ CETC forecasts are found on the USAC website as HC01. The 
CETCs listed for Oregon (not including Sprint Spectrum, which has not 
even applied for CETC status as of this date) forecast that, under 
current support levels, they will receive over $22 million in USF 
support.
---------------------------------------------------------------------------
    As discussed above, a significant level of support is necessary in 
order for Comspan to fund the substantial initial cash outlay required 
for building its FTTH infrastructure in new markets. Comspan's decision 
to enter new markets depends on the availability of that support. 
Comspan certainly cannot sustain its business plan with the cuts in 
support that these estimates suggest.
    Moreover, even if the amount of funding under the caps were 
sufficient to allow Comspan to move forward, the market would be tilted 
more steeply against it. Competitive local exchange carriers always 
face an uphill battle, as they compete against ILECs who enjoy all of 
the advantages of incumbency. If, in addition to all of the natural 
advantages, the incumbent LECs were also entitled to twice as much USF 
support than the CETCs, then Comspan's ability to compete will be 
burdened further.
    The Joint Board has attempted to minimize the harm that its 
proposed caps might produce by pointing out that the caps are intended 
to be temporary.\22\ However, in view of the complexity of the issues 
involved, it seems unlikely that the Commission will have lifted them 
in favor of permanent mechanisms within the 18 months projected in the 
Recommended Decision. Given what would be an at-best uncertain 
situation, it is reasonable to imagine that, if the caps are adopted, 
many CETCs will either halt their expansion plans, as projected by 
Comspan, or exit high-cost markets altogether.
---------------------------------------------------------------------------
    \22\ Recommended Decision,  8.
---------------------------------------------------------------------------
C. Customers Will Lose if the CETCs Are Eliminated
    It should be abundantly clear that competition in high-cost areas 
is good for consumers. Competitive ETCs such as Comspan are bringing a 
variety of advanced services to underserved areas--thereby introducing 
new technology and innovative services to customers who would otherwise 
have no such access. Moreover, Comspan's own experience in Bandon 
illustrates just how effective competition can be, even in rural areas, 
at spurring the incumbent LECs and cable companies to upgrade their own 
networks. As mentioned above, before Comspan announced its intention to 
enter the Bandon market, the local cable provider had no intention of 
upgrading its facilities to allow it to offer broadband services for 
twenty years. After having lost significant market share to a 
competitor, that same company is now estimating that it will be able to 
provide Bandon with cable modem services in 3 years.
    If the Commission adopts the caps proposed by the Joint Board in 
its Recommended Decision, Comspan and other CETC's like Comspan will be 
damaged. However, the real losers will be the customers in those Oregon 
communities that Comspan plans to serve--customers who now have a 
chance to enjoy the same technological advantages as customers in 
larger cities--who instead will have to wait up to 20 years to come 
into the 21st century.
IV. Conclusion
    Comspan appreciates this opportunity to comment on the Recommended 
Decision and looks forward to providing additional comments in the 
future.
            Respectfully submitted this 6th day of June, 2007.
                                     McDowell & Rackner PC,
                                           Lisa F. Rackner,
                                            Counsel for ComspanUSA.
                                 ______
                                 
    Prepared Statement of the National Association of State Utility 
                      Consumer Advocates (NASUCA)
NASUCA Supports a Cap on the High-Cost Universal Service Fund
    The National Association of State Utility Consumer Advocates 
submits for the record of this Committee's hearing scheduled for June 
12, 2006, the attached copy of comments filed at the Federal 
Communications Commission on June 6, 2007, regarding the proposal of 
the Federal-State Joint Board on Universal Service for a cap on the 
Federal high-cost fund as it applies to competitive eligible 
telecommunications carriers, including wireless carriers.
                                 ______
                                 
              Before The Federal Communications Commission
                          Washington, DC 20554
                                                       June 6, 2007
In the Matter of High-Cost Universal Service Support
Federal-State Joint Board on Universal Service
WC Docket No. 05-337
CC Docket No. 96-45
Comments of the National Association of State Utility Consumer 
        Advocates Supporting a Cap on the High-cost Universal Service 
        Fund
                           Table of Contents
I. Introduction and Summary
II. The Joint Board Recommendation and Issues for Comment
III. Capping the Fund as an Interim Step Is Necessary
IV. Applying the Cap Only to CETCs Is Reasonable
V. The Proposed Period for the Cap Is Reasonable
VI. The Cap Should Apply on a State-by-state Basis
VII. The Cap Should Be at the Level of Support Awarded in 2006
VIII. A Cap on the Entire High-cost Fund Would Be Feasible
IX. Conclusion
I. Introduction and Summary
    The National Association of State Utility Consumer Advocates 
(``NASUCA'') \1\ files these comments to support the recommendation of 
the Federal-State Joint Board on Universal Service (``Joint Board'') 
that the Federal Communications Commission (``Commission'' or ``FCC'') 
take immediate action to impose an interim, emergency cap on the amount 
of high-cost support that competitive eligible telecommunications 
carriers (``CETCs'') may receive.\2\ This is necessary, in the Joint 
Board's words, ``to rein in the explosive growth in high-cost Universal 
Service support disbursements.'' \3\ The Commission seeks comment on 
the Joint Board's recommendation.\4\
    The NPRM is on an extremely tight timeline.\5\ But that is 
justified by the ``emergency'' in which the USF finds itself.\6\ 
Unfortunately, the emergency is, in part, caused by the failure of the 
Commission and of the Joint Board to act in a coordinated fashion on 
many of the issues that have previously been put out for comment.\7\ 
But that does not alleviate the need for a cap on the high-cost 
Universal Service Fund (``USF'') like that recommended by the Joint 
Board.
II. The Joint Board Recommendation and Issues for Comment
    The Joint Board recommended that the Commission cap the amount of 
support that CETCs may receive for each state based on the average 
level of CETC support distributed in that state in 2006.\8\ The Joint 
Board further recommended that the interim cap apply until 1 year from 
the date that the Joint Board makes its recommendation regarding 
comprehensive and fundamental high-cost Universal Service reform.\9\
    The Commission seeks comment on the Joint Board's 
recommendations.\10\ The Commission asks commenters to ``address 
whether the Commission should control the growth of high-cost support 
by capping support on CETCs as recommended by the Joint Board.'' \11\ 
The Commission also asks ``parties to address the Joint Board's 
recommendation to limit the cap to CETCs only, and whether there are 
public interest concerns that warrant modifying the application of the 
recommendation to providers of certain services.'' \12\
    The Commission also asks for comment on the Joint Board's 
recommendations regarding the ``operation of any interim cap, including 
the duration of the cap, its application, and the base period for the 
cap.'' \13\ The Joint Board had recommended that the duration of the 
cap be 1 year from the date of any Joint Board recommended decision on 
comprehensive Universal Service reform, which the Joint Board committed 
to issue within 6 months of May 1, 2007.\14\ The Commission also seeks 
comment ``on the Joint Board's recommendation to impose the cap on a 
state-by-state basis . . .'' \15\ The Joint Board had recommended that 
the cap be set at the level of support received by CETCs in 2006 . . 
.'' \16\
III. Capping the Fund as an Interim Step Is Necessary
    The Joint Board presents more-than-adequate justification for 
placing an emergency cap on the fund:

        High-cost support has been rapidly increasing in recent years 
        and, without immediate action to restrain growth in competitive 
        ETC funding, the Federal Universal Service Fund is in dire 
        jeopardy of becoming unsustainable. Today, the Universal 
        Service Fund provides approximately $4 billion per year in 
        high-cost support. Yet, in 2001, high-cost support totaled 
        approximately $2.6 billion. In recent years, this growth has 
        been due to increased support provided to competitive ETCs 
        which receive high-cost support based on the per-line support 
        that the incumbent local exchange carriers (LECs) receive 
        rather than the competitive ETC's own costs. While support to 
        incumbent LECs has been flat or even declined since 2003, by 
        contrast, in the 6 years from 2001 through 2006, competitive 
        ETC support grew from $15 million to almost $1 billion--an 
        annual growth rate of over 100 percent. Based on current 
        estimates, competitive ETC support in 2007 will reach at least 
        $1.28 billion if the Commission takes no action to curtail this 
        growth. Moreover, if the Commission were now to approve all 
        competitive ETC petitions currently pending before the 
        Commission, high-cost support for competitive ETCs could rise 
        to as much as $1.56 billion in 2007. High-cost support to 
        competitive ETCs is estimated to grow to almost $2 billion in 
        2008 and $2.5 billion in 2009 even without additional 
        competitive ETC designations in 2008 and 2009.\17\

    The impact on consumers across the Nation of this growth in the 
Fund is substantial. The current USF contribution factor is 11.7 
percent.\18\ All other things being equal, if the disbursements to 
CETCs grew to the cited $1.56 billion for 2007, the contribution factor 
would grow to 11.9 percent.\19\ The Joint Board's estimate does not 
take into account all of the CETC designations pending in the various 
states,\20\ which likely outweigh those pending at the Commission. 
Consumers cannot be asked to bear this burden.
IV. Applying the Cap Only to CETCs Is Reasonable
    As quoted above, the Joint Board correctly notes that in recent 
years the growth in the Fund is almost entirely attributable to CETCs: 
``While support to incumbent LECs has been flat or even declined since 
2003, by contrast, in the 6 years from 2001 through 2006, competitive 
ETC support grew from $15 million to almost $1 billion--an annual 
growth rate of over 100 percent.'' \21\ Therefore, the most direct way 
to deal with the growth in the Fund as an interim measure is to limit 
the source of growth: CETCs.
    We are likely to hear, and we have already heard, from those who 
would be impacted--namely wireless carriers--that capping the Fund for 
CETCs is not competitively neutral.\22\ We have also heard that capping 
the Fund for CETCs would discourage wireless carriers' deployment of 
services in rural areas.\23\
    With regard to the first point, it should first be recalled that 
the principle of competitive neutrality is not found in Section 254. It 
was derived by the Commission based on its ability to adopt 
``additional principles'' pursuant to 47 U.S.C. 254(b)(7).\24\ 
Depending on the context, one principle may be important enough to 
trump any or all the other principles.\25\ In this situation, the need 
for ``specific, predictable and sufficient'' support \26\ can override 
the derived principle of competitive neutrality. As the Joint Board has 
found, ``sufficient'' also implies ``no more than sufficient.'' \27\ 
Further, incumbent LECs have had their support from the high-cost loop 
fund capped since the 1990s. Thus additional support for CETCs can be 
put temporarily ``on hold'' without violating the Act.
    Likewise, with regard to the second point, while it is likely that 
the receipt of Universal Service funds eases wireless carriers' 
deployment of services in rural areas, many carriers were and have been 
deploying wireless facilities without such support. The impact of a 
temporary cap on wireless funding while other USF issues are being 
resolved is speculative; the impact on consumers of the increased 
funding that will occur without a cap is definite.
    The speculative impact of a cap is reinforced by the fact that the 
Joint Board recommended that the Commission consider ``abandoning or 
modifying'' the so-called identical support or portability rule.\28\ 
The Joint Board correctly notes that the rule ``seems to be one of the 
primary causes of the explosive growth in the fund.'' \29\
    Further, as the Joint Board has noted:

        Fundamental differences exist between the regulatory treatment 
        of competitive ETCs and incumbent LECs. For example, 
        competitive ETCs, unlike incumbent LECs, have no equal access 
        obligations. Competitive ETCs also are not subject to rate 
        regulation. In addition, competitive ETCs may not have the same 
        carrier of last resort obligations that incumbent LECs have. 
        Furthermore, under the identical support rule, both incumbent 
        rural LECs and competitive ETCs receive support based on the 
        incumbent rural LECs' costs. Therefore, incumbent rural LECs' 
        support is cost-based, while competitive ETCs' support is 
        not.\30\

    For all of these reasons, limiting the cap to CETCs makes sense and 
is within the Commission's discretion.\31\
    The D.C. Circuit has recently reaffirmed that, with regard to the 
Commission's interpretation of Section 254, where Congress has not 
spoken directly to an issue (as it has not here), the ultimate test is 
whether the Commission's ruling is reasonable under the 
circumstances.\32\ Imposing a temporary cap on CETC funding is, under 
these circumstances, eminently reasonable.
V. The Proposed Period for the Cap Is Reasonable
    The Joint Board recommends that ``the cap expire 1 year from the 
date of any Joint Board recommended decision on comprehensive and 
fundamental Universal Service reform.'' \33\ To place a definite outer 
limit on when the cap will end, the Joint Board ``commit[s] to adoption 
of a further recommended decision addressing fundamental high-cost 
reforms within 6 months of today's Recommended Decision.'' \34\ Taken 
together, this means that the cap will expire within 18 months of May 
1, 2007, the day the Recommended Decision was released, in other words 
November 1, 2008.
    The entire premise behind the cap is that it is to be interim, 
``until such measures can be adopted that will ensure that the Fund 
will be sustainable for future years'' and ``while the Joint Board and 
the Commission consider fundamental reforms to address issues related 
to the distribution of support.'' \35\ It appears that another 18 
months to resolve issues, some of which have been pending since the 
passage of the 1996 Act, is sufficient (and probably not more than 
sufficient).\36\ Clearly, though, the Commission should attempt to 
resolve these issues even more expeditiously, after giving the 
stakeholders an adequate opportunity to present their views.
VI. The Cap Should Apply on a State-by-State Basis
    The Joint Board ``recommend[s] that the Commission immediately 
impose a cap on competitive ETC support for each state.'' \37\ The 
Joint Board further notes ``that a competitive ETC cap applied at a 
state level effectively curbs growth. . . .'' \38\ NASUCA agrees. A 
state-by-state cap means that no state will receive less support for 
CETCs than it currently receives, no matter what happens in other 
states.
    The appropriateness of a state-by-state cap is best seen by 
comparison to other possibilities. The Joint Board states that it:

        considered, but declined to recommend, capping competitive ETC 
        support nationwide or by study area. A nationwide cap amount 
        would maintain incentives for states to designate additional 
        competitive ETCs to increase their share of competitive ETC 
        capped support and would result in competitive ETC support 
        shifting to those states that aggressively designate 
        competitive ETCs during the period of the interim cap.\39\ A 
        cap by study area would foreclose the possibility of support 
        for the duration of the cap for those study areas that 
        currently have no competitive ETCs and would be 
        administratively burdensome.\40\

    NASUCA agrees with the Joint Board's assessment of the problems 
with using a national cap and with using a study area (or smaller) 
area.\41\ Placing the cap per state also keeps the responsibility with 
state commissions, which under the Act have primary responsibility for 
designation of ETCs.\42\
VII. The Cap Should Be at the Level of Support Awarded in 2006
    The Joint Board ``recommend[s] that the Commission cap competitive 
ETC support for each state at the level of competitive ETC support 
actually distributed in that state in 2006.'' \43\ The Joint Board 
correctly points out that ``using 2006 data allows the Commission to 
use actual support amounts, rather than relying on USAC projections to 
set the cap amounts.'' \44\ NASUCA agrees with this approach.
    If the Commission orders a cap as expeditiously as appears may 
happen,\45\ more recent data--for 2007--will be limited to the first, 
second and possibly (but hopefully not) third quarters of the year. 
That data will not be representative: As the Joint Board points out, 
there are ``seasonal or one-time fluctuations that may be reflected in 
any single quarter.'' \46\ Using actual data for the year 2006 will 
``smooth out'' these fluctuations.\47\
    Using the 2006 data does not capture the increases in CETC support 
that have occurred in the past year. But that increase is part of the 
problem, of course: Comparing USAC's HC01 appendices for the second 
quarter of 2007 to the second quarter of 2006 shows an increase of 24 
percent in total CETC support just in that 1 year.\48\ And comparing 
the first quarter of 2007 to the first quarter of 2006 shows an 
increase of 37 percent in total CETC support.\49\ The composite 
increase (comparing both quarters in 2006 to both quarters in 2007) is 
almost 30 percent. If there is a compulsion to ``true up'' the 2006 
numbers, an increase of 30 percent could be applied. Truth be told, any 
cap is better than no cap; consumers will suffer if the increases in 
the high-cost fund are allowed to continue.
VIII. A Cap on the Entire High-Cost Fund Would Be Feasible
    The Joint Board did ``not recommend additional caps on support 
provided to incumbent LECs, because the data show less growth pressure 
from incumbent LECs.'' \50\ This is largely because ``incumbent LEC 
high-cost loop support is already capped and incumbent interstate 
access support has a targeted limit'' while ``local switching support 
and interstate common line support provided to incumbent LECs have been 
stable in recent years.'' \51\ As stated above, NASUCA agrees with the 
limitation of the cap to only CETCs; any lack of competitive neutrality 
is offset by the benefits to the public interest.
    If, however, the Commission insists on maintaining competitive 
neutrality, then the cap could be applied to the entire high-cost 
fund.\52\ NASUCA proposed such a cap in an April 6, 2007 ex parte 
letter.
    The cap would work just like the CETC cap, but would also cover 
incumbent LEC ETCs. To paraphrase the description in the Recommended 
Decision:

        First, on a quarterly basis, the Universal Service 
        Administrative Company (``USAC'') would calculate the support 
        each ETC would have received under the existing (uncapped) 
        equal per-line support rule and would sum these amounts by 
        state. Second, USAC would calculate a state reduction factor to 
        reduce this amount to the ETC cap. Specifically, USAC would 
        compare the total amount of uncapped support to the cap amount 
        for each state. Where the total state uncapped support is 
        greater than the available state cap support amount, USAC would 
        divide the state cap support amount by the total state uncapped 
        amount to yield the state reduction factor. USAC would then 
        apply the state-specific reduction factor to the uncapped 
        amount for each ETC within the state to arrive at the capped 
        level of high-cost support. Where the state uncapped support is 
        less than the available state capped support amount, no 
        reduction would be required.\53\

    The example used by the Joint Board also applies:

        If in State A, the capped amount is $90 million and the total 
        uncapped support is $130 million, the reduction factor would be 
        69.2 percent ($90/$130). In State A, each ETC's support would 
        be multiplied by 69.2 percent to reduce support to the capped 
        amount. If in State B, however, the base period capped amount 
        is $100 million and the total uncapped support is $95 million, 
        there would be no reduction factor because the uncapped amount 
        is less than the capped amount. Each quarter, for the duration 
        of the cap, a new reduction factor would be calculated for each 
        state.\54\

    A state-by-state cap on all high-cost payments should also have a 
one-year duration and should also use actual 2006 payments as the 
amount of the cap.
IX. Conclusion
    The Commission cannot stand by as consumers continue to pay ever-
increasing amounts into the USF while the Commission figures out ways 
to constrain the growth in the fund.\55\ A cap on payments to CETCs 
will, for the short term, address the ``explosive growth'' in high-cost 
support disbursements.
    The proposed cap is reasonable because the known benefits of such a 
cap far exceed the known costs of failing to do so. Under current 
rules, there is no assurance that high-cost support for CETCs results 
in service deployment that would not have been made without such 
support. There is also no assurance that the current amount of support 
(over $1 billion annually and rapidly growing) is subsidizing 
investments that will not generate substantial profits in future years. 
Moreover, under current rules, there is no assurance that the amount of 
support is reasonable given that it is based on the costs of wireline 
carriers rather than the costs of wireless carriers. Therefore, until 
the Commission has an opportunity to reform the current funding 
mechanism, it would be prudent to adopt the recommended cap as an 
immediate interim measure, and thereby limit the risk that public 
support is being converted to private profits through the high-cost 
support mechanism.
    The Commission should expeditiously adopt the proposal of the Joint 
Board.
            Respectfully submitted,
                                   David C. Bergmann,
                                   Assistant Consumers' Counsel Chair,
                                   NASUCA Telecommunications Committee,
                                   NASUCA.
Endnotes
    \1\ NASUCA is a voluntary, national association of consumer 
advocates in more than forty states and the District of Columbia, 
organized in 1979. NASUCA's members are designated by the laws of their 
respective states to represent the interests of utility consumers 
before state and Federal regulators and in the courts. See, e.g., Ohio 
Rev. Code Chapter 4911; 71 Pa. Cons. Stat. Ann.  309-4(a); Md. Pub. 
Util. Code Ann.  2-205(b); Minn. Stat. Ann. Subdiv. 6; D.C. Code Ann. 
 34-804(d). Members operate independently from state utility 
commissions, as advocates primarily for residential ratepayers. Some 
NASUCA member offices are separately established advocate organizations 
while others are divisions of larger state agencies (e.g., the state 
Attorney General's office). Associate and affiliate NASUCA members also 
serve utility consumers, but have not been created by state law or do 
not have statewide authority.
    \2\ Federal-State Joint Board on Universal Service, WC Docket No. 
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1 (rel. May 
1, 2007) (``Recommended Decision'').
    \3\ Recommended Decision,  1.
    \4\ Notice of Propose Rulemaking, FCC 07-88 (rel. May 14, 2007) 
(``NPRM'').
    \5\ Comments are due 7 days after Federal Register publication, and 
replies are due fourteen days after publication. See NPRM,  6.
    \6\ Id.,  1; see Recommended Decision,  4.
    \7\ See Comments of the National Association of State Utility 
Consumer Advocates on ``Long-Term, Comprehensive High-Cost Universal 
Service Reform,'' in WC Docket No. 05-337 (May 31, 2007) at 3-5.
    \8\ Recommended Decision,  5-13.
    \9\ Id.,  8.
    \10\ NPRM,  5.
    \11\ Id.
    \12\ Id.
    \13\ Id.
    \14\ Recommended Decision,  8.
    \15\ NPRM,  5.
    \16\ Recommended Decision,  13.
    \17\ Recommended Decision,  4 (footnotes omitted).
    \18\ http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-07-
1330A1.pdf.
    \19\ Adding one-quarter of the $0.28 billion increase to the Fund 
need for the second quarter of 2007.
    \20\ Recommended Decision, n. 15.
    \21\ Id.,  4.
    \22\ See http://www.ctia.org/media/press/body.cfm/prid/1689.
    \23\ See In the Matter of Inquiry Concerning the Deployment of 
Advanced Telecommunications Capability to All Americans in a Reasonable 
and Timely Fashion, and Possible Steps to Accelerate Such Deployment 
Pursuant to Section 706 of the Telecommunications Act of 1996, GN 
Docket N. 07-45, Comments of CTIA--The Wireless Association (May 16, 
2007) at 16-17.
    \24\ See In the Matter of the Federal-State Joint Board on 
Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 
8776 (1997),  48-49.
    \25\ Id.,  52.
    \26\ 47 U.S.C. 254(b)(5).
    \27\ See Recommended Decision, FCC 02J-2, 17 FCC Rcd 20716 (2002), 
 14, 16.
    \28\ Recommended Decision,  12.
    \29\ Id.
    \30\ Id.,  6.
    \31\ If the Commission decides not to limit the cap to CETCs, a cap 
on the entire high-cost fund could be imposed. This is discussed later 
in these comments.
    \32\ Vonage Holding Corp. v. FCC, __ F.3d.1 __, Case 06-1276 (D.C. 
Cir. 2007), slip op. (June 1, 2007) at 12, citing Am. Fed'n of Gov't 
Employees, Local 446 v. Nicholson, 475 F.3d 341, 355 (D.C. Cir. 2007).
    \33\ Id.,  8.
    \34\ Id.
    \35\ Id.,  5.
    \36\ The issues at issue should not be just those that were 
identified in the May 1, 2007 Public Notice (FCC 07J-2). See NASUCA's 
comments filed May 31, 2007 in response to that Public Notice.
    \37\ Id.,  9.
    \38\ Id. The Joint Board also states that this ``allows states some 
flexibility to direct competitive ETC support to the areas in the state 
that are most in need of support.'' Id. It appears that this 
``flexibility'' would be limited to authorizing new ETCs in some areas; 
states would not (and should not) have the ability to reallocate 
support among currently authorized ETCs.
    \39\ Just as some states have designated multiple ETCs under the 
current system. See id.,  5, n. 17 and Appendix B.
    \40\ Id.
    \41\ USAC's latest quarterly filings show 2,274 study areas 
nationwide. Although not all of those study areas receive high-cost 
support, and although not all of those study areas have CETCs 
authorized, the burden on the states and on the Commission would be a 
distraction from the fundamental purpose here, which is to develop 
long-term reforms for the high-cost support mechanism.
    \42\ 47 U.S.C. 214(e)(2). Under 47 U.S.C. 214(e)(6), the Commission 
has this authority when a state commission cannot designate ETCs. The 
Joint Board recommendation does not explain the interaction of Federal 
and state authority to utilize the ``flexibility'' under the cap, but 
one would hope that the Commission would exercise the same restraint 
that the Joint Board expects of the states.
    \43\ Recommended Decision,  13.
    \44\ Id.
    \45\ See NPRM,  6.
    \46\ Recommended Decision,  13, citing the fact that, for example, 
the annual true-up of interstate common line support (``ICLS'') occurs 
in the third and fourth quarters, but not in the first and second 
quarters.
    \47\ Id.
    \48\ From the 2Q06 figure of $259 million to the 2Q07 figure of 
$321 million.
    \49\ From the 1Q06 figure of $219 million to the 1Q07 figure of 
$299 million.
    \50\ Id.,  5.
    \51\ Id.
    \52\ The issues being dealt with here are issues with the high-cost 
fund. Thus the Commission need not consider, at this juncture, a cap 
for the other pieces of the USF (schools and libraries, low-income and 
rural telemedicine).
    \53\ See id.,  10.
    \54\ See id.,  11. The Joint Board's example includes the notation 
that ``if in State C the base period capped amount is $0 (i.e., there 
were no competitive ETCs receiving support in State C as of when the 
cap was established), then no competitive ETCs would be eligible to 
receive support in that state.'' Id. The only jurisdiction that 
receives no high-cost support at all is the District of Columbia; under 
a total cap, no carrier in the District would be able to receive any 
high-cost support as long as the cap lasts.
    \55\ See footnote 33, supra.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                        Hon. Deborah Taylor Tate
    Question 1. The Joint Board recommendation for a cap on funds 
available to competitive carriers is designed to be a short-term fix 
for the growth in Universal Service demand. In order to ensure the 
long-term stability of Universal Service, what specific further reforms 
do you favor?
    Answer. As we look to achieve the long-term goals of the Universal 
Service program we must recognize how technological changes are putting 
strains on the mechanics of both our contribution and distribution 
systems. With respect to the contribution mechanism, I believe that a 
numbers-based contribution mechanism would help maintain the stability 
of the Fund by assessing all technologies used to make a phone call on 
a similar basis and, unlike the current revenue-based system which 
treats technologies differently, would be competitively and 
technologically neutral. With respect to the distribution mechanism, I 
generally support proposals that allow carriers to receive support 
based on their own costs. In particular, along with the Joint Board, I 
support the elimination of the identical support rule. I further 
believe we should review whether the use of reverse auctions is an 
effective and competitively neutral way to determine high-cost 
Universal Service funding to Eligible Telecommunications Carriers 
(ETCs). Like you, I want to help insure no area or group of our 
citizens are left behind.

    Question 2. The Joint Board recommends that Universal Service funds 
for competitive carriers be capped on a state-by-state basis. But the 
recommendation omits any mention of tribal lands. In light of special 
jurisdictional concerns involving Indian country, how should the FCC 
apply the cap to tribal lands?
    Answer. Any interim cap order adopted by the Commission will 
continue the Commission's traditional recognition that underserved 
tribal lands and Alaska Native Regions are uniquely situated and 
deserving of individual treatment to ensure that they are not left 
behind urban areas of the country.

    Question 3. In order to preserve the sovereignty of the tribes, 
would it be best to address support for competitive carriers serving 
tribal lands on a case-by-case basis?
    Answer. Whatever effective mechanism is adopted, a fundamental 
reform plan will ensure that the Universal Service Fund promotes the 
availability of reasonably comparable services at reasonably comparable 
rates throughout the country in a technologically and competitively 
neutral manner. Comprehensive reform also must take into account those 
areas of our country which are uniquely situated. Any comprehensive 
reform plan will continue the Commission's traditional recognition that 
underserved tribal lands including those in Hawaii and Alaska Native 
Regions are uniquely situated and deserving of individual treatment to 
ensure that they are not left behind urban areas of the country.

    Question 4. The Joint Board characterizes its proposal for a cap on 
support for competitive carriers as interim, while it considers options 
for long-term reform. In the long term, do you believe the Universal 
Service Fund should support both wireline and wireless technologies?
    Answer. I believe the Universal Service Fund should be administered 
in a competitively and technologically neutral manner. All carriers, 
regardless of their chosen technology platform, should be eligible to 
receive support based on their own costs.

    Question 5. In the long term, do you believe that Universal Service 
funding should be available to more than one carrier in a geographic 
area?
    Answer. In many areas defined as high cost by the Commission's 
rules, multiple service providers receive Universal Service support. 
Indeed, the recent runaway growth of the high-cost fund is largely a 
function of subsidizing multiple competitors to provide voice services 
in rural areas. I therefore question the wisdom of funding multiple 
carriers in high-cost areas in order to ensure the sustainability of 
the Fund to serve underserved areas.

    Question 6. In 1997, the FCC decided to add to the Universal 
Service principles created by Congress a new principle of ``competitive 
neutrality.'' Do you believe that the Joint Board recommendation is 
consistent with the principle of competitive neutrality?
    Answer. Yes. As discussed in the Recommended Decision, the Joint 
Board found that adopting an interim cap on high-cost support only for 
competitive ETCs would not violate the Commission's Universal Service 
principle of competitive neutrality for several reasons:

        Fundamental differences exist between the regulatory treatment 
        of competitive ETCs and incumbent LECs. For example, 
        competitive ETCs, unlike incumbent LECs, have no equal access 
        obligations. Competitive ETCs also are not subject to rate 
        regulation. In addition, competitive ETCs may not have the same 
        carrier of last resort obligations that incumbent LECs have. 
        Furthermore, under the identical support rule, both incumbent 
        rural LECs and competitive ETCs receive support based on the 
        incumbent rural LECs' costs. Therefore, incumbent rural LECs' 
        support is cost-based, while competitive ETCs' support is 
        not.\1\
---------------------------------------------------------------------------
    \1\ Federal-State Joint Board on Universal Service, WC Docket No. 
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1 (Fed.-
State Jt. Bd., rel. May 1, 2007) (Recommended Decision).

    The Joint Board further noted that incumbent LEC high-cost loop 
support is already capped and incumbent interstate access support has a 
targeted limit.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                        Hon. Deborah Taylor Tate
    Question 1. The Communications Act, as amended, seems to indicate 
that distribution of USF funds should be on a competitively neutral and 
nondiscriminatory basis. Do you believe that the proposed interim cap--
which only impacts competitive carriers--comports with Section 254 and 
other relevant sections of the Communications Act?
    Answer. Yes. As discussed in the Recommended Decision, the Joint 
Board found that adopting an interim cap on high-cost support only for 
competitive ETCs would not violate the Commission's Universal Service 
principle of competitive neutrality for several reasons:

        Fundamental differences exist between the regulatory treatment 
        of competitive ETCs and incumbent LECs. For example, 
        competitive ETCs, unlike incumbent LECs, have no equal access 
        obligations. Competitive ETCs also are not subject to rate 
        regulation. In addition, competitive ETCs may not have the same 
        carrier of last resort obligations that incumbent LECs have. 
        Furthermore, under the identical support rule, both incumbent 
        rural LECs and competitive ETCs receive support based on the 
        incumbent rural LECs' costs. Therefore, incumbent rural LECs' 
        support is cost-based, while competitive ETCs' support is 
        not.\2\
---------------------------------------------------------------------------
    \2\ Id.

    The Joint Board further noted that incumbent LEC high-cost loop 
support is already capped and incumbent interstate access support has a 
---------------------------------------------------------------------------
targeted limit.

    Question 2. The Joint Board recommendation indicates that the 
interim cap on support for competitive carriers should only last for a 
maximum of 18 months as the Joint Board and the FCC consider further 
USF reform efforts. However, the recommendation does not set a firm 
date for expiration of the cap. Would you favor a firm expiration date 
as a means of ensuring that the ``interim cap'' does not become a 
permanent solution--and that further reform efforts are kept on an 
expedited schedule?
    Answer. I do not believe that a firm expiration date is necessary. 
As the Recommended Decision and its companion Public Notice make clear, 
the Joint Board is committed to making further recommendations 
regarding comprehensive high-cost Universal Service reform within 6 
months of this Recommended Decision. I am committed, as the Federal 
Chair, to putting the Joint Board in a position to make those 
recommendations. Once the Joint Board issues a Recommended Decision to 
the FCC, the Commission is statutorily required to complete its 
proceedings responding to the Recommended Decision within 1 year.\3\
---------------------------------------------------------------------------
    \3\ 47 U.S.C.  254(a)(2).

    Question 3. If an interim cap is not adopted, would the USF 
contribution factor increase past its current rate of 11.7 percent? If 
so, how high do you think it would go by the second quarter of 2008?
    Answer. High-cost Universal Service support has been rapidly 
increasing over the past several years, caused primarily by growth in 
support for competitive ETCs. Competitive ETC high-cost distributions 
have been growing at a trend rate of 101 percent-per-year since 2002. 
Specifically, in 2000, competitive ETCs received $1 million in support. 
According to USAC, competitive ETCs received almost $1 billion in 2006. 
However, we do know, in absence of a cap, that high-cost distributions 
will continue to grow with the designation of additional competitive 
ETCs and line growth among existing competitive ETCs. Absent the 
imposition of a cap, it is very likely that high-cost support to 
competitive ETCs will continue to grow. It is difficult, however, to 
predict the effect this continued growth in competitive ETC high-cost 
support would have on the contribution factor. The contribution factor 
is based on expected interstate telecommunications revenues and so the 
amount of revenues generated can affect the contribution factor. 
Additionally, the contribution factor is based not only on the support 
required for the high-cost fund, but support for the other Universal 
Service support mechanisms as well. These mechanisms are the schools 
and libraries, rural healthcare, and low-income programs. Additionally, 
other factors, such as prior period adjustments and changes in interest 
income due to interest rate changes, will affect the contribution 
factor in a given quarter. Given these other variables, we cannot make 
an accurate prediction of the contribution factor based on whether or 
not an interim cap on competitive ETC high-cost support is adopted.

    Question 4. In your testimony, you note that the Joint Board is 
committed to releasing a list of comprehensive reform recommendations 
by November 1. Can you give us an update on the specific measures you 
are pursuing? What sort of cost savings can we expect from these 
recommendations, if implemented?
    Answer. The Joint Board held a meeting on July 18, 2007 in New York 
City to discuss the comments and reply comments filed in response to 
the Joint Board Comprehensive Reform Public Notice. The discussion was 
spirited and wide-ranging, and addressed a variety of recommendations 
that have been placed before the Joint Board for our consideration. I 
look forward to continuing to work with my colleagues on the Joint 
Board to narrow the scope of our discussions and focus on specific 
measures toward the goal of Fund reform.
    I can not at this time estimate the cost savings that would result 
from the implementation of some or all of the recommendations currently 
under discussion. As stewards of public funds, however, our obligation 
to preserve and advance Universal Service mandates that we do all we 
can to achieve fundamental reform to ensure that affordable, quality 
services are available to consumers all across the country while 
ensuring the stability of the Fund itself.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                        Hon. Deborah Taylor Tate
    Question 1. New Jersey is the second-largest net donor to the 
Universal Service Fund in the country, contributing almost $200 
million. Will the Joint Board's proposed interim cap help to reduce 
this burden on New Jersey?
    Answer. I appreciate your comments regarding New Jersey. My home 
State of Tennessee is also a net donor state. High cost Universal 
Service support has been rapidly increasing over the past several 
years, caused primarily by growth in support for competitive ETCs. 
Imposition of an interim cap on high-cost support provided to 
competitive ETCs pending fundamental reform will ensure that the Fund 
will be sustainable for future years. This action will prevent 
increases in high-cost support due to the designation of additional 
competitive ETCs or line growth among existing competitive ETCs. 
Although I would have preferred that the Joint Board make a 
recommendation with respect to fundamental reform, the cap will stop 
growth in competitive ETC support while the Joint Board and the 
Commission consider fundamental reforms to address issues related to 
the distribution of support.

    Question 2. What can be done to reduce the growth in the Universal 
Service Fund and lessen the burden on consumers in donor states?
    Answer. As we look to achieve the long-term goals of the Universal 
Service program, we must recognize how technological changes are 
putting strains on the mechanics of both our contribution and 
distribution systems. With respect to the contribution mechanism, I 
believe that a numbers-based contribution mechanism would help maintain 
the stability of the Fund by assessing all technologies used to make a 
phone call on a similar basis and would be competitively and 
technologically neutral. With respect to the distribution mechanism, I 
generally support proposals that allow carriers to receive support 
based on their own costs. In particular, I support the elimination of 
the identical support rule by which competitive Eligible 
Telecommunications Carriers (ETCs) receive support based on the 
incumbent's costs, even if its costs are significantly lower. I further 
believe we should review whether the use of reverse auctions is an 
effective and competitively neutral way to determine high-cost 
Universal Service funding to ETCs. Implementation of such proposals 
would benefit consumers in both net donor and net recipient states.

    Question 3. Is the Joint Board considering the use of reverse 
auctions to distribute Universal Service funds? Would reverse auctions 
reduce the size of the Fund and help donor states like New Jersey?
    Answer. On August 11, 2006, the Joint Board issued a Public Notice 
seeking comment from interested parties on the use of auctions to 
determine Universal Service support.\4\ More than 50 parties filed 
comments and reply comments in fall 2006, responding to the Joint 
Board's request for comment. On February 20, 2007, the Joint Board held 
an en banc hearing in Washington, D.C., where it heard, among other 
issues, from experts in support of, and in opposition to, the use of 
auctions to determine Universal Service support. \5\ The Joint Board 
also issued a Public Notice on May 1, 2007 seeking comment on proposals 
for long-term, comprehensive reform of high-cost Universal Service 
support.\6\ Among the proposals on which the Joint Board sought comment 
is a proposal to use reverse auctions to distribute high-cost support. 
I further believe we should review whether the use of reverse auctions 
could provide a technologically and competitively neutral means of 
controlling Fund growth and ensuring that supported carriers utilize 
the most efficient technologies over time, which would benefit 
consumers in both net donor and net recipient states.
---------------------------------------------------------------------------
    \4\ See Joint Board Auctions Public Notice, 21 FCC Rcd 9292 (2006).
    \5\ See Federal-State Joint Board on Universal Service to Hold En 
Banc Hearing on High-Cost Universal Service Support in Areas Served by 
Rural Carriers, WC Docket No. 05-337, Public Notice, 22 FCC Rcd 2545 
(2007). Statements, slides and audio transcripts are available at 
http://www.fcc.gov/wcb/tapd/universal_service/JointBoard/welcome.html.
    \6\ Joint Board Comprehensive Reform Public Notice, FCC 07J-2 
(Fed.-State Jt. Bd., rel. May 1, 2007).
---------------------------------------------------------------------------
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                              Roger Nishi
    Question 1. The Joint Board characterizes its proposal for a cap on 
support for competitive carriers as interim, while it considers options 
for long-term reform. In the long term, do you believe the Universal 
Service Fund should support both wireline and wireless technologies?
    Answer. Yes. Both services are complimentary to each other and, in 
the long term, the Fund should support both wireline and wireless 
technologies. However, the support should be based on the carriers own 
costs and, therefore, the identical support rule should be eliminated. 
As Chairman of OPASTCO, I am on record in support of the Joint Board's 
recommended interim cap on the competitive eligible telecommunications 
carrier (CETC) portion of the Fund.

    Question 2. In the long term, do you believe that Universal Service 
funding should be available to more than one carrier in a geographic 
area?
    Answer. Yes. As stated above, both wireline and wireless 
technologies should be supported. Carriers receiving Universal Service 
Fund (USF) support should fulfill the goals of the 1996 
Telecommunications Act by being accountable, efficient and by properly 
using the funds.

    Question 3. In 1997, the FCC decided to add to the Universal 
Service principles created by Congress a new principle of ``competitive 
neutrality.'' Do you believe that the Joint Board recommendation is 
consistent with the principle of competitive neutrality?
    Answer. Yes. The USF's high-cost loop fund for wireline service has 
been capped for a number of years. As FCC Chairman Kevin Martin has 
illustrated, all of the current growth in the high-cost program has 
been in the CETC portion of the Fund while there has been no growth in 
the incumbent local exchange carrier (ILEC) portion of the Fund. The 
Joint Board's current recommendation is to temporarily cap CETCs. The 
proposed interim cap is to slow the growth of the Fund while both 
Congress and the FCC enact comprehensive USF reforms.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                              Roger Nishi
    Question 1. For those of you who do not support the interim cap, 
what other steps can we take to immediately control growth of the USF?
    Answer. As Chairman of OPASTCO, I am on record in support of the 
interim cap on CETCs. In addition, elimination of the identical support 
rule would substantially control the growth of the Fund.

    Question 2. The rapid recent growth in the Fund seems to indicate 
that we must do something--I'd like to hear your solutions.
    Answer. First, the FCC needs to quickly adopt the Joint Board's 
recommendation to temporarily cap the CETC fund. Next, both Congress 
and the FCC need to move forward with long-term reforms such as 
eliminating the identical support rule, broadening the base of 
contributors to the Fund and strengthening the requirements for CETC 
designation.

    Question 3. Getting beyond the issue of an interim cap, what 
recommendations do you have for comprehensive Universal Service reform?
    Answer. Eliminate the identical support rule, broaden the base of 
contributors to the Fund and strengthen the requirements for CETC 
designation.

    Question 4. What savings do you think these suggestions would 
generate?
    Answer. The suggested reforms in the above answer would make the 
Fund more efficient, require greater accountability and provide for the 
proper use of the Fund as envisioned by the 1996 Telecommunications 
Act. However, if policymakers want to achieve ubiquitous broadband and 
mobility services, it is unreasonable to expect the size of the Fund to 
shrink.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                           Jonathan D. Foxman
    Question 1. The Joint Board characterizes its proposal for a cap on 
support for competitive carriers as interim, while it considers options 
for long-term reform. In the long term, do you believe the Universal 
Service Fund should support both wireline and wireless technologies?
    Answer. I believe Universal Service Fund support should not 
distinguish among technologies. The fund should support the designated 
services regardless of the technology (wireless vs. wireline), and 
regardless of category of service provider--whether the provider 
satisfying the ETC criteria is an incumbent or a competitive entrant. 
The purpose of the Fund is to provide rural communities with services 
and choices that are comparable to those available in urban 
communities. I believe what technology is utilized to deliver those 
services is incidental. In fact, it serves the public interest for 
government to be ``color blind'' with respect to technology. If a new 
technology can provide the same or better service or more services at a 
lower cost, then allowing it to be utilized, i.e., without the 
discrimination that would be implicit in unequally subsidizing a less 
efficient technology, will force one or both of the following 
beneficial outcomes of competition. Either the company that provides 
the more efficient technology will win customers and deliver to them a 
better service at a lower cost or incumbents will be forced to (a) 
improve the efficiency and capabilities of their businesses or (b) 
adopt the new technology and bring the same benefits to consumers. In 
either case, the consumer will benefit. For this reason, I believe the 
Universal Service Fund should support any technology--wireless, 
wireline, or whatever may develop in the future.

    Question 2. In the long term, do you believe that Universal Service 
funding should be available to more than one carrier in a geographic 
area?
    Answer. Yes. Competition is essential to delivery of high quality, 
affordable advanced communications services. The evidence is 
overwhelming. So much of our Nation's economic system, regulations, and 
laws are based upon this principle of the benefits of competition.
    I feel very strongly that the public interest is served best when 
companies can compete freely to earn consumers' business. The human 
mind and, therefore, all that it creates (including businesses) is 
driven by a complex system of responses to incentives and 
disincentives. There must be an incentive to providing the best service 
at the lowest cost and a disincentive to not doing so. Anything less 
cannot maximize the benefit to consumers and, therefore, does not serve 
the public interest. If only one carrier can access Universal Service 
funding support in a geographic area, then it will have little 
incentive to serve consumers' needs adequately; and competitive 
entrants would be denied the ability or incentive to enter the market. 
There are no examples in our economic history when this has been a good 
thing. Therefore, I believe it is critical that Universal Service 
funding be available to more than one carrier in a geographic area.

    Question 3. In 1997, the FCC decided to add to the Universal 
Service principles created by Congress a new principle of ``competitive 
neutrality.'' Do you believe that the Joint Board recommendation is 
consistent with the principle of competitive neutrality?
    Answer. I do not believe that the Joint Board's recommendation is 
at all consistent with the principle of competitive neutrality. It is 
inappropriate for regulators, rather than consumers, to distinguish 
among types of companies and, thereby, pick winners and losers in what 
is supposed to be a free market.
    Similarly, I do not believe that eliminating the so-called 
``identical support'' rule would be consistent with the principle of 
competitive neutrality. If the government gives the incumbent ILEC $1 
per line, then it should give the CETC $1 per line; that is competitive 
neutrality. If a cap were imposed and the ILEC received, for example, 
$1 per line while the CETC only received 75 cents for providing the 
same supported service to the same customers, that would blatantly 
violate competitive neutrality and would amount to improperly favoring 
one technology or type of competitor over another. Specifically, if you 
support the highest cost competitor in a marketplace with greater 
subsidization, are you not favoring them? Are you not accommodating 
their inefficiency and interfering with the workings of the free 
market?
    Furthermore, wireless is required and accountable to use the $1 to 
expand its network. If it happens that the wireless company can do more 
with that $1 per line, for example build two cell sites instead of one, 
then that is a good thing; it benefits consumers and avoids waste of 
public funds. Every penny of the dollar will be spent to further the 
public interest, as intended by Congress in the Telecommunications Act 
of 1996 and as mandated of the FCC in its formative statute. In fact, 
when the dollar goes to rural construction investment by the low-cost 
competitor, more of the dollar goes to serving the public interest than 
if the dollar were given to an incumbent ILEC, many of whom are 
guaranteed a very comfortable rate of return which they can send to 
their investors. If identical support results in pressure on the 
incumbent ILECs to maximize their efficiency or even to improve or 
change their technology, those improvements will benefit consumers.
    The benefits of identical support per line, regardless of how the 
level of support is determined, include resulting fairness, public 
service, and efficiency: (a) the government will have done its job of 
ensuring competitive neutrality, i.e., ``I gave you each $1; I did not 
arbitrarily decide that one of you would receive that funding but not 
the other,'' (b) the CETC will have done its job by investing that $1 
in its network as required by law, benefiting the customer and again 
with clear accountability because of the detailed accountings required 
by state government, and (c) the marketplace will have done its job by 
then pressuring all competitors to be as efficient as possible, even to 
the point of evolving their businesses and technologies if necessary, 
to meet the needs of rural consumers. Perfect!
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                           Jonathan D. Foxman
    Question 1. For those of you who do not support the interim cap, 
what other steps can we take to immediately control growth of the USF?
    Answer. As an important preface to my response, I urge you to 
reconsider whether there is truly a need to ``immediately control 
growth of the USF.'' Growth in the Fund is in fact not an imminent 
threat, and therefore does not need to be immediately controlled. In 
fact, while the Joint Board claims an ``emergency'' has arisen from 
recent growth, the Fund over the years has weathered significant growth 
rates without becoming ``unsustainable.'' Support to ILECs jumped from 
$1.7 billion in 1999 to $3.1 billion in 2003, and continued to increase 
from 2003 to 2005. (Support to ILECs was growing during these periods 
even though ILEC line counts were decreasing.) Moreover, three-quarters 
of the 2.0 percent increase in the contribution factor from 9.7 percent 
to 11.7 percent from the first quarter to the second quarter of 2007 
was as a result of true-up mechanisms within the program (1.5 percent 
of 2.0 percent). Only one-tenth of the 2.0 percent increase resulted 
from increases in high-cost support. This calculation corresponds with 
FCC Chairman Martin's letter responding to an inquiry from 
Representative Edward Markey.\1\ Moreover, the contribution factor 
decreased significantly (to 11.3 percent) in the third quarter of 2007.
---------------------------------------------------------------------------
    \1\ Letter from Kevin J. Martin, Chairman, FCC, to Edward J. 
Markey, Chairman, Subcommittee on Telecommunications and the Internet, 
Committee on Energy and Commerce, U.S. House of Representatives (rel. 
May 14, 2007), at 1 (``Martin Letter''):

    Several factors contributed to the 2 percent increase of the 
contribution factor for the second quarter of 2007. The largest single 
factor was prior period adjustments that acted to reduce the Universal 
Service Fund's revenue requirements in previous quarters. Specifically, 
these prior period adjustments arose from additional contributions made 
by AT&T and Verizon on past under-reported revenue, and from a change 
in the amount of funds that the Universal Service Administrative 
Company held in reserve for bad debts. The absence of these prior 
period adjustments caused a 1.5 percent increase in the contributions 
factor. The remaining 0.5 percent of the increase was due to reductions 
in the funding base, increases in program demand, including for high-
cost support.

    Even accepting, for the sake of argument, the Board's unsupported 
projection that the Fund could increase by another $1 billion in the 
next year, that increase would add only 31 cents to the Federal 
Universal Service charge. As the Montana Public Service Commission 
recently stated, the annual percentage rate of growth in the Fund is 
trending toward decreasing, and ``[t]he growth in the size of the FUSF 
that CETCs receive appears to behave like an ``S-curve'' (logistic).'' 
\2\
---------------------------------------------------------------------------
    \2\ MTPSC Comments, In the Matter of High-Cost Universal Service 
Support, WC Docket No. 05-337, CC Docket No. 96-45, at 4 n. 4 (June 6, 
2007) (``MTPSC Comments''). That Commission noted:

    While the FUSF growth due to CETC designations has increased 
monotonically since year 2000, the annual percentage rate of growth has 
at the same time nearly decreased monotonically. . . . [F]or the Joint 
Board to now predict a 90 percent plus annual percent growth rate for 
2006 to 2007 is suspect.

    MTPSC Comments, at 4.
---------------------------------------------------------------------------
    Furthermore, Universal Service Administrative Company (``USAC'') 
projections between the fourth quarter of 2006 and the second quarter 
of 2007 show high-cost support rising 3.9 percent.\3\ This is a much 
lower rate of growth than prior periods, suggesting that the growth 
rate is slowing. Moreover, these increases are largely a product of the 
fact that CETCs are new entrants who started with a baseline of zero 
support from the fund. As competitive entry has advanced, CETCs' share 
of the Fund has increased correspondingly.
---------------------------------------------------------------------------
    \3\ Proposed Fourth Quarter 2006 Universal Service Contribution 
Factor, CC Docket No. 96-45, DA 06-1812, FCC Public Notice (rel. Sept. 
11, 2006); Proposed Second Quarter 2007 Universal Service Contribution 
Factor, CC Docket No. 96-45, DA 07-1330, FCC Public Notice (rel. Mar. 
15, 2007).
---------------------------------------------------------------------------
    However, increased payments to competitors were foreseen by the 
drafters of the 1996 legislation.\4\ What legislators did not 
anticipate \5\ was that after competitors entered rural markets, there 
would be a failure of regulatory will to concomitantly reduce funding 
to carriers who lost customers or used funds inefficiently.\6\ 
Certainly, Federal decisions in these matters cannot be universally 
popular with all industry participants--but consumers, not carriers, 
are the intended beneficiaries of Universal Service. As the Montana 
Public Service Commission noted recently,\7\
---------------------------------------------------------------------------
    \4\ If concern over Fund size relates to carrier receipts, consider 
the fact that wireline carriers still receive an enormous share of 
Universal Service funding. In the State of Montana, in 2006, according 
to the Joint Board, incumbent wireline carriers received $69.7 million 
in funding, and competitive carriers such as wireless received $7.2 
million in funding. See Federal-State Joint Board on Universal Service, 
Universal Service Monitoring Report, Table 7.2 (2006), attached hereto 
(``Monitoring Report Attachment''). Incumbent wireline carriers still 
receive more than three times as much funding as their wireless and 
wireline competitors, and in some states, they receive 100 percent of 
Universal Service funding. The FCC adopted a five-year transition 
period, which it has extended indefinitely, during which rural ILECs 
would not lose support when CETCs entered. See Federal-State Joint 
Board on Universal Service, Fourteenth Report and Order, Twenty-second 
Order on Reconsideration, and Further Notice of Proposed Rulemaking, 16 
FCC Rcd 11244, 11294-95 (2001).
    \5\ Joint Board Member Billy Jack Gregg, in testimony before the 
Communications Subcommittee of this Committee, described legislative 
intent and expectations in 1996 as follows (emphasis supplied):

    It should not be surprising that funding for competitive ETCs has 
increased. After all, before the advent of competition incumbents 
received 100 percent of high-cost funding. It was expected that as 
competitors gained ETC status and won customers in high-cost areas, 
their high-cost funding would rise. What is surprising is that 
incumbent support has not dropped by an amount proportionate to the 
increase in competitive ETC funding. . . .

    Not only was the introduction of competition expected to lower 
prices of telecommunications services, it was supposed to lower the 
cost of Universal Service as providers competed for the Universal 
Service subsidy.
    Testimony of Billy Jack Gregg before Communications Subcommittee, 
Senate Commerce, Science and Transportation Committee, at 6-7 (March 1, 
2007), referencing House Report No. 104-204 (I) (1995), Arnold & Porter 
Legislative History P.L. 104-104 (A&P) at 60; Senate Report No. 104-23, 
A&P at 254 (1995).
    \6\ In 2006, the FCC extended indefinitely the transition period 
during which rural ILECs would not lose support when they lost the 
customers/lines to whom that support had related. Federal-State Joint 
Board on Universal Service, Order, 21 FCC Red 5514 (2006).
    \7\ MTPSC Comments, at 7.

        There is, however, need to consider the benefits of CETC 
        designation, benefits that play out in terms of economic 
        development, public interest benefits to consumers, and 
        ultimately Universal Service. If the FCC is to have a balanced 
        decision, it must not ignore Universal Service benefits to the 
---------------------------------------------------------------------------
        exclusive focus on Fund size.

    Congress, enacting the 1996 Telecom Act, decided that rural 
consumers should have the access to advanced services such as wireless 
that are reasonably comparable in quality and price as their urban 
counterparts, from providers operating in competitive markets, governed 
by technology-neutral rules. In short, the growth of the Fund is not 
some unintended aberration; it is the direct result of a conscious and 
enlightened public policy.
    If some perceive that the Universal Service Fund is attracting too 
much demand, then we need to consider whether Universal Service funding 
should be equitably distributed to the carriers who can use it most 
efficiently, and whose services are most in demand. Any other result 
would injure citizens, who increasingly desire wireless service--
particularly in rural areas, where wireless service is very useful for 
stranded people roadside, and where wireless carriers need Universal 
Service funding in order to fiscally justify extending their networks 
to serve additional areas. Unlike incumbent local exchange carriers, 
wireless carriers do not have a built-in, regulator-guaranteed rate of 
return. Moreover, we do not collect access charges, a solid revenue 
stream for wireline carriers. Accordingly, our business model depends 
upon making a solid business case, in terms of customer revenues, for 
every tower we must fund. If the customer revenues cannot justify the 
tower, then it cannot be built, pursuant to lenders' and investors' 
fiscally responsible requirements--unless another source of funding for 
that tower is available, such as Universal Service. If Universal 
Service funds are denied to wireless carriers, or diminished, many 
towers in rural areas, therefore, will not be built.
    Meaningful competition does not exist in rural areas where wireless 
carriers cannot, without support, provide consumers with a viable 
substitute for wireline service. This is supported by FCC data. Between 
1995 and 2005, the average cost per minute for wireless service has 
dropped from 43 cents per minute to 7 cents per minute.\8\ Competitive 
forces have not only driven down prices, they have driven the average 
number of wireless minutes per month upward from 119 minutes to 740 
minutes over the same period.\9\ Accordingly, the price of telephone 
service for wireless consumers, who contribute more to the USF than any 
other class of consumers, has decreased dramatically thanks to 
competition, even including the increase in the contribution factor. 
The drafters of the 1996 Act were correct in believing in, and desiring 
to permit, the benefits of competition.
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    \8\ Implementation of Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993--Annual Report and Analysis of Competitive 
Market Conditions With Respect to Commercial Mobile Services, Eleventh 
Report, 21 FCC Rcd 10947 (2006), App. A, Table 10.
    \9\ Id.
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    Without receiving Universal Service funds comparable to those 
received by wireline carriers, wireless carriers cannot compete on an 
even footing with the USF-receiving LECs, and the benefits of true 
competition cannot reach rural areas.
    Nevertheless, if steps are to be taken in order to immediately 
control growth in the Fund, please see the response to the next 
question, below.

    Question 2. The rapid recent growth in the Fund seems to indicate 
that we must do something--I'd like to hear your solutions.
    Answer. First, as noted in the preceding response, growth in the 
Fund is nothing new or extraordinary, and most of the recent growth was 
not even caused by increases in the high-cost fund (relating to 
wireless carriers).\10\ In addition, on June 11, 2007, the FCC's 
Wireline Competition Bureau announced that it would release an 
additional $650 million in unused E-Rate funds from funding years 2001-
2004.\11\ We support appropriate use of funds for schools and 
libraries. But this unexpected disbursement of $650 million in 
previously withheld funding--equivalent to nearly two-thirds of the 
total support granted to CETC carriers for the entire year of 2006--
raises questions about the basis for the contribution factor and the 
reasons for the wild fluctuations in the rate (from 9.7 percent in the 
first quarter, to 11.7 percent during the second quarter, to 11.3 
percent during the third quarter of 2007). Why was this enormous 
disbursement made if the Fund is in jeopardy?
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    \10\ See note 1, supra, citing the letter wherein FCC Chairman 
Martin noted that most of the recent Fund growth stems from ``prior 
period adjustments arose from additional contributions made by AT&T and 
Verizon on past under-reported revenue, and from a change in the amount 
of funds that the Universal Service Administrative Company held in 
reserve for bad debts.'' Martin Letter (emphasis supplied).
    \11\ Wireline Competition Bureau Announces Carryover of Unused 
Funds for Funding Year 2007, (DA 07-2470) (released June 11, 2007) 
(pursuant to 47 C.F.R.  54.507(a)(2), the Commission carried forward 
these unused schools and libraries funds to the 2007 funding year).
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    Moreover, the effect of Fund growth on consumer rates is, at least 
currently, we believe, offset by the fall in prices for wireless 
services, as discussed in detail in my written testimony submitted with 
this Committee. Accordingly, for all of the foregoing reasons, Joint 
Board and FCC concern over this growth is vastly overstated.
    Nevertheless, I offer here suggestions for legislative action. In 
summary, a long term plan should be developed and implemented, 
including portability of support and broad based contributions to the 
Fund, and recognizing the increasing importance of the broadband and 
mobility aspects of telecommunications services. The details are as 
follows.
A. Make Support ``Portable'': If a Carrier Loses a Line, It Should Lose 
        Support/Funding for That Line
    We favor making support fully portable, in order that a carrier 
that wins a line wins the accompanying USF support. Many of the lines` 
for which local exchange carriers receive support were dug in and paid 
off many years ago; some are no longer even used to provide service. 
CETCs' customers are increasingly shouldering the burden of funding the 
USF, and indeed will eventually be the primary contributors in some 
areas. Accordingly, it would be illogical to take from the customers of 
new entrants still paying for their initial infrastructure in order to 
give to the customers of the existing carriers with entrenched customer 
bases, USF incomes, access line incomes, and little if any new 
construction expenses.
    We believe the carrier that has the customer should receive the 
support for serving that customer. And logically, when a carrier loses 
a customer, the support should stop arriving. This approach was 
initially upheld by the Fifth Circuit Court of Appeals in the case of 
Alenco Communications, Inc. v. FCC:

        . . . [T]he [FCC's Universal Service] order provides that the 
        Universal Service subsidy be portable so that it moves with the 
        customer, rather than stay with the incumbent LEC . . . The 
        purpose of Universal Service is to benefit the customer, not 
        the carrier. ``Sufficient'' funding of the customer's right to 
        adequate telephone service can be achieved regardless of which 
        carrier ultimately receives the subsidy.\12\
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    \12\ Alenco Communications, Inc. v. FCC, 201 F.3d 608, 615 & 621 
(5th Cir. 2000).

    Yet, inexplicably, this course was reversed by the FCC, and now, 
the cost of USF subsidies that are still being paid to wireline 
carriers for customers those carriers have lost (lines that were built 
long ago and paid for many times over) is over $300 million per year. 
Wireless carriers, in contrast, lose support when we lose customers. 
The Senate can direct the FCC to reduce waste in the system by 
requiring that a carrier no longer serving a customer give up its claim 
to funds initially relating to that connection. We believe that a 
carrier that loses a customer should stop receiving support for that 
customer's lines.
B. Broaden Base of Support
    In addition, we suggest broadening the basis of support in order 
that all providers of communications-based services, including 
broadband voice and information services, will be required to 
contribute to Universal Service. Specifically, we believe contributions 
should be supported by VoIP, broadband (wireline, cable, and wireless), 
and voice-grade mobile, ILECs, and CLECs.
C. Recognize Increasing Importance of Broadband and Mobility
    Please see the response to the question below.

    Question 3. Getting beyond the issue of an interim cap, what 
recommendations do you have for comprehensive Universal Service reform?
    Answer. We suggest shifting away from the current funding 
structure, which is oriented to support legacy voice services, and 
instead focusing on support for the deployment and operation of 
broadband services and mobile wireless services, in high-cost rural 
areas. This would recognize citizens' increasing desires in rural areas 
for advanced broadband and mobile services similar to those available 
in urban areas, but that have not yet been fully deployed in many 
rural, high-cost areas. Broadband and mobility are the 21st century 
functionalities that consumers most intensely want and need.
    Accordingly, we believe it is logical to replace the existing 
system with one that targets funds, on a competitively and 
technologically neutral basis, to the broadband and mobile networks 
that should be built to satisfy consumers today--and that concomitantly 
draws equitable contributions from all telecommunications-based 
services, including all IP services. At the same time, the existing 
``legacy'' funding mechanisms should be reformed and phased down, 
because the traditional 20th century voice services to which they are 
targeted are already fully deployed in most rural areas, and demand for 
those services is declining. Many of the carriers that deployed legacy 
voice systems would now like to deploy advanced broadband or mobile 
technologies, so this system should transition their fund receipts from 
legacy voice system funding to funding for the new, advanced 
technologies.

    Question 4. What savings do you think these suggestions would 
generate?
    Answer. We believe these suggestions will save sufficient funds to 
stabilize the Fund, and will generate benefits that far outweigh any 
costs. They will target the disbursed funds more efficiently, by 
creating incentives for all carriers to provide improved services, with 
funding based on a model of forward-looking costs of an efficient 
provider of services. These suggestions would focus disbursements so as 
to motivate efficient provision of the broadband and mobility services 
that modern citizens increasingly want, for critical public safety as 
well as business and personal communications, including in the rural 
areas this Fund was designed to serve.

                                  
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