[Senate Hearing 110-1198]
[From the U.S. Government Publishing Office]









                                                       S. Hrg. 110-1198

                     COMMUNICATIONS, BROADBAND, AND
                   COMPETITIVENESS: HOW DOES THE U.S.
                              MEASURE UP?

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 24, 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 April 24, 2007...................................     1
Statement of Senator Dorgan......................................     2
Statement of Senator Inouye......................................     1
Statement of Senator Klobuchar...................................    72
Statement of Senator McCaskill...................................    45
Statement of Senator Pryor.......................................    48
Statement of Senator Smith.......................................    43
Statement of Senator Stevens.....................................     2
Statement of Senator Thune.......................................    51

                               Witnesses

Drobot, Dr. Adam, Chief Technology Officer and President, 
  Advanced Technology Solutions, Telcordia Technologies; Advisor 
  to the Board, Communications Research, Telecommunications 
  Industry Association...........................................    56
    Prepared statement...........................................    60
Eisenach, Jeffrey A., Ph.D., Chairman, Criterion Economics; 
  Adjunct Professor, George Mason University School of Law.......    29
    Prepared statement...........................................    32
Mefford, Brian R., President and CEO, Connected Nation, Inc......     3
    Prepared statement...........................................     6
Scott, Ben, Policy Director, Free Press; on behalf of Free Press, 
  Consumers Union, and Consumer Federation of America............    10
    Prepared statement...........................................    12
Wallsten, Ph.D., Scott, Senior Fellow and Director, 
  Communications Policy Studies, The Progress & Freedom 
  Foundation.....................................................    68
    Prepared statement...........................................    70
Wolf, Jack Keil, Stephen O. Rice Professor, University of 
  California at San Diego; Vice President, Technology, QUALCOMM, 
  Inc.; Member, Committee on Telecommunications Research and 
  Development, National Research Council, The National Academies.    63
    Prepared statement...........................................    64

 
                     COMMUNICATIONS, BROADBAND, AND
                   COMPETITIVENESS: HOW DOES THE U.S.
                              MEASURE UP?

                              ----------                              


                        TUESDAY, APRIL 24, 2007

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SR-253, Russell Senate Office Building, Hon. Daniel K. 
Inouye, Chairman of the Committee, presiding.

          OPENING STATEMENT OF HON. DANIEL K. INOUYE, 
                    U.S. SENATOR FROM HAWAII

    The Chairman. This morning, the Committee will examine 
communications, broadband and competitiveness and we look 
forward to hearing from the witnesses on how the United States 
measures up.
    On this front, the news is not all good. Just yesterday, 
the Organization for Economic Cooperation and Development 
reported that the United States had fallen to 15th in the world 
in broadband penetration. In some Asian and European countries, 
households have high-speed connections that are 20 times faster 
than ours for half the cost. While some will debate what in 
fact these rankings measure, one thing that cannot be debated 
is the fact we continue to fall further down the list.
    In the year 2000, the United States ranked fourth. Last 
year, we dropped to 12 and just yesterday, we found out that we 
have slipped further to 15. The broadband bottom line is that 
too many of our international counterparts are passing us by 
and for this, we are paying a price. Some experts estimate that 
universal broadband adoption would add $500 billion to the U.S. 
economy and create more than a million new jobs.
    Compounding the situation is the state of information and 
communication technology and research. Today, we see less of 
the visionary long term research that took place at Bell Labs 
and resulted in the breakthrough technologies that made our 
communications industry the envy of the world and instead, 
competition has forced companies to focus on research tied to 
short term returns. While this strategy may be good for the 
bottom line, it sacrifices any chance our Nation has to operate 
the test bed for new technologies and applications that will be 
developed in the new economy.
    In a digital age, the world will not wait for us so it is 
imperative that we get our broadband house in order and our 
communications policy right. Part of the process of getting it 
right includes having a firm understanding of the scope of our 
challenge.
    To help these goals, we plan to introduce two bills 
shortly. First is the Broadband Data Improvement Act to improve 
broadband data collection at both the Federal and state levels. 
Second, the Advanced Information and Communications Technology 
Research Act, which will promote innovation and will improve 
our commitment to basic research on information and 
communications technology here in the United States.
    While there are many issues on telecommunications policy 
that divide us, it is my hope that attention to these discrete 
issues, stronger communications research and more useful data 
about broadband can receive bipartisan support. And on that 
note, I'd like to recognize our Vice Chairman, Senator Stevens.

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

    Senator Stevens. Thank you very much, Mr. Chairman. I'm 
pleased that you are emphasizing broadband deployment as we did 
in the last Congress. Very clearly, this is something we have 
to explore. I'm hopeful that we can concentrate not only on the 
areas that are on what we call the South 48 but also upon your 
state and mine where we have situations where some portions of 
our states can be reached only by satellite. I want to be sure 
that we include the discussion of satellite capabilities in 
these hearings, and universal service is an important component 
of the total discussion. I'm encouraged. We've had one hearing 
already on universal service reform.
    Another subject that has to be discussed in conjunction 
with this discussion is the debate on the Internet Tax 
Moratorium, which will expire this fall. So I look forward to 
working with you in this area. It is a very difficult area, I 
think, for us to come to an agreement on but I will do 
everything I can to work with you to get that agreement. Thank 
you.
    The Chairman. I thank you very much. Now I'll recognize 
Senator Dorgan.

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

    Senator Dorgan. Mr. Chairman, thank you very much. Let me 
echo the comments of my colleague from Alaska. This is a very 
important issue and I'm pleased at the focus on it. I went back 
to my hometown one day, a town of 300 people and knocked on the 
door of my little boyhood home. I hadn't been there for many, 
many decades and asked the woman who answered the door if I 
could walk in and see the house where I grew up. And on the 
porch where we used to butcher chickens every spring, instead 
of butchering chickens, she was actually running a business on 
the Internet. She had little bracelets hanging on a stanchion 
and a camera on an arm and she was taking a picture of the 
bracelet and I said, ``what are you doing?'' She said, ``well, 
I sell jewelry on the Internet.'' From a little town of 300 
people in my little home where I grew up, she has a business to 
sell jewelry on the Internet and it describes, I think, what is 
made possible by all of this everywhere, anywhere if you have 
good bandwidth. From telemedicine to distance learning to e-
Commerce, not to mention the unique availability of content and 
information and news and entertainment.
    This is really important. But it's really important that we 
do well in this area and you know, we have a Federal 
Communications Commission that considers speeds of 200 
kilobytes broadband speed. Well, of course, it is not and they 
consider areas where one person in an entire Zip Code having 
broadband means that whole area is being served and of course, 
it isn't. So we rank well behind other countries in 
penetration. We have a lot of challenges here and I think your 
focus by putting together this hearing and the focus that this 
Committee has previously put on this issue is really very 
important.
    This will require, I think, an aggressive marketplace and 
also thoughtful assistance in public policy to get right. Mr. 
Chairman, thank you.
    The Chairman. Thank you very much. We are pleased to have 
two panels. Our first panel consists of the President and Chief 
Executive Officer of ConnectKentucky and Connected Nation, 
Incorporated, Mr. Brian Mefford. Then the Policy Director of 
Free Press, Mr. Ben Scott; and the Chairman of Criterion 
Economics, LLC and Adjunct Professor of George Mason University 
School of Law, Dr. Jeffrey Eisenach. May I recognize Mr. 
Mefford.

  STATEMENT OF BRIAN R. MEFFORD, PRESIDENT AND CEO, CONNECTED 
                          NATION, INC.

    Mr. Mefford. Chairman Inouye, Vice Chairman Stevens, 
Senator Dorgan, thank you for the opportunity to be with you 
today. It is both an honor and a privilege. My name, as you 
said, Mr. Chairman, is Brian Mefford and I'm the President and 
CEO of Connected Nation, a national nonprofit that has been 
working across the country with states and private sector 
providers and technology companies to close the digital divide, 
of which you have just spoken.
    Connected Nation is the parent company of ConnectKentucky, 
our Kentucky-based organization that has served as the 
demonstration project of sorts for Connected Nation. It is the 
Kentucky story specifically that I'm here to share with you 
today.
    Three years ago, Kentucky faced a challenge that is common 
to all states in the country. The needs of the day called for 
applying technology to traditional and historic challenges such 
as healthcare and education and government service delivery. So 
we were talking and strategizing around the concepts of e-
Government and telemedicine and virtual education, distance 
education. But we were struck by the reality of the situation 
at the time so we surveyed the landscape and realized that it 
was the basic building blocks, the foundation that was not in 
place in order for us to successfully execute all these types 
of policies and these types of applications.
    We realized that not only did Kentucky not have those basic 
building blocks in place but relative to other states, the 
Commonwealth was literally at the bottom of the barrel in a lot 
of instances, according to a lot of indicators. So we decided 
that we first had to take a step back and address those basic 
building blocks--broadband access, general technology literacy, 
the awareness of the importance of technology at the most 
grassroots level and the actual use of technology.
    So we determined to devise an extremely aggressive plan at 
that time and we used the structure of a public/private 
partnership to ensure that the strategies and our approach 
remain market-driven to the largest degree possible. And that 
has been important over the life of the project.
    We worked with the Kentucky Governor, Ernie Fletcher, to 
develop this plan and to execute this plan that was launched in 
October 2004 as Kentucky's Prescription for Innovation. It was 
a plan that found immediate support from the legislature and 
was able to engage local communities from the very beginning.
    We established aggressive goals and tactics with this plan 
that has proven to be comprehensive in nature and I'll talk 
briefly about the three overriding goals of the plan and the 
first one was that we would have full broadband deployment 
everywhere in Kentucky by the end of 2007.
    Now, we realized that we first had to understand where we 
were and so we evaluated the regulatory landscape at the time. 
We began a series of in-depth demand-side studies, surveying 
consumers, surveying businesses on how they use technology, why 
or why do they not use technology and then we also looked at 
the supply side of the situation.
    So in your packets in front of you, you have an example of 
some of the maps, which are also displayed here on the easel 
that represent an inventory of where broadband is available 
across all types of providers in Kentucky, all types of 
providers, all types of different technologies and the 
important thing I can tell you about these maps, Mr. Chairman, 
is that they allowed us to do the inverse analysis and to look 
at the unserved areas and to focus our attention on how to 
address those unserved areas of Kentucky, those areas that did 
not have broadband.
    Second, we decided we needed to dramatically improve 
technology literacy and impact computer and Internet use 
specifically. Third, we wanted to effect a localized approach 
and so we said we will create and form local leadership teams, 
what we have called e-Community Leadership Teams in each of 
Kentucky's 120 counties. The bottom line is we wanted a 
comprehensive approach that accounts for both supply and demand 
realities and one that relies on research to determine where we 
were at the start, where we needed to go and to track our 
progress along the way.
    I'm glad to be able to sit here with you today and report 
very dramatic and positive results that came from this work 
over the past two and a half years. In terms of broadband 
availability, when we began, Kentucky was covered to the degree 
of about 60 percent of households were able to access 
broadband. Today, 92 percent of households can access broadband 
and that represents roughly 550,000 households over one and 
half million people roughly.
    We're on track to reach that 100 percent goal by end of 
this year in terms of broadband coverage. Broadband use at 
home, we've seen a 73 percent increase and that's a data point 
that to me is perhaps as significant as the coverage aspect 
because that's one of those indicators where Kentucky ranked 
near last in terms of household use and so our growth rate in 
broadband use has actually led the Nation and has allowed us to 
catch up with at least half the states in the country.
    PC ownership, computer ownership has increased by 20 
percent over the last couple of years relative to a 4 percent 
growth rate nationally. We have those e-Community Leadership 
Teams, those grassroots teams working on planning at the local 
level in each of our 120 counties.
    Private telecom investment has reached an unprecedented 
level in Kentucky and in just over the last 2 years, we've seen 
at least 650 million invested from the private sector, which is 
a level unprecedented in Kentucky.
    I can also report that the impact in Kentucky has been even 
more significant than the outcomes. So before we began, 
Kentucky was plagued by what was termed as a brain drain 
problem. Our university graduates were leaving at an alarming 
rate. Today, we can report that graduates are staying in 
Kentucky at a rate of 86 percent of the total and that's 
relative to 73 percent when we began.
    Today, 95 percent of Kentucky natives who graduate from 
universities and colleges are remaining in Kentucky. Our Ph.D. 
candidates who finish their programs, the rate that they are 
remaining in Kentucky has nearly doubled, up from 27 percent to 
52 percent today.
    The reasons why are manyfold but certainly we can directly 
correlate the job growth that has occurred in Kentucky over the 
past 2 years and in that timeframe, 14,500 new technology jobs 
have been created in Kentucky. In the IT sector alone, in the 
past 2 years, Kentucky's growth rate for jobs has been 31 times 
the national growth rate in the IT sector. So that's actually a 
reversal of the trends, the job trends prior to the 
implementation of this program.
    In summary, Kentucky as a microcosm, has demonstrated the 
importance of the national broadband discussion and the 
relevance of technology to America's ability to compete. Based 
on our experiences in Kentucky, we know that technology 
diminishes the significance of distance.
    In the past, opportunities to thrive have depended largely 
on one's proximity to major markets. Technology has made the 
distance factor irrelevant. In other words, Mr. Chairman, with 
the availability of cutting-edge technology, businesses and 
entrepreneurs can thrive just as well in rural America as in 
other places, such as Los Angeles and New York. Technology has 
become the great equalizer, creating opportunities, fueling 
better education, higher quality healthcare and better quality 
of life, regardless of where an individual or community happens 
to be located. This same dynamic, however, represents both a 
huge opportunity and a major threat for the United States. 
Other countries have invested in broadband and related 
technologies toward achieving universal access and like 
Kentucky, they have managed to leapfrog their previous 
standings and to become a competitive force in the economy.
    It is the hope of Connected Nation that this Congress--that 
this Committee can call the country to arms on this issue by 
conveying the sense of urgency that exists for action. The 
Nation needs a comprehensive approach that is good for markets 
and communities. No doubt, it is a challenge of historic 
proportion. Just as previous times called for a national 
response to the need for railroads, highways, electricity and 
telephone service, the broadband challenge of today calls for 
an aggressive and comprehensive response to ensure that America 
remains the dominant leader in the global economy. Thank you, 
Mr. Chairman.
    [The prepared statement of Mr. Mefford follows:]

      Prepared Statement of Brian R. Mefford, President and CEO, 
                         Connected Nation, Inc.
Background
    Connected Nation, Inc. is a national non-profit organization known 
for its ability to close the digital divide. Through its partnerships, 
programs, and policies Connected Nation makes technology work for 
previously underserved communities and markets, improving community 
life and economic development while enhancing markets for technology 
providers. Connected Nation's proven methodologies are delivering 
dramatic results that translate into more efficient public services and 
enhanced quality of life. Connected Nation's work in Kentucky, 
ConnectKentucky, has been identified as a national model for the 
expansion of broadband.
    Connected Nation's proven methodologies enable comprehensive 
technology expansion efforts that effectively enhance the supply of 
available broadband while dramatically increasing demand through state 
and local grass roots awareness/adoption campaigns. Connected Nation 
specializes in increasing technology access and literacy towards 
greater digital inclusion for all. This technology expansion improves 
economic development, healthcare, education, and public safety; and 
provides a better way of life for Americans.
    Charting the course for the United States' technology-centric 
future, Connected Nation creates partnerships between the public and 
private sectors. These partnerships encourage cooperation for mutually 
beneficial purposes--making the cost of technology expansion go down 
and the demand for technology go up. Our comprehensive approach to 
technology expansion works for communities and markets.


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Research and Mapping
    Connected Nation's broadband inventory maps are industry leaders. 
These GIS maps create an inventory of existing broadband services based 
on provider deployment data. This analysis effectively helps broadband 
providers to more effectively target their build out resources. 
Connected Nation's market intelligence (maps, survey data and 
grassroots demand aggregation) benefits companies by causing the cost 
of doing business to go down and the ease of doing business to go up.
    This broadband inventory map is publicly available and based on 
provider deployment data.


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    Beyond accurately measuring the inventory of broadband services, 
Connected Nation's research measures other important items related to 
the expansion of broadband. For example, What are the consumer barriers 
to broadband? Or, How do businesses use broadband?
    Based on these findings, programs can be developed that encourage 
digital inclusion. For example, our research indicated that while 
industry assumed that the monthly fee was a primary barrier to the 
adoption of household broadband the lack of a computer at home ranked 
even higher. We developed No Child Left Offline as a partnership based 
solution. No Child Left Offline has facilitated cooperation among 
private partners, corporate foundations and state governments to place 
computers and printers into the homes and schools of disadvantaged 
children.
Connected Nation's Impact
    Connected Nation's model is based in a simple premise that 
technology can be good for communities and markets. Comprehensively 
engaging both supply and demand realities is the best plan for success. 
The results from ConnectKentucky confirm the strength of Connected 
Nation's model.
    Launched in 2004, Kentucky's Prescription for Innovation is a 
comprehensive plan to accelerate technology statewide, particularly in 
the areas of broadband availability and computer literacy and use. 
ConnectKentucky is implementing this initiative which maintains four 
key objectives for impacting statewide technology-based economic 
development:

   Full broadband deployment;

   Dramatically improved use of computers and the Internet by 
        all Kentuckians;

   A meaningful online presence for all Kentucky communities, 
        to improve citizen services and promote economic development 
        through e-government, virtual education, and online healthcare; 
        and

   Local technology leadership teams in every community to 
        develop and implement technology growth strategies for local 
        government, business and industry, education, healthcare, 
        agriculture, libraries, tourism, and community-based 
        organizations.

    As identified by the Prescription for Innovation, technology can 
dramatically expand economic development opportunities and improve the 
quality of life for Kentuckians. With expanded technology, 
opportunities are within reach, such as:

   Developing a competitive economic advantage for attracting 
        today's high-tech jobs to replace the decline of traditional 
        manufacturing jobs;

   Residing in one of Kentucky's rural communities and 
        succeeding in a career that formerly required moving to a major 
        metropolitan area;

   Better and less expensive healthcare; and

   An education that prepares Kentucky's children to prosper in 
        a globally networked world.

    To fully address each of these opportunities and to ensure that 
Kentucky provides an increasingly attractive environment for technology 
expansion, ConnectKentucky employs a comprehensive approach that has 
been identified as a national leader and a model program for the rest 
of the country to follow.\1\ Last year, ConnectKentucky received the 
U.S. Economic Development Administration's 2006 Excellence in 
Innovation Award.
---------------------------------------------------------------------------
    \1\ ConnectKentucky has been cited as a national best practice by: 
the U.S. Economic Development Administration, the U.S. Government 
Accountability Office of Congress, the White House Office of 
Technology, Federal Communications Commission, Appalachian Regional 
Commission, USDA Rural Utilities Service, Congressional Research 
Service, Center for Digital Government, Southern Growth Policies Board, 
Communications Workers of America, Rural Telecommunications Congress 
and numerous states across the Nation.
---------------------------------------------------------------------------
What Is ConnectKentucky?
    ConnectKentucky connects people to technology in world-altering 
ways: improving the lives of the formerly disconnected; renewing hope 
for previously withering rural communities; driving increases in the 
number of tech-intensive companies and jobs; and nurturing an 
environment for lifetime learning, improved healthcare, and superior 
quality of life. Through its partnerships, programs and policies 
ConnectKentucky makes technology work for previously underserved 
communities and markets, improving community life and economic 
development while enhancing markets for technology providers.
    ConnectKentucky works with supply and demand realities in a manner 
that respects communities and gets results. ConnectKentucky is engaged 
with all 120 Kentucky counties, local business and community leaders, 
and private sector technology companies to facilitate comprehensive 
technology expansion efforts that both enhance the supply of broadband-
related technology and create demand by catalyzing and delivering 
grassroots awareness, literacy and use of technology.
Impact of ConnectKentucky
    Through the work of ConnectKentucky and its partners, Kentucky's 
Prescription for Innovation has led to the following successes during 
the last 2 years:

   Kentucky is recognized as the national leader in technology 
        acceleration with the Prescription for Innovation repeatedly 
        acknowledged as the national model for states;

   Broadband availability has increased from 60 percent to 92 
        percent of households able to subscribe, representing 504,000 
        previously unserved households and more than 1.2 million 
        residents that can now access broadband;

   Broadband use at home has increased 73 percent, a rate that 
        has led the nation;

   Broadband use among Internet connected businesses rose from 
        65 percent to 85 percent;

   Home computer ownership grew by 20 percent while the 
        national average rose by 4 percent;

   More than $650 million in private capital has been invested 
        in Kentucky (unprecedented);

   Nearly 2,000 home computers have been distributed to the 
        homes of underprivileged Kentucky students through the No Child 
        Left Offline program;

   eCommunity Leadership Teams have been established in every 
        Kentucky county creating grassroots technology growth plans 
        across nine sectors;

   More than 70 percent of Kentucky counties now operate or are 
        in the process of constructing a meaningful web presence for e-
        government and online citizen services. Two years ago, only 
        one-third of Kentucky counties had a website, and many of these 
        were not functional;

   22,000,000+ positive media impressions have covered Kentucky 
        technology growth; and

   Kentucky is on track to be the first state with 100 percent 
        broadband coverage.
ConnectKentucky's Economic Impact: A Case Study
    At an increasing rate, companies are locating to Kentucky, 
entrepreneurs are developing businesses in Kentucky, and jobs are 
growing in Kentucky because the Commonwealth now has the technology 
infrastructure and an increasing technology-savvy workforce to support 
business growth. On track to become the first state with 100 percent 
broadband coverage with nation-leading increases in broadband use at 
home and work.
    Over the last 2 years, more than 14,500 total technology jobs have 
been created in Kentucky.\2\ The most appropriate place to isolate and 
measure the direct employment impact of broadband expansion efforts is 
in the Information Technology (IT) sector. During the same 2 year 
period, in the IT sector alone, Kentucky jobs have grown at a rate 31 
times the national growth rate: 3.1 percent for Kentucky versus 0.1 
percent nationally.
---------------------------------------------------------------------------
    \2\ Bureau of Labor Statistics (BLS) for the 2-year period 
beginning January 2005 through December 2006. Includes jobs created in 
the following NAICS sectors: information; finance; professional, 
science, and technical; management; and healthcare. These sectors are 
comprised primarily of high tech jobs and all jobs within these sectors 
are ``technology based''. Other sectors include additional technology 
jobs; however, these jobs are aggregated with other nontechnology jobs, 
such as in the manufacturing sector. As BLS does not disaggregate these 
jobs, they could not be included in the figure above, which results in 
an understatement in the reporting of technology jobs.
---------------------------------------------------------------------------
Chart 1
Kentucky Growth vs. National Growth in Information Technology Jobs


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    During the first 2 years of the Prescription for Innovation, 
Kentucky IT jobs grew by 3.1 percent, outpacing national growth by 31 
times.
    Connected Nation's Kentucky engagement, ConnectKentucky, has been 
recognized as a national leader by: the U.S. Government Accountability 
Office of Congress, the White House Office of Technology, U.S. Economic 
Development Administration, Federal Communications Commission, 
Appalachian Regional Commission, USDA Rural Utilities Service, 
Congressional Research Service, Center for Digital Government, Southern 
Growth Policies Board, Communications Workers of America, Rural 
Telecommunications Congress and numerous states across the Nation.
Reversing the ``Brain Drain'' in Kentucky
    The closing of the digital divide is already yielding dividends in 
the quality of life for Kentuckians. By closing the digital divide, 
computer literacy has increased, the number of high tech jobs has 
increased, and Kentucky communities are enjoying the return of their 
offspring. Consider these developments in higher education related to 
how ConnectKentucky has helped Kentucky address the ``brain drain'' 
challenge that all states face:

   Today, 86 percent of all Kentucky graduates remain in 
        Kentucky to live and work--a 17 percent increase since 2000.

   Since 2000, there has been a 50 percent increase in the 
        number of out-of-state students who remain in Kentucky.

   For those graduates who came in as Kentucky residents, 95 
        percent of them now stay.

   The percent of doctoral degree students who stay in Kentucky 
        has nearly doubled (27 percent to 52 percent).
Connected Nation's Legislative Agenda
    Connected Nation provides the leadership that delivers technology 
for strong communities and open markets. Our work is predicated on the 
notion that there's no reason for anyone in America to be on the wrong 
side of the digital divide. Here's why:

   Connected Nation's work has proven to be effective in state 
        based engagements like ConnectKentucky.

   Each state has underserved communities that desperately need 
        access to affordable and dependable broadband.

   National public and private entities are looking for a means 
        of cooperating for our greater national good.

    Therefore, Connected Nation encourages legislation that bridges the 
digital divide for all of America.
    Connected Nation advocates a national legislative agenda that 
accomplishes the following:

   Provides solution for ubiquitous broadband deployment and 
        increased adoption by encouraging and funding public-private 
        partnerships at a state level;

   Establishes a grant program to enable each state to develop 
        a comprehensive approach to broadband deployment while 
        simultaneously driving broadband adoption and technology 
        development at a local community level;

   Allows nonprofit organizations that have established a 
        partnership with state government to apply for funding to:

     Identify and map the gaps in broadband service--those 
            areas without broadband availability--and then work 
            collaboratively with all providers to fill those gaps in a 
            manner that supports their business plans and works for 
            communities;

     Measure and track broadband and information technology 
            use among citizens and businesses, investigate barriers to 
            adoption at a local level, and provide market analysis for 
            unserved areas;

     Develop local technology planning teams with members 
            representing a cross section of the community, including 
            business, telecommunication labor, K-12 education, health 
            care, libraries, higher education, community-based 
            organizations, local government, tourism, parks and 
            recreation, and agriculture;

     Equip and facilitate local technology planning teams 
            with the tools and resources to improve technology use 
            within each sector; and

     Establish effective programs to improve computer use 
            and Internet access for disenfranchised populations.

    This public-private partnership approach establishes the 
collaborative environment that encourages investment, drives technology 
adoption, and empowers grassroots-led community development and 
ultimately, strengthens America.

    The Chairman. Thank you very much, Mr. Mefford. It's a very 
impressive testimony. May I now recognize Mr. Ben Scott.

STATEMENT OF BEN SCOTT, POLICY DIRECTOR, FREE PRESS; ON BEHALF 
              OF FREE PRESS, CONSUMERS UNION, AND 
                 CONSUMER FEDERATION OF AMERICA

    Mr. Scott. Thank you, Mr. Chairman, Mr. Vice Chairman and 
Members of the Committee for the opportunity to testify today. 
I am a consumer advocate from a public interest organization 
and I'd like to start this morning with a quick analysis that 
we conducted of the five things that matter most to a broadband 
consumer.
    Number one is availability. Can I get broadband? Number two 
is competition, do I have choices? Number three is speed--is my 
connection fast enough to run the applications on the Internet 
that I like best? Number four is value--is the price affordable 
and reasonable for what I'm getting and finally, adoption. Did 
I actually buy the service?
    In each case, we found serious problems. Roughly 10 percent 
of households still do not have a wireline broadband provider. 
We found the market is not competitive. It remains a rigid 
duopoly at the residential level and 96 percent of residential 
advanced service lines are either cable or DSL and there is no 
viable third technology that can compete head-to-head on price 
and speed.
    Broadband capable cell phones, like BlackBerries and Trios, 
much as I love mine, are expensive. They are slow and they are 
seldom used as substitutes for a wireline connection at home. 
We would be wise to shelf the hype on this point about wireless 
broadband and face the reality that it is not yet a 
substitutable competitor. Regrettably, even the 700 megahertz 
auction that is currently pending at the FCC appears unlikely 
to realize the goal of a true wireless third pipe.
    We also found that over half of all broadband connections 
in the United States are slower than 2.5 megabytes per second, 
at best, \1/10\ the speed of those connections common in Europe 
and Asia and not fast enough to run next-generation 
applications. Worse, American consumers routinely pay between 
$7.00 and $10.00 a megabyte. Compare that to the less than one 
dollar that the top nations in the world pay.
    In short, American consumers are paying more for less than 
our global counterparts. About 60 percent of Americans are not 
yet broadband subscribers, either because it isn't available, 
it isn't affordable or it simply isn't attractive enough for 
them to buy.
    Mr. Chairman, as you mentioned, new data released this week 
by the OECD shows that we dropped from 12th to 15th in the OECD 
nations. This is down from 4th in 2001. We're still, in my 
mind--our growth rate between 2005 and 2006 puts us 20 instead 
of 30. This isn't just a matter of pride at stake. This is real 
money because the network affects the economic benefits of 
higher broadband penetration, which accumulate exponentially. 
That means that even a small increase in our broadband 
penetration rate translates into billions of dollars in 
consumer surplus. While we aren't capturing those dollars, 
somebody else is.
    Now, defenders of the status quo will argue that America's 
poor performance is misleading because of our low population 
density and there is a certain intuitive logic to this. But 
when you look at the data very closely, the geographic 
differences between countries don't really explain our 
performance relative to our global counterparts.
    What matters much more is household income and poverty. 
Those factors swamp geography in their explanatory value in the 
models. In the aggregate, it's not that broadband isn't 
available to most Americans--we're just not buying it. In other 
words, we need more competitive, affordable services with more 
attractive features to make it worth a family's hard-earned 
dollars.
    So how do we fix these problems? I think we need a bold 
vision for a national broadband policy. To begin, I couldn't 
agree more with Mr. Mefford--we need better data from the FCC. 
We need to find the unserved areas in this country on a block 
by block basis, not on a Zip Code basis and we also need to 
measure price and speed to monitor the progress of competition.
    We also need to study the traffic on the Internet. 
Currently, not a single data link on the Internet backbones are 
available for researchers to study the problems of cyber 
security, privacy, spam and congestion. Further, I think we 
need to invest in programs that bring equipment and training to 
under-served communities so that it makes sense to connect to 
the Internet. If you don't have a computer, broadband 
connection doesn't do you much good.
    Above all, we need competition policy to drive down prices. 
We need competition policy to accelerate speeds and deliver a 
more attractive product to consumers. Up to now, we have bet 
the farm on competition between technologies like DSL and 
cable. It just hasn't worked out. We've only managed to more 
deeply entrench vertically integrated telephone and cable 
incumbents.
    By contrast, most of the global leaders have embraced 
policies that bring competition not just between technologies 
but also within each technology platform. We must seriously 
consider that this combination is the key to regaining our 
stature as the world's leading technology nation. We must not 
sacrifice the long-term interests of the country for the short-
term interest of incumbents that have long shielded themselves 
from an open market.
    In the short term, we should move forward on a variety of 
progressive policies, including the opening of TV white spaces 
for unlicensed wireless use. We should protect the rights of 
local government to offer broadband service. We should 
transition the universal service programs to broadband and we 
should safeguard the Internet market for goods and services 
through net neutrality rules. Finally, we should explore 
opening our networks to unleash more competitive market forces.
    In my view, this is a paradigm shifting moment for American 
telecommunications. It is imperative that we choose wisely and 
we as consumer advocates, look forward to working with this 
Committee on your legislative agenda. I thank you for your time 
and attention and I do look forward to your questions.
    [The prepared statement of Mr. Scott follows:]

Prepared Statement of Ben Scott, Policy Director, Free Press, on Behalf 
   of Free Press, Consumers Union, and Consumer Federation of America
Summary
    Free Press,\1\ Consumers Union,\2\ and Consumer Federation of 
America \3\ appreciate the opportunity to testify on broadband 
competitiveness. As consumer advocates, we strongly support policies 
that will bring more broadband competition to American households. The 
current broadband problems we face are severe and the consequences of 
resting on the status quo unacceptable. Recent broadband policy at the 
FCC has not embraced a free market approach to enabling competition, 
but rather supported the entrenched incumbency of a rigid duopoly. 
Going forward, we must break out of this box and reassert the 
principles of public interest communications policy enshrined in the 
Communications Act--to bring essential communications services at 
affordable rates to all Americans.
---------------------------------------------------------------------------
    \1\ Free Press is a national, nonpartisan organization with over 
350,000 members working to increase informed public participation in 
media and communications policy debates.
    \2\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the state of New York to provide 
consumers with information, education and counsel about goods, 
services, health and personal finance, and to initiate and cooperate 
with individual and group efforts to maintain and enhance the quality 
of life for consumers. Consumers Union's income is solely derived from 
the sale of Consumer Reports, its other publications and from 
noncommercial contributions, grants and fees. In addition to reports on 
Consumers Union's own product testing, Consumer Reports with more than 
5 million paid circulation, regularly, carries articles on health, 
product safety, marketplace economics and legislative, judicial and 
regulatory actions which affect consumer welfare. Consumers Union's 
publications carry no advertising and receive no commercial support.
    \3\ The Consumer Federation of America is the Nation's largest 
consumer advocacy group, composed of over 280 state and local 
affiliates representing consumer, senior citizen, low-income, labor, 
farm, public power and cooperative organizations, with more than 50 
million individual members.
---------------------------------------------------------------------------
    We recommend this Committee undertake a sweeping inquiry into a 
variety of broadband policy options and begin moving toward a 
comprehensive national broadband policy. Step one in this process will 
be a thorough confrontation with the problems in the current broadband 
market. It is important that we set aside the myths and excuses we have 
used to justify our broadband troubles up to now. The reality is that 
the U.S. broadband market has significant failures in the three metrics 
that matter most: availability, speed, and value (cost per unit of 
speed). Despite years of promoting universal availability, there are 
still roughly 10 percent of American households that lack a terrestrial 
broadband provider. We pay more for a lot less bandwidth than our 
global competitors. Finally, we do not have a competitive market that 
is pushing speeds up and prices down at a rate sufficient to raise our 
stature relative to the rest of the world. In a study released this 
week by the Organization for Economic Cooperation and Development, the 
U.S. has dropped from 12th to 15th in broadband penetration among the 
30 member nations in the last 6 months. Our growth rate relative to the 
other OECD nations over the past year ranks at 24th place.
    Tackling these challenges will take bold, aspirational leadership. 
To begin, we need to improve the depth and breadth of the data the FCC 
collects from broadband providers so that we better understand our 
problems and our progress. We must then undertake a variety of policy 
initiatives to bring competition to the marketplace including: ensuring 
spectrum auctions produce real competitors not vertical integration; 
opening the TV white spaces for unlicensed use; protecting the rights 
of local governments to offer broadband services; guaranteeing the 
interconnection of networks on nondiscriminatory terms; transitioning 
USF programs to broadband; safeguarding the Internet's free market for 
goods, services and speech through network neutrality rules; and 
investing in programs that bring equipment and training to underserved 
communities.
    We rely on the market forces of a duopoly to produce robust cross-
platform competition at our peril. When the chief supporters of the 
status quo, wait-and-see approach to the arrival of a third competitor 
to DSL and cable are the incumbents themselves, we should understand 
that they do not expect it will happen. Further, we can see that most 
of the global leaders in broadband performance have embraced so-called 
``open access'' network rules, policies that bring competition both 
between and within technology platforms. This combination of 
``intermodal'' and ``intramodal'' competition is the key to regaining 
our once-lofty stature as the world's technology leader. We must not 
sacrifice the long term economic and social interests of the country 
for the short term interests of a duopoly marketplace that has long 
shielded itself from free market competition. This is a paradigm 
shifting moment for American telecommunications. It is imperative that 
we choose wisely. We look forward to working with the Committee as it 
moves forward.
Part I. What Is the ``Broadband Problem''?
    For many years now, the Congress has grappled with the policy 
challenges of realizing universal, affordable access to high-speed 
Internet services. The facts are unambiguous. A significant number of 
American households--around 10 percent--have no available terrestrial 
broadband service.\1\ A much larger percentage--over 40 percent--have 
service available to them, but they do not subscribe, foregoing the 
social and economic benefits of connectivity because of high prices, a 
lack of equipment and training, or simple disinterest.\2\ Rural areas 
lag behind urban areas in broadband access. The poorest among us are 
the least likely to gain access to the technologies that could lead to 
social mobility. The cost to our economy and the quality of life in our 
society mounts each successive year that these problems go unsolved. 
Meanwhile, alarmingly, the U.S. is falling behind the rest of the world 
in broadband penetration and market performance, ceding the tremendous 
benefits of leading the world in network connectivity to others.
    Once called the digital divide, this policy issue is now often 
recognized by the simple but unenviable moniker: the ``broadband 
problem.'' Dozens of scholarly articles and books about the subject 
have been written in an effort to clarify the stakes, the options, and 
the evidence in favor of one solution over another. It is one of the 
most important policy issues of our time. It would be impossible for us 
to provide in this setting a full accounting of the broadband problem. 
Instead, we will offer the Committee a discussion and recommendations 
to answer two central questions: what is going wrong and what should be 
done about it.
    We are unique among the world's leading technology nations--we lack 
a comprehensive national broadband policy. There is no time like the 
present to remedy this situation by applying visionary leadership in 
this space and establishing a broad set of policy initiatives to right 
the ship.
Evaluating the U.S. Broadband Market
    For years now, the U.S. Government has set goals to realize 
universal, affordable broadband service for the country. This is 
consistent with our long history of using policy to promote the 
expansion of essential communications services. In 1934, when the 
Communications Act set the goal for communications policy ``to make 
available to all people of the United States, a rapid, efficient, 
nationwide and world-wide wire and radio communications service with 
adequate facilities at reasonable charges,'' two-thirds of the American 
people did not have telephone service. It was this forward looking 
commitment, sustained over decades, which gave America the finest 
communications network in the world.
    The President called for us to reach the universal broadband 
milestone by this year. There is now no chance we can achieve that 
result. While it is true that the total number of broadband lines 
deployed in the U.S. is rising and the total number of broadband users 
is now near 50 percent of the country, the U.S. growth rate in 
broadband penetration compared to other nations is not encouraging. 
Looking at the amount of growth in broadband penetration between 
December 2005 and December 2006, the U.S. is ranked 24th out of 30 
among OECD nations.\3\ Simply put, other nations are surpassing us. In 
2004, when the U.S. was ranked 10th in broadband adoption among 
industrialized nations, the President quipped, ``Tenth is 10 spots too 
low, as far as I'm concerned.'' \4\ Since then, study after study 
evaluating the broadband performance among the world's leading nations 
has shown the steady decline of the U.S. down the ranks. Though some 
have scrutinized the data from these studies to find some 
qualifications to ease our wounded pride, the trend lines are not in 
error. We trust the President's displeasure has grown with our 
underwhelming performance and that he will gladly work with Congress to 
solve these problems as rapidly as possible.
    The broadband problem is most commonly assessed through a raw 
headcount of households that have access to high-speed Internet 
service, what services are available, and how many consumers subscribe 
to those services. These are valuable data points that give us a 
picture of competition in the marketplace and consumer behavior. 
Accordingly to the best available data:

   Extrapolating from FCC data, nearly 60 percent of U.S. homes 
        are not broadband adopters.\5\

   The rate of residential broadband adoption continues to 
        slow. From June 2005 to June 2006 the number of residential 
        advanced service lines increased 34 percent. But from June 2004 
        to June 2005 the increase was 62 percent.\6\

   37 percent of ZIP codes have one or less cable and/or DSL 
        provider.\7\ Given that FCC ZIP code data overstates the level 
        of broadband deployment, this should be viewed as a 
        conservative figure.

   Some states have large gaps in coverage. Over 40 percent of 
        South Dakota households are not wired for cable broadband. Over 
        40 percent of New Hampshire and Vermont households are not 
        wired for DSL.\8\

   The broadband market remains a duopoly. 96 percent of 
        residential advanced services lines are either cable or DSL.\9\

   There are no viable 3rd ``pipe'' competitors.

     From June 2005 to June 2006 there were only 637 new 
            broadband over powerline (BPL) connections added, bringing 
            the total to just over 5,000 nationwide, or 0.008 percent 
            of all U.S. Broadband connections.\10\

     From December 2005 to June 2006 the number of advanced 
            service satellite broadband connections DECREASED by 40 
            percent.\11\

     Mobile wireless broadband from cellular carriers 
            enjoyed a rapid growth rate in the last year. However, 
            these connections remain slow and costly compared to 
            wireline alternatives. They are not substitutable 
            competitors with DSL and cable modem, but rather form a 
            complementary market dominated by vertically integrated 
            firms with little incentive to cannibalize wireline market 
            share. (See below for analysis).

    This record of performance has not positioned us well in the race 
for global competitiveness--with all of the economic and social 
benefits at stake. According to the OECD, the U.S. is 15th among the 30 
member nations in broadband penetration, lagging behind the 
acknowledged world leaders, the Netherlands and South Korea, but also 
Canada and all of Scandinavia.\12\ The ITU, evaluating a larger number 
of countries than the OECD, places the U.S. at 16th.\13\ A separate ITU 
study measuring a variety of factors in the Digital Opportunity Index, 
places the U.S. at 21st.\14\ This is a particularly valuable analysis 
because it explores eleven different variables of technology 
development to assess each country in the study including the 
proportion of households with telephones, mobile telephones, computers, 
and Internet access; the rates of connectivity to the communications 
infrastructure; and the cost of connectivity relative to per capita 
income. Notably, the U.S. dropped from 8th place in the Digital 
Opportunity Index in 2000 to 21st place by 2005. We are ranked 36th 
relative to other nations in the increase in the absolute value of our 
Digital Opportunity Index score between 2000 and 2005.
    It is critical to recognize that our evaluation of the health of 
the broadband market must not end with a calculation of the available 
services, platform market share, and subscribership. There are three 
key metrics for understanding the broadband problem: availability, 
speed, and value (cost per unit of speed). In crafting a national 
broadband policy, we must recognize that true marketplace competition 
is the touchstone that yields marked improvements in all three metrics. 
Though the sizable service gaps that leave rural America without a 
viable broadband connection are a huge problem, this is likely the 
easiest issue to resolve. Far more challenging are the starkly 
unfavorable comparisons in speed and value which separate us from the 
world leaders in broadband. These data-points suggest that we have a 
long way to go to catch up with the rest of the world, even if we 
manage to reach the goal of universal availability.\15\

   According to Takashi Ebihara, Senior Director of the 
        Corporate Strategy Department at NTT East Corp, Americans pay 7 
        times as much on a cost-per-megabit basis for bandwidth 
        compared to the Japanese--$.70 versus $4.90.\16\

   According to the OECD, Subscribers in Japan, Sweden, Korea, 
        Finland and France pay the least per Megabit per second (Mbps) 
        of connectivity

     Japan: $0.22

     Sweden: $0.35

     South Korea: $0.42

     Finland: $0.59

     France: $0.82

     In the U.S. a 3 Mbps DSL line retails for about $30, 
            or $10 per Mbps, while a 6 Mbps cable line sells for about 
            $45, or $7.50 per Mbps.

   A 50 mbps connection in Japan costs $30 per month. Such 
        speeds are not even available in the U.S. American customers 
        can expect to pay $20-$30 per month for (at best) 3 mbps of DSL 
        connectivity or between $40-$50 per month for 4-8 mbps of cable 
        modem connectivity. Not only do American consumers settle for 
        less, we often pay more for it.\17\

   A French company offers the ``triple play''--50 mbps of 
        symmetrical broadband service, unlimited telephony and cable 
        television--for 30 euros per months. Neither this level of 
        service nor this price point is available in the U.S. by a wide 
        margin.\18\

   The proportion of slow connections is on the rise. In 
        December 2005, 15 percent of broadband lines had upload speeds 
        slower than 200 kbps. By June 2006 this had increased to 22 
        percent of lines. The proportion of DSL lines that had upload 
        speeds slower than 200 kbps increased over the 12/06-6/06 time 
        period from 18.4 percent and 18.9 percent.\19\

   Over half of all broadband connections in the U.S. are 
        slower than 2.5 Mbps.\20\

   Prices aren't dropping. Pew data \21\ showed a year-to-year 
        increase for cable, and a slight decrease for DSL--but the bulk 
        of that is due to low-intro slow-speed teaser rates. Yes, 
        broadband speeds are slowly increasing, but we would expect a 
        competitive broadband market to yield BOTH quality increases 
        and price cuts.

    The consequences of lagging performance are severe. Thomas Bleha, 
in his widely read 2005 article describes the situation so aptly it is 
worth quoting at length:

        In 2001, Robert Crandall, an economist at the Brookings 
        Institution, and Charles Jackson, a telecommunications 
        consultant, estimated that ``widespread'' adoption of basic 
        broadband in the United States could add $500 billion to the 
        U.S. economy and produce 1.2 million new jobs. But Washington 
        never promoted such a policy. Last year, another Brookings 
        economist, Charles Ferguson, argued that perhaps as much as $1 
        trillion might be lost over the next decade due to present 
        constraints on broadband development. These losses, moreover, 
        are only the economic costs of the United States' indirection. 
        They do not take into account the work that could have been 
        done through telecommuting, the medical care or interactive 
        long-distance education that might have been provided in remote 
        areas, and unexploited entertainment possibilities.

        The large broadband-user markets of Northeast Asia will attract 
        the innovation the United States once enjoyed. Asians will have 
        the first crack at developing the new commercial applications, 
        products, services, and content of the high-speed-broadband 
        era. Although many large U.S. firms, such as Cisco, IBM, and 
        Microsoft, are closely following developments overseas and are 
        unlikely to be left behind, the United States' medium-sized and 
        smaller firms, which tend to foster the most innovation, may 
        well be.

        The Japanese and the South Koreans will also be the first to 
        enjoy the quality-of-life benefits that the high-speed-
        broadband era will bring. These will include not only Internet 
        telephones and videophones, but also easy teleconferencing, 
        practical telecommuting, remote diagnosis and medical services, 
        interactive distance education, rich multimedia entertainment, 
        digitally controlled home appliances, and much more.\22\
The Elusive Third Pipe--Why Wireless Won't Save Us
    To the extent that U.S. broadband policy has been guided by any 
logic, it is the argument that intermodal or cross-platform competition 
will be the savior of national broadband performance in the 
marketplace. While much of the rest of the world has opened up vigorous 
competition within platforms, we have staked our broadband future on 
competition between platforms. So far, it has not worked out--the U.S. 
broadband market has long been a rigid duopoly that shows few signs of 
weakening.
    The lack of price competition between DSL and cable modem is 
apparent in the marketplace. Cable operators have made no attempt to 
match DSL on price. Comcast CEO Brian Roberts poured cold water on the 
idea that he is concerned about introductory price cuts in DSL. ``We 
continue to believe and continue to charge for our services a rate that 
we think is a great value because the product is so much better. When 
Hyundai cuts their prices, BMW isn't exactly upset about it.'' \23\ 
Though they have ticked off consumers who want higher speeds, they 
primarily rely on bundled services to hold customers. The DSL operators 
have aimed their marketing strategy at transitioning dial-up customers 
with introductory rates to low-end DSL. However, this practice is 
ebbing. Recent industry analysis shows that introductory DSL prices are 
rising; so are prices for bundled services. According to a recent press 
report, Banc of America analyst David W. Barden noted that ``a duopoly 
is emerging where cable and phone companies can avoid provoking price 
cuts in their core services. Carriers, for instance, can discount DSL 
service while keeping prices up on phone service, and cable firms can 
drop prices for phone service but maintain higher pay-TV rates.'' \24\
    The broadband problem in the U.S. flows from a simple policy 
mistake--a decision to rely upon a duopoly of telephone and cable 
companies to decide where and when to deploy this vital infrastructure 
with no overarching social responsibilities whatsoever. They have slow 
rolled deployment, kept prices far above those in other nations, and 
emphasized bundles of services targeted to upper income Americans built 
around ``franchise'' services. The results is restricted availability 
and a network that is intended to maximize short run profits, not the 
long run national interests of social welfare.
    Though some might maintain that duopoly competition is sufficient, 
it is the expectation of a third pipe competitor that has propped up 
the logic of relying on intermodal competition to reach our policy 
goals. The steady promise in hearings such as this one over the last 
year or two has been that a viable wireless competitor is right around 
the corner. This hypothetical wireless competitor will throw open the 
gates of competition, unleash market forces, and the genius of the 
invisible hand will drive down prices, increase innovation, and turn 
the U.S. back onto the path toward regaining global leadership in 
broadband technology. Some commentators claim that the wireless 
competitor has already arrived in the form of 3G mobile cellular 
broadband. For example, Steve Largent, the President and CEO of CTIA 
made this comment before this Committee in May of 2006: ``As we enter 
our third decade, the wireless industry is poised to enter a Wireless 
Renaissance, bringing advanced services like wireless Internet, to more 
than 200 million mobile Americans.'' \25\ Recent data from the FCC seem 
to support this point of view. Sixty percent of the increase in 
broadband connections over the past 6 months is due to mobile cellular 
wireless connections.\26\
    But these promising statistics are only promising because they are 
misleading. The FCC counts a broadband capable PDA subscriber exactly 
the same as a residential DSL or cable modem subscriber when counting 
broadband connections. The problem is that the wireless and wireline 
broadband products are in completely different product markets. They 
are not comparable in either performance or price; they are not 
substitutable services; and they are certainly not direct competitors. 
Though no precise data exists, it seems obvious that the overwhelming 
majority of subscribers to mobile broadband devices have not canceled 
their wireline broadband service as a result. The wireless product is a 
complementary product for which the consumer pays extra. Most consumers 
do not use mobile wireless broadband on cell phones for the same 
purposes as a residential broadband connection. Consider these facts:

   These new mobile broadband lines are for the most part 
        mobile devices with a data service capable of accessing the 
        Internet at >200 kbps speeds. They are highly unlikely to be 
        used as a primary home broadband connection. In fact, 89.5 
        percent of mobile wireless connections are business 
        subscribers, not residential subscribers.\27\

   In total, 17 percent of all broadband lines counted by the 
        FCC are now mobile wireless. But only 3.8 percent of advanced 
        service lines are mobile wireless (>200 kbps in both 
        directions), and only 2.5 percent of residential advanced 
        service lines are mobile wireless.\28\ What's more, the three 
        largest mobile data carriers are AT&T, Verizon and Sprint. Two 
        of these three carriers are also ILECs, and are the number one 
        (AT&T) and number three (Verizon) most subscribed to broadband 
        Internet service providers, and are the top 2 DSL providers in 
        the United States.\29\ Sprint's joint venture with cable 
        operators also diminishes any potential role it could play as a 
        third pipe.

   It is important to note that the multi-functionality of 
        cellular phones with broadband data components may contribute 
        to an overstating of the true level of mobile broadband use. A 
        provider of a DSL line only reports to the FCC the lines that 
        are actively subscribed to (and presumably used). However, if a 
        cellular customer's mobile device is capable of data transfers 
        at >200 kbps, then they are counted as a broadband line, even 
        if the customer rarely uses the device for non-voice purposes.

   Cellular broadband connections are duplicate connections--
        that is, very few people subscribe to and use a mobile 
        broadband connection as their home broadband connection. 
        Furthermore, mobile wireless connections are not substitutes 
        for cable or DSL connections. These connections are slow, have 
        strict bandwidth caps, and other restrictions, such as users 
        not being allowed to use the connection for VoIP applications 
        (Internet phone) and numerous other Internet-based 
        functionalities.\30\

    Appendix A gives the exact specifications of price, speed, and 
bandwidth limits of mobile wireless broadband products from the major 
carriers--AT&T, Verizon and Sprint. These services, while valued by 
consumers, are not competitors to wireline broadband service. They have 
not brought the competition necessary to drive down prices and drive up 
speeds in the overall broadband market. It would be unwise to bet that 
they will. Vertically integrated carriers that dominate the wireline 
broadband market are highly unlikely to offer a wireless broadband 
product that can potentially cannibalize their wireline marketshare. It 
is far better business to offer a complementary service.
    If 3G mobile broadband won't bring us competition, surely the 
auction of the 700 MHz band will do so, right? Will 4G finally bring us 
the third pipe in this ``Wireless Renaissance''? Not likely. The DTV 
transition has long been touted as the moment when wireless broadband 
will come into its own. A senior executive at Motorola made these 
comments in July of 2005: ``The spectrum that will be made available at 
700 MHz as a result of the transition to digital television provides a 
unique opportunity to provide facilities-based competitive broadband 
services.'' \31\ His comments are typical of the hopes many have 
expressed to this Committee. The frequencies vacated by the 
broadcasters in 2009 are up for auction early next year, and this 
``beachfront spectrum'' is thought by many to be the answer to our 
broadband competition woes.
    To be sure, the 700 MHz auction could be the last, best chance to 
bring a third pipe to the market. It has been hailed as such by 
legislators, regulators, and industry leaders alike. Yet the favorites 
to win this auction (the major cellular carriers) really do not intend 
to deliver the third pipe. Further there are technical limitations that 
come with the proposed structure of the auction that would make it very 
difficult for any licensee to produce the desired outcome. It is quite 
a striking disconnect. All of the rhetoric about this auction promises 
the inauguration of the elusive third pipe in wireless broadband. But 
none of the facts of what the FCC is doing will realize those lofty 
goals. Why is there such a divide between the rhetoric of 700 MHz as 
the promised land of the third pipe and the reality of the auction?
    First, there is nothing that says the winning bidders must use the 
frequencies to offer wireless broadband services that are true 
competitors to DSL and cable. Looking at the likely winners of the 
auction, it is clear that a competitive market is the last thing on 
their minds. The incumbent carriers are thought by most odds-makers to 
be the most likely winners in this auction--just as they were in the 
last spectrum auction for Advanced Wireless Services frequencies. These 
companies are the Nation's leading providers of DSL service. Why would 
they use the 700 MHz licenses to offer a wireless broadband service 
that cannibalizes their own market share in DSL? The answer is they 
would not--not here anymore than they have in 3G cellular broadband. 
They are far more likely to use this spectrum to offer new services 
which consumers will buy on top of their existing wireline voice 
service, wireline broadband service, and wireless voice service. This 
new service, 4G wireless, will be an enhanced mobile data service 
capable of delivering limited amounts of video and audio to a handheld 
device. This is not an unwelcome product, of course, but it will not 
solve the broadband problem; it will not bring a ``third pipe''; and it 
will not bridge the digital divide to poor and rural communities.
    Second, most of the other bidders in the pool will be looking to 
grab spectrum to fill out the geographic coverage area of their 
existing cellular networks. This will also allow them to compete, to 
some degree, with AT&T and Verizon Wireless, the industry leaders. This 
is not an unwelcome development either, but by itself, it will not 
solve our broadband problem.
    Third, none of the spectrum blocks up for auction are large enough 
to provide a true alternative to DSL and cable modem no matter the 
intentions of the bidders. The largest block up for auction is 10 MHz. 
That translates into about 15 mbps of capacity spread over a cell 
sector. Depending on the density of users in that sector, the actual 
throughput performance experienced by a customer will struggle to 
exceed 2 mbps on the download, and probably will be less.\32\ That's 
not bad today, but down the line as DSL and cable providers eventually 
increase speeds to 5-10 mbps of throughput for each user, that wireless 
service will not be a true competitor. It will be a reasonable 
broadband experience for a wireless device used for limited 
applications, but it will not be a substitute for a residential 
wireline connection. To have that, we would have to allocate at least 
30 MHz to the task.
    Fourth, at present, none of the spectrum blocks up for auction are 
conditioned on ``open access'' rules--though we have filed comments at 
the FCC asking for this and other proposals to maximize the utility of 
the auction.\33\ Why are these important? Essentially, this is the only 
way to make a spectrum allocation into a truly competitive market for 
connectivity to the Internet, software applications, and devices that 
attach to the network. Open access simply means that the licensee sells 
access to the network on a wholesale basis at commercial rates. Any 
number of ISPs that choose may come and buy bandwidth and compete for 
customers. Everyone shares the same transmitter and connectivity; they 
compete on customer service and price. These networks are neutral in 
two important respects. First, bandwidth on this network is available 
to any ISP on nondiscriminatory terms. Everyone pays the same rates for 
the same wholesale products to compete fairly in the market. Second, 
the network is neutral toward the devices and applications running on 
the network. Provided they do not harm the network, any innovative 
piece of software or hardware a company can dream up may connect to the 
network and sell to consumers. In turn, the broadband network provider 
is fully compensated for use of its network. This is the ultimate free 
market.
    Such a system of intramodal competition in the 700 MHz band using 
blocks of spectrum large enough to compete with wireline products is 
the only chance to realize the impact of the elusive third pipe. Few 
observers are optimistic enough to believe the FCC intends to go in 
this direction. If Congress is interested in preventing a serious 
disappointment and the loss of a golden opportunity to deliver 
broadband competition, intervention in this auction process is 
imperative.
Myths, Excuses, and the Deplorable State of Broadband Data Collection
    A former, senior FCC official once quipped: ``you can't manage what 
you don't measure.'' By that standard, the FCC hasn't been managing 
much of anything effectively in the broadband market. For years now, 
analysts have been pointing out the poverty of the data collection 
regime used by the Commission.\34\ The GAO did a study pointing out the 
embarrassing flaws in the FCC's methodology, showing that FCC 
overstated broadband provider availability by 400 percent in some 
instances.\35\ Finally, the FCC seems to be getting the message. They 
have opened a Notice of Proposed Rule Making into the matter.\36\ Until 
such time as the Commission issues new rules, however, we are still 
suffering with a set of long standing problems:

   The FCC still uses an absurd standard of broadband, 200 
        kbps. This was barely fast enough to have a tolerable Internet 
        experience in 1999, but in 2007 it is too low to enjoy 
        streaming video, flash animation, and other features common to 
        today's Internet applications.\37\

   The FCC still uses the highly discredited metric of 
        broadband availability, the ZIP code system that the GAO has 
        criticized as vastly overstating the level of availability and 
        competition within the broadband market.\38\

   Though there is a steady increase in number of providers in 
        ZIP codes, the GAO report shows these numbers are inflated over 
        400 percent.\39\

   The GAO put the median number of providers available to an 
        individual family at 2, and determined that at 1 out of every 
        10 households had no access whatsoever.\40\

   The ZIP code method misses micro gaps in service 
        availability. If the data were collected at ZIP+4, we would see 
        that service availability varies from block to block in many 
        areas.

   The FCC measures only 1 of the 3 major indicators of 
        broadband performance: availability. Price and speed data, 
        critical to understanding how to make good policy, are simply 
        unavailable.

   The FCC erroneously treats wireless broadband service as a 
        complete substitute for wireline broadband service, rather than 
        as a more expensive and feature-poor supplement.

    Associate Director John Horrigan at Pew Internet noted that a key 
problem with the study of the U.S. broadband market ``is the fact that 
there's not good data in the U.S. on connection speed. Yes, people are 
adopting broadband at a good clip in the U.S., but we don't know how 
fast their connections are. The FCC has no good data on network speed, 
and that's not a question that you can reliably get by doing a 
telephone survey.'' \41\
    Another serious problem with the debate over the health of our 
broadband market has been the red herring of population density. 
Apologists for the poor U.S. broadband numbers are quick to attribute 
the low penetration level to this country's relatively low population 
density. FCC Chairman Kevin Martin authored a piece in the Financial 
Times stating: ``Given the geographic and demographic diversity of our 
nation, the U.S. is doing exceptionally well. Comparing some of the 
`leading' countries with areas of the U.S. that have comparable 
population density, we see similar penetration rates.'' \42\
    Martin blamed U.S. geography for our poor broadband performance, 
but the facts tell a different story. For the 30 nations of the OECD, 
population density is not significantly correlated with broadband 
penetration. Indeed, one of the world's leading broadband nations, 
Iceland, has one of the lowest population densities in the world. 
Furthermore, 5 of the 14 countries ahead of the U.S. in the OECD 
broadband rankings have lower population densities than the U.S.


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    While there may be a theoretical reason to think that population 
density should be correlated with broadband penetration, in real world 
measurements comparing performance at the national level that is not 
the case. What Martin is likely trying to convey is the phenomenon of 
``economies of density.'' In theory, it should be less costly on a per-
line basis to deploy broadband to an area that is highly populated than 
one that is sparsely populated--all other things being equal. But 
population density is not the relevant metric to capture this 
phenomenon--as people tend to cluster in cities, regardless of the 
overall geographical area of a particular country. The relevant metric 
is ``urbanicity,'' or the percentage of a nation's population living in 
urban areas or clusters.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    When the relationship between urbanicity and broadband penetration 
is examined, there's only a very weak, statistically insignificant 
correlation. Countries like the Netherlands and Switzerland have lower 
percentages of their population living in urban areas than the United 
States yet have higher broadband penetration rates. Similarly, 
countries like New Zealand and Germany have higher percentages of urban 
population than the United States but lower broadband penetration 
levels. In total, 8 of 14 countries ahead of the U.S. in the OECD 
broadband rankings have lower percentages of their population living in 
urban areas.
    In short, geographic factors alone cannot explain why the United 
States lags behind. Factors like income, income distribution, public 
policy, and market competition play a far bigger role.
Part II: Fixing the Broadband Problem
    The first step is establishing a serious national broadband policy. 
Currently, we are ``the only industrialized state without an explicit 
national policy for promoting broadband.'' \43\ In response to a recent 
request to compare Japanese and American broadband policy, a Japanese 
telecom executive noted: ``I don't think at the moment, the United 
States has any national policy. The idea is, let the market do it.'' 
\44\ The key problem is that U.S. broadband policies have not even 
engaged the free market, choosing instead to wait for the elusive 
intermodal competition to come along and challenge the stagnant duopoly 
of DSL and cable. It is in this void that we must reassert the 
commitment to a ubiquitous, affordable 21st century communications 
network for all Americans. The framework of public-private partnership 
in policy-making that characterized the technology boom of the 1990s 
worked because public policy guided the thrust of development. As 
Thomas Bleha describes it: ``The private sector did the work, but the 
government offered a clear vision and strong leadership that created a 
competitive playing field for early broadband providers.'' \45\ When we 
talk about public private partnerships, we do not mean situations in 
which the private sector profits at the expense of the public; we mean 
partnerships that serve the public interest, which is difficult when 
public policy is not clearly articulated.
    The national broadband policy should be designed around aspirations 
to particular social and economic outcomes, not the business models of 
the incumbent telecommunications carriers. We need to identify our 
goals and work backward to find the right policies. We suggest goals 
that address our shortfalls in each of the three major indices of 
broadband performance: availability, price, and value (cost per unit of 
speed).

        Goal #1--Establishing universal availability of broadband 
        services

        Goal #2--Bringing competitive, affordable services and programs 
        to stimulate adoption in undersubscribed areas

        Goal #3--Enhancing the speed, coverage, and reliability of 
        communications networks to spawn the next generation 
        applications that will raise the social and economic value of 
        connectivity

    What would success look like? To regain global leadership in 
broadband and maximize the social benefits of a network economy, we 
need to establish a framework that supports an evolving communications 
infrastructure that will ultimately provide 100 megabits of symmetrical 
connectivity to every home in America in the next decade. From the 
passage of the Communications Act in 1934 to the Telecommunications Act 
in 1996, the American telephone network evolved through rapid 
technological change and an immense expansion of service and services. 
It was an infrastructure built with private capital subject to public 
obligations and oversight. We must certainly adapt to the more dynamic 
world of today, but we are suffering because we have abandoned the key 
role of public policy.
    To achieve the goal, we will need vigorous, multi-modal 
competition--that is, competition between delivery platforms (e.g., 
DSL, cable, and wireless) as well as competition within delivery 
platforms. We cannot and should not bet our digital future on one form 
of competition. We should ensure that the content/applications market 
that sits adjacent to the connectivity/access market also retains 
maximum competitiveness, as it always has, by precluding market power 
in network ownership from distorting the market for Internet content. 
This will maximize innovation in the content market and increase the 
likelihood that the next ``killer application'' will attract more and 
more Americans to subscribe to a network. Indeed, this virtuous cycle 
of greater demand for advanced applications leading to greater uptake 
of broadband, leading again to greater demand for advanced 
applications, seems to be completely missing in the FCC's thinking. We 
should also invest in social programs that bring the equipment and 
training needed to help disadvantaged communities into a place where it 
makes sense to connect. So-called digital inclusion programs are often 
overlooked in the consideration of the broadband future.
    To realize these goals, we will need to establish a national 
broadband policy framework that is comprehensive and aggressive in 
pursuit of market competition and advanced network capabilities. Not 
all of these changes will be supported by the incumbent industries. But 
it is essential that we recognize that the short-term financial 
interests of dominant firms must not be permitted to overshadow the 
larger national interest in charting a successful path for our digital 
future.
    Where should we start?
Study the Problem--Improve Data Collection
    We should begin by addressing our data problems. We should conduct 
a broad inquiry into costs, feasibility, technologies, and deployment 
strategies that can be initiated through creative policymaking. To do 
this effectively, we needed better data. We need to know at a granular 
level--block by block--where broadband service is available and where 
it is not. But we must go beyond that. We must collect information 
about the price and speed of connections as well. We need to know about 
service agreements as well--early termination fees in long term 
contracts and other switching costs may distort our understanding of 
the real levels of competition in the market. Without this information, 
we cannot quickly identify the gaps in the service market and remedy 
market failures that hold prices high and service quality low.
    Programs like ConnectKentucky represent a valuable model to 
consider for Federal policy--particularly in its focus on working with 
local communities. But the Federal Communications Commission must also 
play its role of central administrator--collecting and evaluating the 
massive amounts of information we could be using to make broadband 
policy. Simple changes in the Section 706 requirements for 
telecommunications carrier reporting would dramatically clarify the 
picture of what is happening in our broadband market.
    We should also set to work studying the cost and feasibility of 
broadband technologies. For many years, it has been the stated goal of 
the U.S. Government to make broadband connections universal. Yet we do 
not have reliable cost estimates for realizing that goal, much less 
have we compared the costs of deploying different technologies to 
accomplish the task. For years, we have heard that technologies like 
broadband over power lines and satellite wireless broadband were inches 
from transforming the marketplace. Yet we did not study these issues 
sufficiently to determine that those estimates were overblown and 
unrealistic. A paucity of information has led us to false expectations 
and delay, distracting from the need to seek out the necessary data 
points to make policy.
    Beyond the collection of market data, we should look to empower the 
research community (both government and university led) to study the 
Internet. It is hard to believe, but not a single data link on the 
privately-owned Internet backbone today is available for study by 
researchers. Our understanding of the flow of traffic over the network 
is very limited as a result. Using the proper safeguards to guarantee 
privacy and protect proprietary commercial information, we should 
empower the research community to study the problems of the Internet 
that inhibit our progress, including security issues, spam, routing 
tables, peering, packet loss, latency, jitter, and a wide variety of 
topics that could benefit from the application of scientific scrutiny. 
We should put the country's greatest minds to work on these problems to 
assist our network owners. This collaborative model of research and 
production has always been the basis of technological leaps in the 
Internet space. At present, the only government programs looking into 
these matters are not driven by competition policy, but rather by 
national security. The Department of Homeland Security's PREDICT 
program offers a useful model for this Committee to explore.\46\
    Possessing data about our own broadband market will be an enormous 
advantage, but we should look beyond our borders. We should look at the 
nations that have surpassed us in the creation of competitive broadband 
networks to learn which strategies have proven successful and why. 
There has been no serious effort to do this to date. Yet the research 
is being done in our universities. Two recent studies have compared the 
policies that have shaped the U.S. broadband market with those in 
Europe and South Korea. In both cases, the findings show that the root 
cause of our problems is based in a lack of competition policy.\47\
    It is worth dwelling on this point. The policy that scholarship 
indicates is the MOST responsible for success in the international 
broadband market--open access to network infrastructure for intramodel 
competitors--is precisely the policy that the U.S. has abandoned. 
Ironically, this policy was originally initiated in the FCC's own 
Computer Inquiry decisions of the 1970s and 1980s, which allowed 
Internet service providers to purchase underlying telecom inputs on a 
nondiscriminatory basis. Many believe this ISP ``open access'' policy, 
along with the Carterphone principles of the 1960s, helped pave the way 
for the rise and enormous success of the Internet. Later, the 
Telecommunications Act of 1996 briefly opened up the local network so 
that competing carriers could use the local loop to provide DSL and 
other advanced data functionalities. Unfortunately, in both cases these 
pro-competitive precedents were eviscerated in subsequent legal and 
regulatory disputes, essentially because they were not in the short 
term financial interests of incumbents. Asia and Europe adopted and 
embraced open access--betting on the long-term benefits of the policy--
and they have used it to leap-frog the U.S. in the race for global 
broadband supremacy. Professor Amit Schejter's ground-breaking analysis 
of this dichotomy is laid out in a working paper attached to this 
testimony.
    A similar analysis comparing U.S. and South Korean broadband policy 
also highlights the divergent paths on open access rules that have led 
to higher and lower barriers to entry (respectively) in the broadband 
market. The study concludes:

        The sluggish progress of intermodal and intramodal market 
        competition explains a part of the sluggish demand in the 
        residential high speed Internet access market in the U.S., 
        while the South Korean market was able to grow rapidly due to 
        fierce competition in the market, mostly facilitated by the 
        Korean government's open access rule and policy choices more 
        favorable to new entrants rather than to the incumbents. 
        Furthermore, near monopoly control of the residential 
        communications infrastructure by cable operators and telephone 
        companies manifests itself as relatively high pricing and lower 
        quality in the U.S. The more favorable terms from which the 
        dominant providers have benefited, and government's 
        deregulation, may limit business opportunities for other 
        Internet service providers.\48\

    Japan's NTT East continues to make heavy investments in fiber-
optics despite requirements that it must share its network with 
competitors. When asked to explain why, an NTT executive cited the long 
term benefit to the country. ``We see the future, and then we do what 
we feel is right,'' he said.\49\ As a result of this vision, Japan 
(like many of the world's leading broadband nation) has multiple 
wireline competitors offering broadband in each market. In the United 
Kingdom, BT has agreed to a split between its retail and wholesale 
operations, which has both created intramodal competition over BT's 
local loops and led to greater overall investment in broadband 
facilities. The evidence is clear: the results of broader consumer 
choice are lower prices, higher speeds, and greater innovation.
    Professor Schejter points out that the U.S. may be well served to 
learn from the European and Asian examples: ``Observing international 
broadband adoption trends and rates, one cannot fail to notice that 
while Europe is plunging ahead, with some countries leaving even Asian 
powerhouses behind, the United States, which was the original leader in 
both making the first regulatory moves and adopting Internet 
technology, is slowly falling behind. What is it then that makes Europe 
different than the United States, and what can the United States learn 
from the European experience in order to revive broadband 
penetration?'' \50\
Enact Multi-Modal Competition Policy
    The vision for our national broadband policy should be bold, 
aspirational, and comprehensive. The problems in the marketplace will 
not be solved by tweaking around the edges; nor will they be solved by 
enacting policies that are functionally subsidies of status quo, 
incumbent business-models. We need to reject the conventional political 
wisdom of complacent incrementalism and embrace a policy inquiry into 
all the possible options for putting our broadband future back on 
track. Now is not the time to make artificial declarations that some 
ideas are off the table and narrowly focus on particular proposals. No 
one policy idea is the silver bullet. It will require many different 
initiatives aimed at different levels of the broadband market to 
accomplish our goals. In short, it must be ``multi-modal''--by which we 
mean that it must foster competition both within and between broadband 
technology markets.
    A useful way to categorize policy proposals is to group them 
according to the network layer to which they apply. To simplify for 
present purposes, the broadband market can be understood as two 
separate arenas: (1) a physical connection to the Internet and the 
technologies used to transmit information over the network; and (2) the 
applications and content delivered via that Internet connection and the 
devices used to receive them. We can and should target broadband policy 
in both layers of the network to maximize the productivity of both 
markets. This policy has two broad components: engendering greater 
competition at the physical layer, and crafting protective safeguards 
for the application layer. Though each of these proposals deserves 
analysis and explanation, for the purposes of this testimony, we will 
simply list them out for discussion. This may serve as a consumer 
blueprint of ideas for a national broadband policy. We would encourage 
other stakeholders to offer the Committee similar, comprehensive 
proposals for consideration.
Policies for the Physical Layer
    The physical layer is not just wires and cables. It is any means of 
delivering a broadband connection and the baseline rules and consumer 
protections governing that delivery system. By extension, policies 
aimed at the physical layer include any effort to expand the reach, 
capacity, competitiveness or efficiency of these networks to serve 
residential and business customers. In turn these networks support the 
spread of advanced Internet applications that can be accessed and used 
by all Americans.

   Allocation of licensed public spectrum aimed at creating a 
        viable wireless broadband competitor--We should approach policy 
        opportunities like the auction of 700 MHz frequencies with the 
        goal of bringing new entrants into the market that are 
        independent of wireline incumbents.

   Expansion of unlicensed public spectrum--The greatest 
        success of recent broadband policies is WiFi, or unlicensed 
        spectrum. We should expand the availability of unlicensed 
        spectrum into lower frequencies by opening up the unassigned 
        television channels (also known as ``white spaces'') for 
        wireless broadband. We applaud this Committee for its work on 
        this issue and recommend the Kerry-Smith bill for passage.

   Reform and transition the Federal universal service programs 
        from dial-tone to broadband--We should move our valuable USF 
        programs into the 21st century with targeted subsidies and 
        accountability benchmarks to support broadband deployment in 
        high-cost areas.

   Reasonable and nondiscriminatory interconnection between 
        facilities-based providers--Since the Internet is nothing more 
        than a global network of interconnected private and public 
        networks, it is imperative that each interconnects with one 
        another to maximize the efficiency and utility of the overall 
        network.

   Reintroduce intramodal competition into the broadband 
        market--Though recent FCC decisions have moved away from this 
        model of competition policy, it is imperative that it is not 
        abolished. Intramodal competition through open access to 
        network infrastructure has been the cornerstone of 
        international broadband successes. We should embrace open 
        access plans in the licensing of the 700 MHz band and establish 
        policies to bring competition back in the wireline space.

   Explore financial incentives to expand broadband capacity in 
        the last mile--Successful policies overseas have included 
        direct government investment in wiring public facilities, low-
        interest loans for public and private broadband projects, tax 
        incentives for networking equipment, accelerated depreciation, 
        debt guarantees and other targeted investments in our digital 
        future.\51\

   Authorize and protect the right of local governments to 
        provide broadband services--Municipalities have led the charge 
        in recent years to fill gaps in the broadband market and build 
        services that exceed those offered by commercial incumbents. 
        This effort to bring competition and innovation to the 
        marketplace should be encouraged. We applaud the work of the 
        Committee on this issue and recommend a bill offered by 
        Senators Lautenberg and McCain.

   Collect data and map the broadband market on an ongoing 
        basis--We cannot solve problems that we do not understand. Our 
        current state of broadband data collection is unacceptable. FCC 
        should be instructed to collect more granular information on 
        service as well as price and speed data on all broadband 
        connections. Programs should be initiated to help map the 
        broadband market.

   Require network owners to offer customers stand-alone or 
        ``naked'' DSL or cable modem service--The promise of VoIP 
        competition in the voice market has been stymied by the 
        bundling practices of the incumbent operators. To give this 
        alternative a viable chance, policymakers should put in place 
        protections for this consumer benefit.
Polices for the Applications Layer
    The applications layer, in this analysis, refers to the marketplace 
for content, applications, services and devices that flow over, or 
connect to, the Internet. This economic space at the ``edge'' of the 
network architecture has been a remarkable engine of economic growth in 
the last decade. In addition, this is the space where network 
technologies meet democratic discourse and open cultural expression. 
Because of the open marketplace at the edge of the network, an open 
sphere for public speech has developed that rivals the printing press 
as the most important development in modern political communication. 
Policies aimed at the application layer should recognize its centrality 
to the economic and democratic health of the Nation.

   Network Neutrality should be established as the cornerstone 
        of broadband policy--We should protect an open market for 
        speech and commerce on the Internet for consumers, citizens and 
        businesses alike. To do this, we should apply nondiscrimination 
        safeguards to the broadband ramps leading onto the Internet 
        that prohibit owners of the physical layer of the network from 
        gate-keeping the applications layer of the network.

   Carterphone rules should apply to the wireless broadband 
        platform--We should recognize and remedy the contradictions in 
        fostering an open market for wireless broadband on a platform 
        emerging from the closed networks of cellular telephony. The 
        walled garden of the PCS world should not be permitted to 
        cripple the potential of mobile wireless broadband. All 
        devices, applications and services that do not harm the network 
        should be permitted access.

   Pair broadband expansion with digital inclusion programs--
        Bringing broadband to underserved areas will do no good if 
        local communities lack the computers and training necessary to 
        access the network. We should design and empower social 
        programs to bring technology and skills to communities and work 
        with local leaders to establish meaningful connections.

   Facilitate ongoing research into network traffic and data 
        management--The dearth of information about what is happening 
        on the Internet cripples our efforts to address some of the 
        most pressing problems in the application layer: spam, cyber-
        security, privacy, and traffic management. Policymakers should 
        seek to make available the tools researchers need to provide 
        the best available answers to these problems.
Conclusion
    The status quo is unacceptable. If we watch and wait, trusting that 
today's artificially-constrained marketplace will magically solve the 
broadband problem, we will see the U.S. slip farther behind the rest of 
the world and widen the digital divide--both domestically and 
internationally. The consequences are too severe to tolerate this 
narrow path.
    The current trend lines are clear. We continue to have large gaps 
in broadband service across the Nation. Worse still, the networks we do 
have are slower, more expensive, and less competitive than the global 
leaders in broadband performance. Our reliance on intermodal 
competition has not proven successful, as we remain mired in a rigid 
duopoly. The optimistic predictions about mobile cellular broadband do 
not appear to hold any real promise of a viable ``third pipe.'' 
Meanwhile, network operators are following the demands of quarterly 
returns--investing in networks where costs are lowest and profits 
highest and leaving the rest of the market behind. Perversely, the 
proposals of the incumbents include dismantling the open, neutral 
marketplace for commercial applications and political speech to squeeze 
out higher revenues. The result in the value chain and in the public 
sphere will be a resounding net loss. This is robbing Peter to pay 
Paul, and the Congress should reject and look beyond such a short 
sighted approach to real solutions. We must reject the argument that an 
open Internet and a high capacity network are mutually exclusive goals. 
We must have both for our information marketplace to prosper.
    The first step on the road to broadband recovery is understanding 
the problem. We must rectify the deplorable state of data collection in 
the broadband market. What we do not know undercuts our ability to 
craft and target viable solutions. Second, we must shed the myths about 
our failures and the false promises that a magical resurrection of our 
fortunes is right around the corner. Third, we must study the successes 
of other nations to determine which policies are the best bets for the 
digital future of the U.S. Now is not the time to take ideas off the 
table, it is a moment for aspirational inquiry and bold vision.
    Finally, the Congress should move forward with a comprehensive 
national broadband policy. This should be a broad platform of 
initiatives that addresses the complexity of the issue and maximizes 
our chances for near and long term success. The focus of these policies 
should be: (1) enhancing competition between and within the 
technologies that deliver broadband connectivity; (2) protecting 
competition and speech in the content flowing over the Internet; (3) 
expanding opportunities to bring new broadband providers to the market 
using new technologies; (4) using targeted economic incentives to 
stimulate investment in underserved areas; (5) establishing programs 
that couple broadband deployment with technology provision and 
training; and 6) promoting a permanent research agenda that facilitates 
the collection of data in the market and on the network.
    Solving the broadband problem is a serious challenge of signal 
importance. We look forward to working with the Committee to find 
productive solutions.
                               Appendix A
Sample Mobile Broadband Offers
    Mobile broadband service programs are expensive, slow, not 
universally available, and severely restrictive. A sample of available 
offers: \52\
Sprint
    In Rev A coverage areas (available to 100 million people)

   Download Speed: 600-1,400 kbps

   Upload Speed: 350-500 kbps

   Price: $59.99 per month with a 2-year contract. OR $79.99 
        per month with a 1-year contract.

     $36 activation fee

     $200 early termination fee.

     Numerous taxes, surcharges, and fees

    In non-Rev A coverage areas (available to 94 million additional 
people)

   Download Speed: 400-700 kbps

   Upload Speed: 50-70 kbps

   Price: Same as above

    Service restrictions:

   ``Use as a private line or frame relay service substitution, 
        service, or like equivalent, is prohibited. Not available while 
        roaming. Premium content not available. Shared data not 
        available.''

   ``We reserve the right to limit or suspend any heavy, 
        continuous data usage that adversely impacts our network 
        performance or hinders access to our network. If your Services 
        include unlimited web or data access, you also can't use your 
        Device as a modem for computers or other equipment, unless we 
        identify the Service or Device you have selected as 
        specifically intended for that purpose.''
Verizon
    In Rev A coverage areas (available to 135 million people)

   Download Speed: 600-1400 kbps

   Upload Speed: 350-500 kbps

   Price: $59.99 per month with a 2-year contract., AND 
        customer must also be a Verizon voice customer. OR $79.99 per 
        month with a 1-year contract.

     $25-$35 activation fee

     $175 early termination fee.

     Numerous taxes, surcharges and fees

    In non-Rev A coverage areas (available to 67 million additional 
people)

   Download Speed: 400-700 kbps

   Upload Speed: 50-70 kbps

   Price: Same as above

    Service restrictions:

   ``Examples of prohibited uses include, without limitation, 
        the following: (i) continuous uploading, downloading, or 
        streaming of audio or video programming or games; (ii) server 
        devices or host computer applications, including, but not 
        limited to, Web camera posts or broadcasts, automatic data 
        feeds, automated machine-to-machine connections or peer-to-peer 
        (P2P) file-sharing; or (iii) as a substitute or backup for 
        private lines or dedicated data connections.

   Will terminate service if you exceed 5GB per month--or about 
        6 CD's worth of data (800MB each).
AT&T
    (No mention of Rev A deployments)

   Download Speed: 400-700 kbps

   Upload Speed: 50-70 kbps

   Price: $59.99 per month with a 2-year contract AND 
        subscription to a voice plan that's at least $39.99 per month. 
        OR $79.99 per month with a 1-year contract.

     $36 activation fee

     $175 early termination fee.

     Numerous taxes, surcharges and fees

    Service restrictions:

   ``Prohibited uses include, but are not limited to, using 
        services: (I) with server devices or with host computer 
        applications, including, without limitation, web camera posts 
        or broadcasts, continuous jpeg file transfers, automatic data 
        feeds, telemetry applications, Peer-to-Peer (P2P) file sharing, 
        automated functions or any other machine-to-machine 
        applications; (II) as substitute or backup for private lines or 
        dedicated data connections; (III) for Voice over IP''

   ``Unlimited plans cannot be used for uploading, downloading 
        or streaming of video content (e.g., movies, tv), music or 
        games.''

   ``Service is not intended to provide full-time connections, 
        and the Service may be discontinued after a significant period 
        of inactivity or after sessions of excessive usage. Cingular 
        reserves the right to (i) limit throughput or amount of data 
        transferred, deny Service and/or terminate Service, without 
        notice''
Endnotes
    \1\ ``Broadband Deployment is Extensive throughout the United 
States, but it is Difficult to Assess the Extent of Deployment Gaps in 
Rural Areas,'' Government Accountability Office, Report to 
Congressional Committees, GAO-06-426, May 2006.
    \2\ Extrapolated from ``High-Speed Services for Internet Access as 
of June 30, 2006,'' Industry Analysis and Technology Division, Wireline 
Competition Bureau, Federal Communications Commission; calculated 
assuming one line per household, based on July 1, 2006 Census household 
estimates; S. Derek Turner, ``Broadband Reality Check II,'' Free Press, 
Consumers Union, and Consumer Federation of America, August 2006, 
Available at http://www.freepress.net/docs/bbrc2-final.pdf.
    \3\ Organization for Economic Cooperation and Development, ``OECD 
Broadband Statistics to December 2006'', http://www.oecd.org/sti/ict/
broadband.
    \4\ Richard Hoffman. ``When It Comes To Broadband, U.S. Plays 
Follow The Leader,'' InformationWeek, 15 Feb 2007, http://
www.informationweek.com/story/show
Article.jhtml?articleID=197006038.
    \5\ ``High-Speed Services for Internet Access as of June 30, 
2006,'' Industry Analysis and Technology Division, Wireline Competition 
Bureau, Federal Communications Commission.; calculated assuming one 
line per household, based on July 1, 2006 Census household estimates.
    \6\ Ibid.
    \7\ Ibid.
    \8\ Ibid.
    \9\ Ibid.
    \10\ Ibid.
    \11\ Ibid.
    \12\ Organization for Economic Cooperation and Development (OECD), 
``OECD Broadband Statistics to December 2006,'' http://www.oecd.org/
sti/ict/broadband.
    \13\ http://www.itu.int/ITU-D/ict/statistics/at_glance/
top20_broad_2005.html
    \14\ World Information Society Report, August 2006, http://
www.itu.int/osg/spu/publications/worldinformationsociety/2006/wisr-
web.pdf.
    \15\ For a detailed background on product availability in Europe, 
see: Ofcom, The International Communications Market 2006, http://
www.ofcom.org.uk/research/cm/cm06/main.pdf.
    \16\ Grant Gross, ``U.S. customers pay considerably more than the 
Japanese for bandwidth,'' IDG, 4 April 2007, http://www.infoworld.com/
archives/emailPrint.jsp
?R=printThis&A=/article/07/04/04/HNjapbroadband_1.html.
    \17\ Ibid.
    \18\ ``Neuf Offers 50 Mbps in Paris for 30 EUR per month,'' 
MuniWireless, 7 March 2007, http://www.muniwireless.com/article/
articleview/5771/1/2/
    \19\ ``High-Speed Services for Internet Access as of June 30, 
2006,'' Industry Analysis and Technology Division, Wireline Competition 
Bureau, Federal Communications Commission.
    \20\ Ibid.
    \21\ John B. Horrigan, ``Home Broadband Adoption 2006,'' Pew 
Internet & American Life Project, May 28, 2006.
    \22\ Thomas Bleha. ``Down to the Wire.'' Foreign Affairs, May/June 
2005. http://www.foreignaffairs.org/20050501faessay84311/thomas-bleha/
down-to-the-wire.html.
    \23\ See: http://www.dslreports.com/shownews/65917.
    \24\ See: James S. Granelli, ``Prices going up for phones, Net,'' 1 
Feb 2007, Baltimore Sun, http://www.baltimoresun.com/business/bal-
bz.pricing01feb01,0,1370518.story?
coll=bal-business-headlines.
    \25\ Testimony before the U.S. Senate Committee on Commerce, 
Science, and Transportation, S. 2686, Communications, Consumer's 
Choice, and Broadband Deployment Act of 2006, May 18, 2006.
    \26\ ``High-Speed Services for Internet Access as of June 30, 
2006,'' Industry Analysis and Technology Division, Wireline Competition 
Bureau, Federal Communications Commission.
    \27\ Ibid.
    \28\ Ibid.
    \29\ Leichtman Research Group, May 2006.
    \30\ See: Tim Wu, ``Wireless Net Neutrality,'' New America 
Foundation, February 2007, http://www.newamerica.net/publications/
policy/wireless_net_neutrality.
    \31\ Michael D. Kennedy, Senior Vice President, Motorola, Before 
the U.S. Senate Committee on Commerce, Science, and Transportation, 
July 12, 2005.
    \32\ This estimate of bit rates (roughly 1.5 bits per hertz) in the 
700 MHz band was provided by an engineer responsible for one of the 
entities preparing to bid for a 700 MHz license. It was confirmed 
independently by two other wireless engineers as a reasonable estimate 
given the frequency, power levels and modulation schemes available 
today.
    \33\ Consumers Federation of America, et. al., ``Ex Parte Comments 
of the Ad Hoc Public Interest Spectrum Coalition,'' PS Docket No. 06-
229, WT Docket No. 06-150, 05-211, 96-86, April 5, 2007, Available at 
http://www.freepress.net/docs/pisc
700mhzpart2.pdf.
    \34\ Turner, op. cit.
    \35\ GAO, op. cit.
    \36\ Development of Nationwide Broadband Data to Evaluate 
Reasonable and Timely Deployment of Advanced Services to All Americans, 
Improvement of Wireless Broadband Subscribership Data, and Development 
of Data on Interconnected Voice over Internet Protocol (VoIP) 
Subscribership), Notice of Proposed Rule Making, WC Docket No. 07-38, 
April 16, 2007, Available at http://hraunfoss.fcc.gov/edocs_
public/attachmatch/FCC-07-17A1.pdf.
    \37\ Turner, op. cit.
    \38\ GAO, op. cit.
    \39\ Ibid.
    \40\ Ibid.
    \41\ Quoted in: Richard Hoffman. ``When It Comes To Broadband, U.S. 
Plays Follow The Leader,'' InformationWeek, 15 Feb 2007, http://
www.informationweek.com/story/showArticle.jhtml?articleID=197006038.
    \42\ Kevin Martin, ``Why Every American Should Have Broadband 
Access,'' Financial Times, April 2, 2006.
    \43\ Thomas Bleha. ``Down to the Wire.'' Foreign Affairs, May/June 
2005. http://www.foreignaffairs.org/20050501faessay84311/thomas-bleha/
down-to-the-wire.html.
    \44\ Gross, op. cit.
    \45\ Bleha, op. cit.
    \46\ See: https://www.predict.org/.
    \47\ See Richard Taylor and Eun-A Park, ``Barriers to Entry 
Analysis of Broadband Multiple Platforms, Comparing the US to South 
Korea,'' Paper presented to the Telecommunications Policy Research 
Conference, September 29-October 1, 2006, Washington, D.C., http://
web.si.umich.edu/tprc/papers/2006/636/TPRC2006Bar
riersToEntry.pdf; Amit Schejter, ``From all my teachers I have grown 
wise, and from my students more than anyone else: What Lessons Can the 
U.S. Learn from Broadband Policies in Europe?'' Working Paper, 2007, 
Pennsylvania State University.
    \48\ Taylor and Park, op. cit.
    \49\ Gross, op. cit.
    \50\ Schejter, op. cit.
    \51\ Gross, op. cit.
    \52\ Published offerings of Sprint, Verizon and AT&T as of April 
19, 2007.

    The Chairman. Thank you very much, Mr. Scott. May I now 
recognize Dr. Eisenach?

      STATEMENT OF JEFFREY A. EISENACH, Ph.D., CHAIRMAN, 
CRITERION ECONOMICS; ADJUNCT PROFESSOR, GEORGE MASON UNIVERSITY 
                         SCHOOL OF LAW

    Dr. Eisenach. Thank you, Mr. Chairman, Mr. Vice Chairman, 
members of the Committee. It's an honor for me to be here 
today. I'm going to summarize the written testimony, which I 
presented but I am going to refer to the charts in the back of 
that testimony so you may want to have those in front of you. I 
apologize to the audience if they didn't get all of those.
    I would start by saying that the connection between 
broadband deployment and prosperity is now widely acknowledged 
and most advanced nations have adopted policies to increase 
broadband investment and make broadband services widely 
available at affordable prices. It makes sense to ask as we do 
today and as you today, how well or poorly the U.S. is doing in 
this regard.
    Now, just as some saw Russia's 1957 launch of the Sputnik 
satellite as an indicator that the U.S. had fallen behind in a 
key technology, some today look at the familiar OECD statistics 
and conclude that we're behind or at least falling behind in 
the broadband race.
    Happily, it turned out our fears about losing the space 
race to the Russians, to say the least, were exaggerated and I 
suspect the same is true with respect to our fears about 
broadband. But Sputnik did get Americans' attention. It spurred 
us into action and a little of both today on the broadband 
front is very much needed.
    With that in mind, my testimony focuses primarily on two 
topics--the need for better information about broadband 
deployment and the state of broadband deployment in rural 
America.
    First the data we do have tells us we are doing a lot of 
things right. Figure 1 in my testimony, for example, shows that 
investment in communications equipment as reported by the 
Bureau of Economic Analysis at the Commerce Department, has 
increased over 40 percent since we significantly de-regulated 
broadband back in 2003.
    Figure 2 from the FCC shows that the overall number of 
broadband connections is growing rapidly--52 percent between 
June 2005 and June 2006. It also shows that wireless broadband 
is growing explosively, from under 400,000 in 2005--400,000 
connections to over 11 million a year later and that's a growth 
rate of about 2,800 percent. This growth, these two figures, 
are directly connected--the growth as a direct result of the 
high rates of investment that we have and appear to be 
continuing, as shown in Figure 1.
    But how do we compare with other nations? A lot has been 
written on that topic and a lot has been said today and more 
will be said but today, I would like to just add one thought 
for your consideration and simply put, that thought is that 
where you are depends a lot on where you have been.
    Figure 3 shows what may be a familiar graph and that is how 
new technologies, especially technologies like telephony, fax 
machines and the Internet, where network effects are important. 
It shows how those new technologies propagate through society--
how they spread. They tend to follow an ``S'' pattern. 
Initially, uptake is slow. Then a tipping point is reached and 
propagation accelerates as if suddenly, everyone has to have 
one.
    Eventually, the product reaches a saturation point when 
everyone who will ever want that product already has got it, 
where truly every major IT product, from the telephone to the 
fax machine to the iPod, has followed this pattern and 
broadband is no exception.
    Now, the four charts in Figure 4 show the S curve at work 
and I should say, these are based on what is now obsolete data 
from the OECD, which un-helpfully released its statistics after 
my testimony was prepared but I think the data is nevertheless 
indicative and valid. Belgium and Korea, both of which lead the 
U.S. in broadband adoption, seemed to have reached at least 
temporary saturation points. Their S-curves flattened out. 
Poland and Australia, both of which lag behind--Poland far 
behind--have passed at least a local tipping point and adoption 
is growing rapidly.
    Now let's turn to those OECD rankings. In Figure 5, we show 
the June 2006 usual OECD data with the U.S. ranked 12th in the 
world at that time, as measured by the number of broadband 
connections per 100 inhabitants. But in Figure 6, I have added 
another set of bars and those show the growth rate of 
penetration over that same period of time, this from June 2005 
to June 2006. Notice first and in general, the countries where 
broadband adoption is growing most rapidly are the ones where 
the level of penetration is lowest while growth in countries 
with higher penetration in general has begun to slow.
    Where is the U.S. on its S-curve? First note that there is 
about 25 percent annual growth and I think we may have seen a 
slow down in the most recent statistics, I don't make too much 
of 6 months worth of data on that front. But at 25 percent 
annual growth, the U.S. has one of the fastest growth rates of 
any of the high penetration rate countries--far above countries 
like Belgium and Canada and Japan and Korea, which again seem 
to have hit temporary saturation levels.
    If you turn to Figure 7, it seems clear that broadband 
growth in the U.S. is continuing at a healthy pace and I'd also 
go back to Figure 2, which shows the same thing. So coming back 
to the question of do we have enough data? Clearly, we have 
enough data to perform a lot of useful analyses to compare how 
we're doing at this level to other countries and so forth.
    But when you dig a little deeper, there is also a lot we 
don't know and in my opinion, what we don't know is hindering 
our ability to make informed policy choices. For example, first 
as the GAO has noted, the current FCC data on broadband 
availability is not very useful in assessing rural deployment. 
It tells us whether one or more providers have customers in 
each Zip Code but it doesn't tell us how many households or 
businesses in that Zip Code actually have broadband 
availability nor does it tell us anything about the quality or 
price of service.
    Second, the last time the Census Bureau released data on 
computer and Internet adoption, including broadband adoption, 
was in 2005 and the data was gathered in October 2003. Now 
given the dynamic nature of broadband deployment, it might as 
well have been collected in 1903--it's simply not helpful.
    Third, the most recent official data available on small 
business broadband penetration was collected in late 2003 as 
part of a study by the Small Business Administration.
    Now admittedly, there is a lot of data available from both 
for-profit and not-for-profit sources such as the Pew Internet 
& the American Life Project. But these private sources cannot 
and do not make up for the paucity of official data from the 
U.S. Government. The FCC's recent notice of proposed rulemaking 
on improving broadband data collection is a hopeful step in the 
right direction but other agencies, including the Census Bureau 
need to do better as well.
    One specific reason that has been mentioned here today: we 
need better data to inform the important discussion now 
underway about broadband deployment in rural America.
    Rural America lags behind the cities and suburbs in 
broadband adoption. If you go to Figure 8, we see the best 
data, I think, that is available on this from the Pew Internet 
& American Life Project in 2005, which shows that only 24 
percent of rural households had broadband connections compared 
with about 40 percent on average for the rest of the country.
    On the other hand, the data we do have also suggests that 
broadband is now available to the overwhelming majority of 
rural households and that availability is increasing. In expert 
testimony I filed on behalf of Verizon earlier this year in 
Virginia, I examined in detail the state of telecommunications 
competition in the State of Virginia, including the 
availability and use of broadband. The results there, it seems 
to me, are quite encouraging.
    Figure 9 shows the growth of broadband services based on 
the FCC's admittedly imperfect Form 477 data. Now we took this 
data and translated it into the wire center level so we were 
actually able to estimate for each wire center, the level of 
broadband availability.
    Now while the FCC data are imperfect, it nevertheless shows 
that the trend is very much in the correct direction. If you 
look at the bottom line on the chart, you see that even in the 
most rural wire centers, there are an average of four providers 
providing broadband service someplace in that wire center and 
again, that does not go to every individual, as we know, of 
course. That's the weakness in the FCC data.
    Figure 10 shows the availability of cable modem service and 
it too, is by and large, encouraging. Eighty-eight percent of 
households have access to cable modem service, which is 
equivalent to 99 percent of cable passed households. That's the 
good news. But the bad news is about 10 percent of households 
have no cable service at all and those households are 
concentrated in rural areas and as a result, there are some 
rural areas where cable modem service is available to only a 
small fraction of the population.
    But the story still isn't over. In Figure 11, we see areas 
where broadband is available from fixed wireless providers, 
including some of the most rural areas of the state. Seventy-
one percent of Virginia households have wireless broadband 
coverage.
    I looked closely at the companies providing that coverage, 
like Citizens Telecom, Ntelos and Virginia Broadband and found 
that they are offering robust, high-speed connections at 
competitive prices. Virginia Broadband, for example, bundles 
Voice over Internet service with its wireless broadband 
product, which is now available all over central Virginia and 
rolling out rapidly to large areas of the state.
    Now I note in my written testimony that broadband over 
power line is also showing real promise, including in the State 
of Virginia where the Rural Utility Service is funding, through 
guaranteed loans, some significant projects by the Central 
Virginia Electric Cooperative and we should not forget the 
rural telephone companies, which now make broadband available 
to approximately 90 percent of their customers.
    Unfortunately, the sort of detailed examination I was able 
to do of the situation in Virginia at some significant expense 
and over a lengthy period of time, using a lot of data that is 
only available from the private sector, from private providers, 
is not available in most states and has not been done in most 
states. Kentucky is an encouraging exception and perhaps a 
model for what needs to be done for the rest of the country.
    To summarize, in my opinion, America is doing pretty well 
in the race to develop 21st century communications but we can 
do better. The first step we need to take is to become better 
informed because we won't get where we need to go if we don't 
even know where we're starting at.
    Mr. Chairman and members of the Committee, that completes 
my testimony and I look forward to any questions you may have. 
Thank you.
    [The prepared statement of Dr. Eisenach follows:]

 Prepared Statement of Jeffrey A. Eisenach, Ph.D., Chairman, Criterion 
  Economics; Adjunct Professor, George Mason University School of Law
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear before you today to discuss issues relating to 
communications, broadband and U.S. competitiveness.
    I have had the opportunity to study communications and broadband 
policy issues over the course of many years, and in several capacities, 
including in my current positions as an adjunct faculty member at 
George Mason University Law School and as Chairman of Criterion 
Economics, an economic consulting firm based here in Washington. I 
should note that, while my consulting practice often involves issues 
relating to communications and broadband policy, I am appearing today 
solely on my own behalf.
    The role of information technology in promoting economic growth and 
productivity is well documented. Digital computers allow information to 
be stored, analyzed, manipulated--and turned into useful knowledge. 
High capacity communications networks allow those computers to work 
together, and increase exponentially society's ability to create 
knowledge and put it to work. Ethernet inventor Bob Metcalfe formalized 
this notion in what has become known as Metcalfe's law: the value of a 
communications network is a function of the number of users, squared.
    Because the relationship between broadband and prosperity is now so 
widely understood, nearly every advanced nation has adopted policies 
aimed at increasing investment in communications infrastructure and 
making advanced communications services widely available at affordable 
prices. There is virtually no limit to the diversity of policy tools 
being deployed, from subsidies and state ownership, on the one hand, to 
tax cuts and deregulation, on the other.
    How does the U.S. stack up? Based largely on statistics collected 
by the Organization for Economic Cooperation and Development (OECD), 
some have argued that we are ``behind,'' or at least ``falling 
behind,'' in the broadband race. Indeed, the now familiar chart showing 
the U.S. at 11th or 12th in the world in broadband adoption has become 
sort of a modern version of the 1957 Sputnik launch--an indicator, to 
some, that the U.S. has fallen behind in a key technology. Now, as 
then, the argument is usually rolled out in service of some sort of 
proposed policy change--more regulation, or less; more subsidies, or 
stronger tax incentives; even direct government involvement, as in the 
case of municipalities building their own telecommunications networks 
to compete with private providers.
    Happily, it turned out our fears about losing the space race to the 
Russians were, to say the least, highly exaggerated. I suspect the same 
is true with respect to our fears about broadband. On balance, the U.S. 
is doing pretty well when it comes to broadband deployment and 
adoption.
    That said, it is important for policymakers, including this 
Committee, to continue monitoring our broadband policies and making 
improvements. With that in mind, I would like to focus today on two 
topics. First, I would like to suggest that we can and should do a 
better job of collecting information on broadband deployment in the 
U.S. Second, I will comment briefly on the state of broadband 
deployment in rural America.
What We Know
    We know a lot about broadband deployment in the U.S. We know, for 
example, that broadband deployment and adoption are both growing at a 
very rapid pace, and hence that, at least at a macro level, our current 
policies are working. But we don't know as much as we could or should 
know--or as much as we need to know--to further improve those policies. 
Let me provide a couple of examples.
    First, we have good macroeconomic data on the performance of 
different sectors of the economy, including the IT sector. We can use 
this data to assess, for example, the effect of Federal Communications 
Commission (FCC) policies on investment. Figure 1 presents information 
on investment in communications equipment in the U.S., by quarter, from 
1996 to the present. The data comes from the Bureau of Economic 
Analysis at the Department of Commerce, and is part of the National 
Income and Product Accounts. At the bottom of the chart I have added a 
timeline showing some key FCC policy decisions relating to broadband 
regulation. As the figure shows, investment in communications equipment 
began to recover from the disastrous 2001-2002 ``meltdown'' at almost 
precisely the time the FCC began deregulating broadband. Some might say 
that's just coincidence, but in my opinion the chart provides clear 
evidence that removing excessive regulation led to greater investment.
    History aside, Figure 1 demonstrates an important and largely 
undisputed fact: investment in broadband networks is moving ahead very 
rapidly. The two leading providers, the telephone and cable companies, 
are investing literally tens of billions of dollars to upgrade their 
networks, with cable companies adding voice telephony, telephone 
companies adding video, and both increasing dramatically the capacities 
of their networks to carry high speed data. But cable and telephone 
companies are hardly alone. Wireless broadband--both fixed and mobile--
is the fastest growing broadband delivery mechanism. It is widely 
expected, for example, that private sector firms will, later this year, 
pay more than $10 billion for additional spectrum in the 700 Mhz band 
that will be used to provide wireless broadband services.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: U.S. Department of Commerce Bureau of Economic Analysis

    Second, in addition to having pretty good data on investment, we 
also have good aggregate data, at a national level, on the extent of 
broadband adoption. We can use this data to assess the technologies 
people use to get broadband, and to compare U.S. broadband adoption to 
adoption rates in other countries.
    For example, Figure 2 shows the growth of high speed broadband 
connections in the U.S. since 1999, as reported by the FCC. Clearly, 
broadband adoption is proceeding at a rapid pace: Indeed, between June 
2005 and June 2006, the number of broadband connections grew by 52 
percent. Most remarkable, however, is the growth of wireless 
connections: Between June 2005 and June 2006, the number of mobile 
wireless broadband connections went from under 400,000 to over 11 
million, a growth rate of over 2,800 percent.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    How does this compare with other nations? Before answering that 
question, it is perhaps useful to step back for a moment and consider 
the process by which new technologies spread. In general, new 
technologies--and especially technologies like telephony, fax machines 
and the Internet, where network effects play important roles--propagate 
in a pattern known as an ``S'' curve, like the one shown in Figure 3. 
Initially, uptake is slow. Then, a tipping point is reached, and 
propagation accelerates, as if, suddenly, everyone has to have one. 
Eventually, the product reaches a saturation point, and propagation 
slows. At that point, everyone who will ever want or need the product 
already has it. This pattern has characterized the propagation of 
virtually every major new IT product or service, from the telephone to 
fax machine to the iPod. Broadband is no exception.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    To see the S-Curve at work, consider the four charts shown in 
Figure 4, which show broadband propagation in four countries. Belgium 
and Korea, both of which lead the U.S. in broadband penetration (as 
measured by the OECD), appear to have reached at least temporary 
saturation points. Poland and Australia, on the other hand, both of 
which lag behind, have passed at least a local tipping point, and 
penetration is growing rapidly.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    With this in mind, let's turn to the OECD data. Figure 5 shows the 
usual OECD figure, with the U.S. ranked 12th in the world, as measured 
by the number of broadband connections per 100 inhabitants. In Figure 
6, however, I have added another set of bars, which shows 2006 growth 
rates. Figure 6 shows an interesting pattern: The countries in which 
broadband penetration is growing most rapidly are the ones where 
penetration currently is lowest, while growth in countries with higher 
penetration has begun to slow.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Where is the U.S. on its S-Curve? Figure 6 shows that the U.S. has 
one of the fastest growth rates of any of the high-penetration rate 
countries, at 25 percent. Only the United Kingdom, at 30 percent 
growth, was significantly faster, while several countries, including 
Canada and Japan as well as Belgium and Korea, appear to have hit at 
least temporary saturation levels. As shown in Figure 2 above, and 
confirmed in Figure 7, broadband growth in the U.S. is continuing at a 
healthy pace.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Thus, at the national level, we have a lot of aggregate data, and 
we can use it to perform lots of useful analysis. And when we do, it 
appears the U.S. stacks up better than some people seem to think.
What We Don't Know
    When you dig a little deeper, there is also a lot we don't know--
and what we don't know is hindering our ability to make informed policy 
choices. For example:

   As the General Accounting Office noted in a May 2006 
        report,\1\ broadband availability data reported by the FCC in 
        its annual reports under section 706 of the Telecommunications 
        Act do not permit an accurate assessment of broadband 
        availability on a geographically disaggregated basis. Simply 
        put, the data collected through Form 477, and reported by the 
        FCC, tells us whether one or more providers have customers in 
        each Zip Code, but it does not tell us how many households or 
        businesses in that Zip Code actually have broadband 
        availability. Nor does it tell us anything about the quality or 
        price of service.
---------------------------------------------------------------------------
    \1\ U.S. Government Accountability Office, Broadband Deployment Is 
Extensive Throughout the United States, but It Is Difficult to Assess 
the Extent of Deployment Gaps in Rural Areas, GAO-06-426 (May 2006).

   The most recent U.S. Government data on broadband adoption 
        rates by different segments of the population (for example, 
        broadband adoption in urban versus rural areas; adoption by 
        people of different ages; adoption by households with 
        children), was collected in October 2003 and published by the 
        Department of Commerce in 2004 (in its last Nation Online 
        report) and by the U.S. Census Bureau in 2005 (in Special Study 
        P23-208). Given the overall growth rates we have seen since 
        then, data from 2003 is virtually worthless for assessing the 
---------------------------------------------------------------------------
        effects of our current policies.

   For a variety of reasons, surprisingly little is known about 
        broadband adoption by businesses, including especially small 
        businesses. For example, the most recent government data 
        available on small business broadband penetration was collected 
        in late 2003 as part of a study by the Small Business 
        Administration.\2\
---------------------------------------------------------------------------
    \2\ See ``A Survey of Small Businesses' Telecommunications Use and 
Spending,'' Stephen Pociask, TeleNomic Research for the Office of 
Advocacy, Small Business Administration Contract No. SBA-HQ-02-M-0493, 
Washington, D.C., March 2004 available at http://www.sba.gov/advo/
research/rs236tot.pdf.

    Of course, the fact that government is not collecting data does not 
necessarily mean that data is not available. Several non-profit 
organizations, including the Pew Internet and American Life Project \3\ 
and the Center for the Digital Future, \4\ conduct surveys on Internet 
use on a regular basis. The Pew Project, for example, regularly surveys 
Internet adoption in rural America. And, for those with the means to 
purchase data from private sector sources, much richer data can be had 
from companies such as Insight Research, In-Stat, Nielsen//Net Ratings 
and Warren Communications. I have had the opportunity to use all of 
these sources extensively, and while the data they provide is certainly 
helpful, it is far from comprehensive.
---------------------------------------------------------------------------
    \3\ See http://www.pewinternet.org/. I serve on the Pew Project's 
Board of Advisors.
    \4\ See http://www.digitalcenter.org/.
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    Given the importance of broadband to America's economic 
competitiveness, and the appropriately intense interest of policymakers 
in ensuring we are doing everything possible to create a healthy 
environment for broadband deployment to all Americans, it is clear the 
government could and should be doing more to collect information about 
broadband deployment, and to disseminate that information in a far more 
timely manner. While the FCC's recent Notice of Proposed Rulemaking on 
improving broadband data collection efforts is a hopeful step in the 
right direction, other agencies, including the Census Bureau, also need 
to look at how they can improve their efforts.
The Rural Challenge
    Let me conclude my testimony with a brief discussion of broadband 
deployment in rural America.
    As noted above, official data on rural broadband deployment are 
relatively sparse. In recent years, however, I have had the opportunity 
to look closely at the data that are available, from both public and 
private sources. The signs, I am pleased to report, strongly suggest 
our current policies are working to rapidly increase the availability 
of affordable, high capacity broadband services to rural Americans.
    First, to be clear, there is no doubt that rural America lags 
behind urban and suburban regions in broadband adoption. For example, 
as shown in Figure 8, the Pew Project's most recent data shows that 
only 24 percent of rural households had broadband connections in 2005, 
as compared with 38 percent in suburban areas and 40 percent in urban 
areas.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    What is less clear, however, is whether rural adoption lags behind 
due to lack of availability, or for other reasons.\5\ Overall, the 
evidence is strong that broadband is generally available in rural 
America and that availability is increasing rapidly.
---------------------------------------------------------------------------
    \5\ There is some evidence, for example, that broadband adoption is 
correlated with income, and incomes in rural America tend to be lower 
than in urban and suburban areas.
---------------------------------------------------------------------------
    In expert testimony I filed on behalf of Verizon earlier this year, 
I examined in detail the state of telecommunications competition in the 
state of Virginia, including the availability and use of broadband.\6\ 
The results there, it seems to me, are quite encouraging.
---------------------------------------------------------------------------
    \6\ The publicly available version of my testimony is available at 
http://scc.virginia.gov/division/puc/industry/vv_comp/rsc_app.htm.
---------------------------------------------------------------------------
    Figure 9, for example, shows the growth of broadband services in 
wire centers served by Verizon in the state of Virginia, based on the 
FCC's Form 477 data.\7\ For reasons discussed above, these data are far 
from a perfect measure, but the trend it represents is nevertheless 
significant: The average number of broadband providers in rural areas 
is growing rapidly, and even wire centers with population densities of 
less than 100 now average more than four broadband providers.
---------------------------------------------------------------------------
    \7\ To produce this figure, we mapped data for individual Zip Codes 
(obtained from the FCC) into corresponding wire centers within those 
Zip Codes.


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    Figure 10 presents data on the availability of cable modem service 
in Virginia. This map, which is based on commercially available data 
backed up by extensive original research e.g., data from the websites 
of individual cable providers), shows that 88 percent of households in 
Verizon's service territory in Virginia have access to cable modem 
service. In fact, 99 percent of households passed by cable now have 
access to broadband cable modem service (and more than two-thirds have 
access to voice services from their cable operator). That's the good 
news. The bad news is that about 10 percent of households have no cable 
service at all, that these households are concentrated in very rural 
areas, and that as a result there are some very rural areas where cable 
modem service is available to only a small fraction of the population.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    The story does not end here, however. Figure 11 shows areas where 
broadband is available from fixed wireless providers, based on 
information obtained from the providers themselves. It shows that 
wireless broadband service is available to 71 percent of Virginia 
households, including in many of the most rural areas of state.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    I looked closely at the services offered by these providers, and 
was positively surprised by what I found. Companies like Citizens 
Telecom, Ntelos and Virginia Broadband offer robust, high speed 
connections, at competitive prices, with minimal set up fees.\8\
---------------------------------------------------------------------------
    \8\ Virginia Broadband, for example, offers download speeds up to 
15 Mbps, with 400 Kbps for $49.95 per month and 1.2 Mbps for $89.50. 
The company also offers a bundled VoIP service for $32.95 per month for 
residential customers and $31.95 per seat for businesses.
---------------------------------------------------------------------------
    Wireless broadband providers are not the only innovative companies 
bringing broadband to rural areas. Broadband over powerline (BPL) 
providers are also showing increasing promise. In Virginia, for 
example, a company called IBEC has partnered with the Central Virginia 
Electric Cooperative to bring high speed BPL services to two service 
areas, and has committed to roll out service throughout CVEC's multi-
county, very rural service territory. IBEC, I should note, has received 
significant support for the Rural Utilities Service loan guarantee 
program, which in my experience appears to represent, on balance, a 
cost-effective and efficient means of providing support for broadband 
deployments in rural areas.
    Finally, I would note that America's rural telephone companies are 
actively rolling out broadband services, including fiber to the home, 
within their service territories. OPASTCO, the Organization for the 
Promotion and Advancement of Small Telecommunications Companies, 
reports that its members offer broadband services to approximately 90 
percent of their customers.\9\
---------------------------------------------------------------------------
    \9\ OPASTCO Ex Parte Presentation to FCC Commissioner Robert 
McDowell, September 16, 2006.
---------------------------------------------------------------------------
    So, overall, there is a lot of activity happening to bring 
broadband to rural America, and a fair amount of evidence that progress 
is being made. Unfortunately, however, the available data is limited in 
both quality and geographic reach. Some states--and Kentucky certainly 
is a leader--have taken steps to more comprehensively assess what is 
available, and where, and what can be done to ``fill in the gaps.'' 
Those efforts, in my opinion, need to be expanded to a national scale.
Summary
    To sum up, while there are certainly flaws in our systems of data 
collection, the data that are available show that our current policies 
are working reasonably well, both in the aggregate and, specifically, 
with respect to promoting broadband availability in rural America. This 
does not mean, however, that we can or should be sanguine. Too little 
is known about the adoption and use of broadband, and our current data 
collection efforts provide little information on broadband 
availability, especially in rural America. Moreover, important policy 
issues loom in the immediate future that could have effects--positive 
or negative--on America's broadband infrastructure and, in turn, our 
competitiveness in the world economy. This Committee is correct to be 
concerned about these issues, and to give them careful deliberation, as 
it is doing today.
    Mr. Chairman and Members of the Committee, that completes my 
testimony, and I look forward to any questions you may have.

    The Chairman. Thank you very much, Doctor. May I now 
recognize Senator Stevens?
    Senator Stevens. Mr. Chairman, I find this very 
interesting. I want to hear the other witnesses also. Thank you 
for the charts, Doctor. I think they are very, very 
informative.
    Let me ask all three of you--is Universal Service essential 
to broadband deployment?
    Dr. Eisenach. I'll be happy to go first. Universal Service 
has played a very important but uneven role, I think, in 
broadband deployment. Formally, officially, we don't have 
within the Universal Service program, an official support 
program, as you know, for broadband deployment. However, rural 
telephone companies have been able to and I think to the 
benefit of certainly their customers, to in effect, use the 
Universal Service programs to upgrade their networks for voice 
purposes----
    Senator Stevens. Well--more than half of Universal Service 
now goes to inner cities--schools, libraries and health 
facilities. Isn't broadband part of that?
    Dr. Eisenach. Oh, I think that program has also been 
important, sir. I agree.
    Senator Stevens. Let me ask you all--anyone else have a 
comment about Universal Service and broadband?
    Mr. Mefford. I would just add, Mr. Vice Chairman, that the 
results I have reported from Kentucky--USF did not impact those 
results in a big way. In other words, we haven't counted on USF 
dollars in a major way there, but yes, our local schools and 
libraries have utilized the program but report that it 
certainly needs some retooling and we certainly would agree 
with that.
    Mr. Scott. Senator Stevens, I think that the insertion of 
broadband into Universal Service programs is an essential part 
of the national broadband strategy. I think bringing broadband 
to rural areas will require the same kind of progressive idea 
that informed our commitment to bringing telephone service to 
every American household. Because eventually we want everybody 
to have a broadband connection, just like we wanted everyone to 
have a phone connection and I think it is time to make 
Universal Service for broadband a part of this country's policy 
platform.
    Senator Stevens. Mobile phones are an essential part of 
broadband deployment, right?
    Mr. Mefford. We don't report mobile phone broadband as part 
of our reporting on broadband availability on our maps.
    Senator Stevens. You're just reporting computer use?
    Mr. Mefford. It's households ability to subscribe to 
broadband that is represented in our inventory and how we 
account for that 92 percent of households served. So we do not 
include mobile broadband in those numbers.
    Senator Stevens. If the household uses cell phones, it's 
not reflected in your figures?
    Mr. Mefford. No, sir, it's not. We've done that for a 
number of reasons. There are some usage restrictions that 
follow mobile broadband, cellular based or just wireless 
broadband through mobile phone networks that would restrict 
some higher bandwidth type applications. That's one of the 
reasons that we haven't included that in this mix.
    Senator Stevens. But yours does include telephony, doesn't 
it?
    Mr. Mefford. Yes, sir, it does. It covers telephony and 
cable--other forms of wireless, fixed wireless is represented 
on the map as the green circles. So we account for a lot of 
wireless service, just not cellular based.
    Senator Stevens. Was your study at all cellular based, Dr. 
Eisenach?
    Dr. Eisenach. I've looked at that issue and clearly we see 
that wireless broadband connections are expanding very rapidly 
in the United States. If you come back to the question of 
Universal Service, if that's part of the issue, I think the 
question, which as we all know, is the extent to which wireless 
connections are duplicative of wireline connections. So as you 
look at the Universal Service Fund and the rate at which the 
growth of wireless--of subsidies are growing to wireless 
carriers, I think the question becomes whether that's the most 
efficient use of those funds as opposed to focusing on wireline 
or at least primary connections to households, whether they be 
broadband or narrow band.
    Senator Stevens. Thank you very much, Mr. Chairman.
    The Chairman. Thank you. Senator Smith?

              STATEMENT OF HON. GORDON H. SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Mr. Scott and all of you, I thank you for 
your testimony. Mr. Scott, I was very intrigued by your 
references to the OECD and how Europe has achieved both 
horizontal and vertical kinds of competition and I wonder if 
you can tell me what their investment model was. Do they have 
some form of net neutrality and if so, who made the investments 
to achieve that?
    Mr. Scott. I should start by saying it varies from country 
to country but generically speaking about the variety of 
countries that are ahead of us in the broadband race, most of 
them have multiple competitors in the DSL platform and 
bandwidth is plentiful and the question of whether or not 
quality----
    Senator Smith. Who put it in?
    Mr. Scott. The investment has been from the telecom 
carriers----
    Senator Smith. OK.
    Mr. Scott.--for the most part. I mean, there are some 
countries where the incumbent telecom carrier is a legacy 
network that used to be owned by the state. There are very few 
left that still have controlling state ownership or any state 
ownership. That fact is sometimes rolled out but it's not 
actually accurate and the most important thing, I think, to 
recognize about these vertical competitors within the platform 
is that their growth rates are really off the charts.
    Now, it's interesting that Dr. Eisenach raised the points 
of Korea and Belgium as having flattened out, I often work at 
night and I was up in the middle of the night when the OECD 
posted the new numbers so I was able to get a look at them and 
actually, Korea and Belgium, which on the S-curve, you would 
expect to be leveling off as a mature market--their growth 
rates have actually spiked in the last 6 months. Because of the 
competition in the market that has expanded the quality of 
those connections, they are finding consumers who want to buy 
broadband that weren't there in the marketplace before and 
that's really the direction I think we need to go.
    Senator Smith. As you probably know, the Telecommunications 
Act was all for voice and we're way beyond that at this point 
and we're struggling to get to the next level. I think the 
picture you paint as to what we want ultimately is very 
desirable.
    But we're hung up on the whole issue of net neutrality and 
the investment model we have here is to say that the incumbent 
providers that you are critical of ``go ahead and make this 
investment and we're just going to make sure you can't ever get 
a return on it.'' That's been, frankly, my stumbling block on 
net neutrality. I think in concept, it's a great idea but I 
don't know how to get it done in a country with a geography as 
big as we have, if we set the rules by government ahead of time 
so there's no return on investment.
    You see the dilemma? How do we get from where you want to 
be and where I want to be--the same thing--but get it done? It 
is Universal Service? Is it white space? I mean, is it a 
combination of all of those things?
    Mr. Scott. I've struggled with the same question and my 
starting point is that I think as a nation, we want a network 
that is both open and free to commerce and speech on the 
application side and that is robust in its deployment and 
bandwidth on the physical side of the network and that we can 
have both. And we need not choose one or the other and that 
there are lots of strategies to make sure that the carriers get 
a return on investment.
    There are Universal Service strategies. We can look abroad 
at how they've done in their networks. There are various tax 
incentives that can be put forward, accelerated depreciation. 
There are ways to make sure that the investment is there that 
doesn't require changing the fundamental nature of the 
Internet.
    Senator Smith. Is that then sort of a third way we might 
consider to how to proceed? To get beyond this?
    Mr. Scott. Absolutely, absolutely. I think if we learn the 
lessons of the world leaders in broadband, we will get beyond 
the impasse very quickly and we'll be moving in the right 
direction.
    Senator Smith. Is Universal Service one of the avenues?
    Mr. Scott. Absolutely.
    Senator Smith. How about white spaces? I mean, how do you 
see that reform?
    Mr. Scott. I think opening the television white space is 
the quickest and easiest way to bring a ubiquitous wireless 
connection to the country. I think it is a space that could 
enjoy a tremendous boom in innovation. I think one of the 
greatest success stories in broadband in the last few years is 
WiFi. Opening the white spaces is like WiFi on steroids and 
that spectrum has too long sat dormant and we really ought to 
make it available.
    Senator Smith. What do you see happening if we aren't able 
to break through the impasse? What happens? Do we just continue 
to fall behind as a country?
    Mr. Scott. If you look at the trend lines on the OECD 
numbers, they are not encouraging and frankly, that worries me 
because not only do I want to see the Nation fully connected 
but every 6 months that we fall further behind the rest of the 
world billions of dollars of consumer surplus that we're 
leaving on the table.
    Senator Smith. There is another factor--I don't know if 
many realize it. We want high tech to remain an American-
centered industry but if they don't have the infrastructure, 
it's not going to remain an American centered industry.
    Mr. Scott. I couldn't agree more.
    Senator Smith. Thank you, Mr. Chairman.
    Mr. Mefford. Mr. Chairman, if I might add--in relation to 
what you mentioned in your opening remarks about the Broadband 
Data Improvement Act, I would just plug that as an opportunity 
to do exactly what you've just said, Senator Smith, and it 
provides a way to empower states to address these challenges at 
the state level and even to work in the public/private 
partnership context to address these challenges more through a 
market-based approach.
    As we've seen in Kentucky and in other states now, the 
market-based approach can get us a lot further along the path 
than what we are today. So I would encourage a look at that, 
the Broadband Data Improvement Act.
    The Chairman. Thank you. Senator McCaskill?

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

    Senator McCaskill. Thank you, Mr. Chairman. As I looked at 
this issue, I thought, well, there has got to be a program out 
there that's been done by Congress to help rural broadband 
access and I found one. It is a program that, according to a 
September 2005 Department of Agriculture Inspector General 
report, has authorized $2.9 billion for grants and loans in 
rural areas. Of that, as of March 2005, only $181 million had 
been advanced. Only $895 million had been funded. The 
interesting thing about that as I looked into the program and 
looked to see if there were GAO or IG reports about it, I found 
an IG report that nails the program for essentially spending a 
huge chunk of the money they've spent on suburban communities--
in Houston, Texas and Los Angeles. They played with the 
definition, even though clearly when you read the bill and use 
common sense, the legislation clearly was intended to get to 
rural communities that were not served, not to suburban 
communities in order to allow someone to compete with other 
providers who hadn't received government loans and government 
grants.
    But in reality, that's what happened. I'm curious, Mr. 
Mefford or Mr. Scott or Dr. Eisenach, if you're familiar with 
this program. I think, frankly, that $2.9 billion in 
authorization is a pretty hefty authorization.
    I know that there is other legislation pending. I've been 
asked to cosponsor legislation to help do the things like you 
did in Kentucky. What's wrong with the money that we've 
authorized and appropriated being used for this and why isn't 
it being used in a way, from your perspective, that would 
actually help solve this problem, instead of being another 
example of where a government program isn't doing what it was 
designed to do and giving money to folks it wasn't designed to 
give money to?
    Mr. Mefford. Senator, I think it's a good example of a 
well-intended initiative at the outset. I think that perhaps 
the agency would tell you that the regulations as promulgated 
perhaps didn't fit the intentions to give them the flexibility 
perhaps, that they need but instead of speaking to what they 
may or may not say, let me speak to my--to our experiences with 
RUS funding. Of the roughly 550,000 households that have been 
served over the past 2 years in Kentucky, I would estimate that 
fewer 50,000 of those were impacted by RUS funding and there 
are a number of reasons for that small proportion.
    The process is an arduous process and it is one that is put 
on as the responsibility of the providers to navigate. In 
Kentucky, we took responsibility for that, navigating that 
process on behalf of providers so bluntly, I think that a lot 
of providers look at what they have to do to get those dollars 
and just decide, we don't have----
    Senator McCaskill. It's not worth it?
    Mr. Mefford. It's not worth it.
    Senator McCaskill. What makes you think another program 
done by government is going to be worth it, if we did one and 
it was so bad that people threw up their hands rather than 
participate in it?
    Mr. Mefford. Well, I think there is the opportunity to take 
the previous three and a half years, 4 years and learn from the 
challenges of that program, frankly. I think that one example 
is that the RUS funds cannot be used--the grant funds cannot be 
used--the definition is very restrictive and so in Kentucky, we 
have applied for RUS funds and received RUS funds for all of 
our eligible communities yet we still have our toughest to 
serve areas remaining unserved. So the program is now 
irrelevant for Kentucky, based on current regulation.
    Senator McCaskill. It's so frustrating to me that rather 
than fix a program that we've created, we're going to go create 
other programs. Money has been authorized. Projects have been 
funded. Very little of that money has been advanced. It is such 
a good example of Congress wanting to do the right thing, and 
reading the law, it's pretty clear what they were trying to do 
was to get service to unserved areas. They weren't trying to 
provide competition in areas that were already served, and they 
certainly weren't trying to help wealthy suburbs in Houston, 
Texas. It seems to me what we should be soliciting is advice 
from you and others that have tried to utilize this program and 
fix that program rather than saying, ``okay, let's start 
another one because--you know, the regulations that are so 
difficult?'' Guess who did it? Them. They are the ones that did 
the regulations. It wasn't you all that did the regulations, 
and it wasn't Congress that did the regulations. In fact, they 
have rewritten the definition of rural. It was one definition 
and then another and now another, and the definition was such 
that it did not limit it to those areas that were unserved and 
struggling.
    I know you have a community of people out there that are 
trying to do exactly what you've done with ConnectKentucky. I 
would appreciate the opportunity to try to take a 2x4 to that 
agency and fix that program so we can use that money and make 
that bureaucracy responsive as opposed to saying, ``Well, we 
wasted that money. Let's start another one with no assurances 
that we're not going to have the same darn thing happen 
again.''
    Dr. Eisenach. Senator McCaskill, if I could jump in because 
it's a program I have some experience with. I've been through 
the RUS application process with a client. I've watched very 
closely what has happened with the Central Virginia Electric 
Cooperative in Virginia and I think I would say, I share your 
sense, first of all, that this is a program that can and should 
work.
    Senator McCaskill. Right.
    Dr. Eisenach. There is a lot going for this program and one 
of the things I think it has going for it is that it does 
demand of the applicant some evidence, some showing that the 
applicant has a business plan--the technology is going to work 
and so forth. In the case of IBEC and the Central Virginia 
Electric Cooperative in Central Virginia, we're looking at a 
broadband over power line deployment and that technology I 
think has tremendous promise.
    I think its application in rural areas is on the verge of 
coming to fruition. And I think the fact that the RUS provided 
a loan guarantee to IBEC and CVEC to put in place that system 
has been essential to that initiative and I think the odds are 
very high that initiative is going to work. I think the 
potential in the RUS program is that it can be a very efficient 
way of leveraging dollars and for that $2.9 billion in 
guaranteed loan funding, we should be able to get a lot of bang 
for our buck, as it were and again, I'd come back and look at 
some other areas where we're spending a tremendous amount of 
money and the Universal Service program, frankly, is one of 
them where we're spending close to a billion dollars right now 
to provide what are essentially second telephone lines to 
wireless consumers in the United States where when we don't 
have broadband availability--any kind of connection in large 
slots of the country. So when you look at the bang for the buck 
that is potential in the RUS program, as compared to some other 
programs, I think it is extremely attractive and I think you're 
right. A lot more focus on what we need to do to get that 
program rolling is exactly what's needed.
    Senator McCaskill. Well, I would appreciate any input you 
would have on the problems of that program. I don't have time 
because my time is up and I would also like to talk--maybe I 
can with the second panel--about the Universal Service Fund, 
monies that consumers are paying all over the country to 
provide phone service in under-served areas. Well, that's 
dated. Clearly the Universal Service Fund that is out there 
that consumers are paying for--it's a pass-through cost--
clearly, we should be capturing those monies to do some of the 
things that we've talked about here this morning. Thank you, 
Mr. Chairman.
    The Chairman. I thank you very much.
    Senator Stevens. Mr. Chairman, can I comment on that?
    The Chairman. Please.
    Senator Stevens. On what the Senator said. Senator, I'm 
informed that the problem really is, is that broadband speeds 
for wireless are slower, and basically in the rural areas, 
we're using wireless and satellite and therefore, these areas 
were ineligible.
    Last year, we had broadband proposals in various titles in 
our bill, which I hope we'll address again. We had Universal 
Service reform, an extra $500 million for broadband deployment 
by Universal Service. We tried a streamlined franchise reform. 
I don't want to take a lot of time but the white spaces concept 
and the municipal broadband title really got into the whole 
question of deployment on a municipal basis rather than 
statewide basis--all of those were designed to try and deal 
with the problem you mentioned.
    But the problem basically is that we can't just use the 
legacy systems of cable and wire. In Europe, they were wired 
and they were able to go into broadband deployment much faster 
because they don't have these distant areas like we do in 
Alaska and Hawaii. As a matter of fact, the West itself was 
just not wired. Wireless brought new communications methods to 
these people but by definition, it's slower and not adaptable 
to this new concept. We have to find some way to adapt it and I 
think we have to find a new way to define Universal Service so 
it covers these areas and is not limited, as it is now, to a 
voice system. It is the data deployment in rural America that 
is necessary to catch up with Europe. Thank you, Mr. Chairman.
    Mr. Mefford. Mr. Chairman, if I might--I'm sorry. Again, I 
would be remiss if I did not include in my comments in response 
to Senator McCaskill that the agency--we have been in contact 
with the agency fairly extensively on----
    Senator McCaskill. When you say the agency, you're talking 
about RUS?
    Mr. Mefford. RUS, yes, ma'am, on changes that they are 
hopeful to make and I think some additional flexibility would 
be helpful in their efforts, obviously. Another example is of 
where they could use some assistance, I think, is in the fact 
that while it is a $2.9 billion program in total, only $8 
million is set aside annually for the grant program. So 
perhaps----
    Senator McCaskill. That seems weird, doesn't it?
    Mr. Mefford. It does and so when you have 50 states 
applying for $8 million annually, it makes it a tough program.
    Senator McCaskill. Do the math. Right. So they are 
basically being stingy with the grants and wanting people to do 
the loans and they've made the hoops you jump through for the 
loans so incredible that it's not cost effective for companies 
to access them.
    The interesting thing is, they need additional time and 
input, and of course, this was in the 2002 farm bill. We're 
getting ready to rewrite the farm bill, and they still haven't 
figured it out. No one would ever accuse them of going quickly 
on this stuff, and frankly, this is an area where we ought to 
go quickly. Government ought to be a lot more nimble when we're 
talking about technology because if you're not nimble, then you 
have a tendency to waste a lot of money because by the time you 
figure out what you've been working on, you're already 10 years 
behind. Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Pryor?

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

    Senator Pryor. Thank you, Mr. Chairman. Arkansas has just 
passed a new law called Connect Arkansas Broadband Act, 
sponsored by a friend of mine down there, John Paul Capps. The 
bill would create a public/private partnership aimed at 
increasing the broadband coverage for health, industry, 
education and general economic development. I would like to ask 
about the Kentucky program and how much can we learn from 
what's going on in Kentucky and how successful has the Kentucky 
program been?
    Mr. Mefford. Thank you, Senator. Mr. Chairman, I'm glad to 
be able to tell you that we have been working hand-in-hand with 
the folks in Arkansas to help develop the legislation that was 
passed and continue to work with them on the creation of the 
public/private partnership. The examples and the model that 
we've developed in Kentucky originally is highly transferable 
to every state in the Nation.
    Senator Pryor. Are other states doing it?
    Mr. Mefford. Yes, sir.
    Senator Pryor. Do you know about how many?
    Mr. Mefford. Well, Connected Nation, our company is engaged 
on various levels with probably a dozen different states and 
they range across the board in terms of size and geography.
    Senator Pryor. Should there be a national level or does 
this work better at the state level?
    Mr. Mefford. I think that there is a good opportunity in 
the Broadband Data Improvement Act that the Chairman mentioned 
earlier to empower states--for the Federal Government to 
empower states to develop and implement these types of 
initiatives. I think it's very important that this is a state-
based effort but states need more impetus right now to, as 
Senator McCaskill said, to hurry up and get something done.
    Senator Pryor. As I understand it, you see an increase in 
capital investment, you see a growth in broadband availability 
around the state and you see distribution of computers to 
underprivileged children in under-served communities, which I 
think is great. But what are the big obstacles out there? What 
should Arkansas have to look forward to in terms of obstacles 
that we have to overcome?
    Mr. Mefford. I think a significant obstacle in the bigger 
picture of this type of discussion is the fact that we need to 
always consider the demand-side of the equation. It is not a 
field of dreams prospect where we can solve all of our Nation's 
technology-based ills by just building the infrastructure.
    We have to focus--whether it's Arkansas or Kentucky or 
California--no matter the state, we have to focus on demand 
creation, demand aggregation type efforts. We have done that 
through our e-Community Leadership Teams where we are at the 
very grassroots of each of our counties, working to raise the 
awareness of the importance of technology and why our parents 
should provide their children with an Internet connected 
computer for doing homework and so forth and gathering 
healthcare type information, and it's those basic grassroots 
awareness building efforts that are so important in these types 
of efforts.
    Senator Pryor. Let me ask the panel something generally. 
You know, when you look at some lists at least, Arkansas is 
47th out of 50 in terms of broadband deployment. But how 
reliable are the numbers? I understand there are some gaps in 
the stats and the reporting from state to state or maybe even 
company-to-company is not maybe as consistent as it should be? 
When you say we're 47th, does that mean we're really 47th or do 
we really have a clear picture of what's going on out there?
    Mr. Scott. You don't really have a clear picture but the 
picture is murky for everybody. To the extent that there are 
mistakes across the board, it's unlikely that one state would 
jump up the ranks if we had more granular data. However, when 
we go to solve the problems and try to identify where the gaps 
in the market are, that's when it really breaks down and having 
that data would be invaluable.
    The problem with the Zip Code method is in a state like 
Arkansas where you've got a large area in each Zip Code and the 
population is spread out and if one customer has a DSL line, 
then everybody is counted as covered--that could mean that 90 
percent of that Zip Code has no coverage but you don't know 
that. So in our view, you've got to collect data down to the 
zip plus four level so that you can aggregate those together 
and match them to census records so you can get a better idea 
of who has broadband and who doesn't and who they are so you 
can target your programs.
    I also think you need to measure speed and price so you can 
identify certain sections of Arkansas that are paying way more 
for less speed than others and why is that and what can we do 
to remedy it.
    Dr. Eisenach. Senator Pryor, I would add to that. First of 
all, I think the data are unreliable. It's not entirely clear 
what they are measuring for all the reasons we've talked about.
    One thing I would mention that has not been talked about 
here yet today--it has been discussed a little bit at the 
Federal Communications Commission. It's something I think this 
Committee should consider looking at, is the power of 
geographic mapping software. Literally every wire center in the 
United States can be identified by its geographic coordinates 
and the streets that are served by that wire center can be 
mapped out. The same is true for cable--cable modem, cable 
voice. The same is true for maps showing the coverage areas of 
wireless, both fixed and mobile wireless.
    I gather from the map that we see here from Kentucky that 
that is the sort of the software that they utilized in their 
project. It is the sort of software that I utilized in the work 
that I've done in Virginia, very similar. The maps at the back 
of my testimony were produced using that software and one thing 
I think that we really ought to be asking the FCC is, at what 
point do you move from what is essentially an archaic 
technological approach to measuring things by predefined areas 
to moving to a geographic mapping technology, which literally 
can tell you exactly where on the map--which street, which 
mountain, which valley--actually has coverage and from whom.
    So I think we may be sort of taking a blunt 20th century 
instrument when 21st century technology could give us much 
smarter answers.
    Senator Pryor. You may have just answered my next question, 
which is my last question I was going to ask Mr. Scott. In your 
testimony, you say that the ``FCC has not embraced a free 
market approach to enabling competition but rather supported 
the entrenched, incumbency of a rigid duopoly.'' What do you 
mean by that?
    Mr. Scott. I'll try to give a short answer to a complex 
situation. Over the last several years, if you look at 
competition in broadband policy, for the last 10 years, there 
were efforts to introduce competition in the market that were 
gradually dismantled by the FCC over a series of rulings and 
we, as a philosophical matter, the FCC has decided that 
competition between technologies rather than competition within 
technologies is the key to the competition problem.
    So they have instituted policies that support the business 
models of the incumbents in hopes that will produce the kind of 
robust competition that will bring broadband everywhere. And in 
my view, it hasn't worked. That's what I meant by that.
    Dr. Eisenach. Senator, may I? I just have to add one thing 
to that. If you turn to Figure 1 in my testimony, you see what 
Mr. Scott is talking about. The low point on the investment 
curve here is the point at which the FCC took the actions that 
Mr. Scott complains about. What happened to investment after 
those actions were taken is investment went up 40 percent. What 
he proposes is that we return to the low point on this chart 
with a lot of policies that essentially punish investment in 
telecommunications infrastructure. What has worked is what we 
are doing today and what we should be doing more of, not going 
back to the policies of the late 1990s, which I think 
unambiguously failed.
    Mr. Scott. If I might offer one counterpoint to that, which 
is, there was the crash of the tech bubble around in there that 
resulted in a decline in investment and I would argue also that 
investment is far more responsive to competition. The 
competition in the Bell Networks is much more responsive to the 
cable networks getting voice capabilities and stealing phone 
customers than it is to the policy prescriptions that the FCC 
institutes or doesn't institute.
    Mr. Mefford. I would add that these two are not mutually 
exclusive. I mean, there is an opportunity to gather data that 
is a purpose driven exercise that providers can get behind, 
participate in and collaborate with.
    Senator Pryor. Mr. Chairman, thank you.
    The Chairman. Thank you. Senator Thune?

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman and Senator Stevens. 
I want to thank you for holding the hearing today and also 
thank our witnesses for their testimony and input on how we can 
improve an already lightning fast rollout of advanced 
telecommunication services, including broadband that we are 
currently experiencing here in the United States, and I would 
just preface it by saying that a lot of Americans are enjoying 
the benefits of these types of Internet connections that can 
enhance our quality of life in terms of education, 
entertainment, healthcare, business but there is more work that 
can be done in getting that broadband access into the farthest 
reaches of our country and many of those areas are in places 
like my home state of South Dakota.
    And I know that it has got to be a combined effort at 
state, local and Federal levels, the government along with 
private industry. So we're going to have to remain flexible in 
terms of deployment policies and programs as well as 
technologies because I don't think there is a one-size-fits-all 
approach to this effort.
    But it is important to remember that it is worth the 
effort. Broadband deployment means better jobs. It means better 
education and a better quality of life so I look forward to 
working with the members of this Committee and other 
stakeholders as we tackle the issue.
    Mr. Mefford, in your testimony, you mentioned the fact that 
in Kentucky, you had to encourage both supply and demand for 
broadband services. I want to highlight that point because I 
think in some rural areas, we need to focus on stimulating 
demand for broadband as well and need to ensure that Americans 
living in rural areas understand the possible benefits in 
business, healthcare and education, simply that comes from 
ordering that broadband connection. Can you expand a little bit 
on that point and explain how you stimulated demand in 
Kentucky?
    Mr. Mefford. Yes, sir. Senator Thune, thank you for the 
question and I'm happy to expand on that. We have created in 
each of the 120 counties in Kentucky, local leadership teams 
that we call E-Community Leadership Teams. These leadership 
teams are representative of a cross-section of each local 
community.
    So we have leaders at one table from local government, 
education, healthcare, business and industry, agriculture, 
tourism, community development organizations--all these people 
literally sitting around the same table and we take them 
through a process where we first ask, how are you using 
technology today, in this community, in this sector? Then we do 
a visioning type exercise. How could you better use technology 
that is existing and that will become available in the near 
future? And we give them examples of what other, similar 
communities and sectors are doing around the country and in 
fact, around the world. Then we give them a tactical plan that 
says here are the things you need to do to bridge that gap. 
Here's where you say you want to be and here's where you need 
to be.
    Now, the practical realities that have come out of that 
process--one example is in healthcare. We had one very rural 
county in eastern Kentucky where those folks sitting around the 
table--you had a public health organization that said, well, we 
really would like to get into E-Health somehow, telemedicine is 
where we would like to focus and the local community college 
said, well, that's a piece of curriculum that we've been 
interested in developing so let's partner together and make 
these initial investments.
    Well, we had, from the business and industry sector, a 
local co-operator present for that discussion, and he said, 
well, if you'd develop a tele-health unit, we can literally 
roll that unit up to the top of the hill and we can do health 
screenings and things like that for my employees. That happened 
and enough time has now passed where we now know that 
business's health insurance rates have declined and so has 
absenteeism rates.
    I give that as an example of a real life observation of how 
that demand side activity, how it works and how it provides 
dramatic results for a variety of sectors but at the same time, 
as the providers see that kind of demand creation happening, 
they are more interested again in a market-driven type way, 
they are more interested in making more investments in that 
community because bandwidth needs are expanding and use has 
increased.
    Senator Thune. I appreciate it. It's been mentioned, I 
think, in some of the testimony that population density is a 
key factor in broadband deployment and I want to just note a 
couple of other countries around the world. Denmark, which is 
at the top of the list for broadband deployment, has a 
population density of 128 people per square kilometer.
    The Netherlands, which is second on the list, has 466 
people per square kilometer. The United States, which comes in 
at 12th, has 32 people per square kilometer and in my home 
state of South Dakota, we have 3.8 people per square kilometer. 
But I guess the question I would have, and I open this up to 
anybody on the panel, is the United States implementing the 
right programs and policies for broadband deployment for our 
unique geography and population density and will we ever be 
able to reach the level of broadband penetration of those 
countries at the top of the list?
    Mr. Scott. I can speak to that question, Senator Thune. 
While I just happen to have the population density statistics 
in front of me and you're right that the top four countries 
have very high population densities. The next four have really 
low population densities and there is an intuitive sort of 
thought that it has got to be population density that's a 
problem.
    We studied that question and studied that question and 
calculated all the variables and when you're comparing data on 
the aggregate between countries, it doesn't explain it. As you 
get out into the rural areas, there are policies that you need 
to have in place to bring broadband to those areas but it 
doesn't explain our performance relative to other countries. So 
that's one point.
    The second point is, I absolutely agree that universal 
service programs aimed at broadband deployment are an essential 
part of bringing broadband to those gaps in the networks and 
the gaps in the networks are disproportionately in rural areas 
and the Dakotas are at the top of the list.
    Dr. Eisenach. Senator, two things. One, your point about 
density, I think, is well taken and it is a little bit more 
complex than just people per square kilometer or square mile. 
One of the things that affects the speed at which we rolled out 
our broadband in the U.S. is the fact that the copper line 
links in the United States are much longer than the copper line 
links in Europe, all other things being equal, even setting 
aside population densities. So the way we built our 
telecommunications infrastructure 50 and 100 years ago, is now 
affecting our ability to roll out broadband over DSL lines 
because DSL only works within about 18,000 feet of a central 
office. So what we have had is a much higher cost per household 
reached over copper than they've experienced in the European 
Union.
    Now what you've seen with rural telephone companies is 
you've seen them putting those universal service subsidies to 
work to build fiber optics much more deeply into their network. 
OPASTCO (Organization for the Promotion and Advancement of 
Small Telecommunications Companies), which is the association 
of small telephone companies, reports that roughly 90 percent 
of customers of small rural telephone companies now have DSL or 
in many cases, increasingly, fiber to the home.
    In fact, fiber to the home is being built out in a lot of 
rural communities faster than it is being built out in a lot of 
urban communities in America, thanks to the availability of 
those subsidies.
    The only other thing I'd say, which was discussed earlier, 
is that while the Rural Utility Service broadband grant and 
loan guarantee programs, I think, have been implemented 
imperfectly. The underlying principle there, which is 
leveraging private money and particularly with those loan 
guarantees, I think is very sound and that is a way to target, 
as we think about what do we do going forward with targeting 
our funding wisely on filling in the gaps on broadband. The RUS 
programs and programs like that, that are targeted and that 
leverage private sector money, I think, are the kinds of 
programs we ought to be looking at.
    Senator Thune. OK. I appreciate that, and that's one of my 
observations, too, that many of those programs are building, 
duplicating in areas where you already have some form of 
service as opposed to going into those areas that don't, and I 
think that really needs to be the focus of those programs, is 
delivering and expanding the scope. Many of the teleco's in our 
state, small teleco's, have done a good job of, as you said, 
using universal funds to reach out to under-served areas but 
these programs that we have that provide incentives, provide 
capital, I think, do need to be targeted with an eye toward 
those under-developed and under-served areas.
    Dr. Eisenach. Senator, just one thing that I think really 
does deserve some attention is that we now have in Mississippi, 
we have areas of Mississippi where we have 16 mobile telephone 
companies receiving universal service subsidies for serving 
precisely the same service territory and we're talking about 
real money. We're talking about a billion dollars a year, I 
think over $100 million a year just going to the state of 
Mississippi in order that people can have second and third and 
fourth phone lines, in order that when a family of five gets 
five mobile telephones, two parents and three kids--quintuples 
the amount of universal service subsidies that is being 
received by whatever wireless carrier is providing those five 
telephones.
    Now, we'd all like to have free cell phones for our kids 
but is that the best use of government funding at a time when 
there are big areas of the United States--Alaska and Hawaii 
among them and your state, of course, where we do not have any 
kind of broadband at all?
    Senator Thune. I appreciate that. Thank you, Mr. Chairman.
    The Chairman. Thank you very much. I'm glad Senator Thune 
brought up the matter of population density. The top five 
countries are Denmark, Netherlands, Korea, Switzerland and 
Iceland. They are all dense, densely populated, smaller in 
acreage than the United States. That's one of the problems. But 
my question is, whenever people give speeches in Washington, 
they often times used the word, superpower, to describe the 
United States so I presume an element of pride is involved. But 
I want to go beyond pride. What impact do these statistics have 
on the quality of life of Americans? On employment, 
unemployment, on education levels and such? Is it at a 
dangerous level? Should we be concerned? Or is this what we can 
expect?
    Mr. Mefford. I would address it to say, in Kentucky, it has 
made all the difference in the world for these less densely 
populated areas particularly. So when you were talking about 
our ability to compete beyond our metropolitan areas--that is, 
where having this infrastructure in place is, in my opinion, 
critical. So as we've seen in Kentucky, we have kids who have 
left and took jobs in other places, have now come back to 
Kentucky.
    Now, on a national level, if we did nothing from this day 
forward, which we're confident won't happen but if that 
happened, then those kids would be going to other countries for 
jobs that were attractive instead of just moving from state to 
state within the United States. Our ability to work efficiently 
and effectively from any location is enabled through this 
advanced infrastructure. Education is able to improve just 
exponentially in what type of content we can deliver directly 
to our children, again, no matter where they live. Healthcare 
is able to be delivered in a similar fashion where we have 
folks in rural Kentucky who are accessing physicians from our 
major metropolitan areas. So again, we have seen that this is 
just vitally important, particularly to our rural communities.
    Mr. Scott. Mr. Chairman, I think I can provide some numbers 
and I'm pleased to say these numbers come from a study that was 
done in 2003 by Dr. Eisenach's firm, Criterion Economics. I 
thank you for those. They are very informative. In 2003, the 
broadband penetration rate in this country was 20 percent and 
the economists at Criterion determined that the consumer 
surplus for the country at a 20 percent penetration rate was 
$10 billion.
    But what they showed is that for every point of increase in 
the percentage of penetration, the amount of consumer surplus 
doesn't increase linearly. It increases on an exponential 
curve. So if we had a 50 percent broadband penetration rate, 
the annual consumer surplus would be $38 billion and if we had 
a 95 percent broadband penetration rate, the annual consumer 
surplus would be $350 billion, at which point we're talking 
about real money in this economy. Every single point matters as 
we go up that scale.
    Dr. Eisenach. Senator, I guess I'd make first of all the 
point that coming back to my reference to Sputnik earlier on, 
maybe the parallel really is there. When the Russians launched 
Sputnik in 1957, I think there was tremendous concern that was 
emblematic that the U.S. had really fallen dramatically behind 
in a key technology, that the Russians were ahead of the U.S. 
in space technology. That wasn't true.
    What was true is that they were more focused on it and at 
that particular moment in time, they managed to do something 
that we sure wish we had done first. I suspect the same is true 
today, that the underlying fundamentals in the United States 
are pretty strong, but that we do need to get focused as we did 
in 1957 and thereafter, on making sure that we do the right 
things.
    Now the larger question is, is the fundamental underlying 
approach that we're taking today, which is essentially to rely 
on the marketplace and to generate competition among 
infrastructures. Is that the right approach or should we go 
back to the approach we tried in the late 1990s?
    As I see what is happening in the markets--Mr. Scott talks 
about a cable/telephone duopoly but then he says that, in fact, 
every time cable invests, telephones invest more. Telephones 
invest, cable invests more. That's what I see with my eyes. 
That sounds like competition to me and then I look at Sprint 
making a $3 billion investment in a nationwide WiMax network.
    I look at what the wireless--mobile wireless companies are 
doing in rolling out what are really very capable broadband 
networks. I look at what Virginia Broadband is doing in 
Rappahannock County and this whole central part of Virginia, 
which is another wireless network and I see competition among 
infrastructures. And I see that as being extremely healthy and 
a path that we should continue, not back away from.
    The Chairman. I have many other questions I'd like to 
submit. I just note that we have another panel but I was very 
shocked by the statistics I just read a few days ago. Last 
year, in all the colleges and universities, 40 percent of the 
Ph.D. doctorates were granted to non-Americans and of that 
number, I think 80 percent went home to their countries. Is 
that a matter that should concern us?
    Mr. Mefford. Again, that validates and substantiates this 
fear that there is a risk of exodus of our intellectual talent, 
particularly and so the point earlier of what we've seen in 
Kentucky as we have focused on this infrastructure and seen 
jobs created--again 14,500 in the last 2 years in Kentucky, 
technology jobs alone--that Ph.D. trend has reversed itself. So 
now we have nearly double the number of Ph.D. candidates who 
finish programs staying in Kentucky.
    The Chairman. To the panel, thank you very much. The record 
will be kept open for 2 weeks and if we may, we'd like to 
submit questions to you for your consideration.
    Mr. Mefford. Absolutely.
    The Chairman. Thank you very much.
    Mr. Mefford. Thank you, Mr. Chairman.
    The Chairman. Our next panel is the Chief Technology 
Officer and President of Advanced Technology Solutions, of 
Telcordia Technologies and Advisor to the Board of 
Communications Research, Telecommunications Industry 
Association, Dr. Adam Drobot; Professor, University of 
California at San Diego and Vice President of Technology at 
QUALCOMM, Inc., Dr. Jack K. Wolf; and Senior Fellow and 
Director of Communication Policy Studies, Progress and Freedom 
Foundation, Dr. Scott Wallsten.
    Gentlemen, welcome and may I call on Dr. Drobot.

         STATEMENT OF DR. ADAM DROBOT, CHIEF TECHNOLOGY

           OFFICER AND PRESIDENT, ADVANCED TECHNOLOGY

         SOLUTIONS, TELCORDIA TECHNOLOGIES; ADVISOR TO

THE BOARD, COMMUNICATIONS RESEARCH, TELECOMMUNICATIONS INDUSTRY 
                          ASSOCIATION

    Dr. Drobot. Thank you, Mr. Chairman, Ranking Member Stevens 
and Members of the Committee. I am appearing today as the Chief 
Technology Officer of Telcordia. I'm responsible for its 
research organization and also an advisor to the Board of 
Telecommunications Industry Association, where I chair the 
Research Division, which is composed of the CTOs of our 600 
members and I'm grateful for this opportunity to be able to 
testify before you today.
    I think the first point I would like to make is that 
communications technology is not just another thing that's out 
there. It is truly vital to the global economy, to serve as its 
central nervous system, essentially, and it is really the 
foundation of what our societies will be based on in the 
future.
    As an industry, as you look at it broadly in the United 
States today, it represents 7.1 percent of our GDP. It affects 
all other sectors in a very fundamental way. It impacts the 
productivity of our industries, of our economy, educational 
systems, public safety, healthcare and countless other 
functions in our daily lives. I think those functions will only 
grow as a matter of time.
    I think with all the advances we have seen over the last 
years, I'd say in the years since Sputnik, what you will find 
is that we haven't seen anything yet. The underlying 
technologies that have made this possible continue to grow at 
exponential rates and the nations that I think will harness 
these technologies are ones that will prosper in the future.
    If I were to steal the words from Bush, I think they ring 
as true today that all of this affects the health, general 
welfare and defense of our population. So if I look at two of 
the issues we'd like to address today, one is communications 
and broadband deployment and the other is the role of research.
    In broadband deployment, if you look at our next-generation 
systems, I think it is necessary to have incentives to 
deployment. We have heard that in the previous panels but just 
as much, removal of barriers and experimentation with new 
business models make this sustainable.
    In the past several years, we have witnessed a demand for 
broadband growing at tremendous rates. In the U.S., the market 
last year grew at 9.3 percent to come to almost $923 billion in 
revenue, 11.2 percent worldwide. Somehow we have the feeling 
this is important to the world as a whole. We have seen 
technologies like broadband video in the entertainment sector, 
Voice over IP, mobile data services--all of those flowering at 
this point in time and as a result, cable teleco's, wireless 
operators and all others in this field, I would say going from 
voice to Voice over IP, the bundle packages to consumers, I 
think are continuing to drive down costs and increase the 
services that are available.
    Broadband video is one of the driving forces behind the 
current deployment of things like fiber. It allows telephone 
carriers to compete with the cable providers. The demand for 
broadband has also been propelled by Voice over IP. Whether it 
is by peer-to-peer Vice over IP or between service providers, 
again something that has had a great take up by consumers.
    The forecast is that 34 percent of all U.S. residential 
landlines in 2010 will, in fact, be based on broadband Voice 
over IP service.
    I would say there is a tremendous amount beyond 
entertainment. The creation and sale of information and 
communication technology equipment creates jobs in our economy. 
I think if you look at our problems in healthcare, it has a 
tremendous role to play there, the same as in education, 
financial services, transportation and public safety.
    What is important to TIA and its membership is that next-
generation communications capabilities will be available and 
will facilitate public safety, allow our nation's first 
responders to assist the public in times of emergencies and 
that technology also plays a crucial role in the safety and 
security of our country.
    The expectation of technology in telecoms is important 
because it has a day to day impact that improves the 
productivity of individuals, of governments and corporations 
and that allows us to do new things and to do things that we 
have done in the past at much lower cost. The impact on the 
economy is really profound.
    There was a point in time that for information and 
communications technology the U.S. was an undisputed source of 
ideas and their implementation. Increasingly, we're finding 
that the source of new ideas is as likely to come from Europe 
and Asia as it was from the United States.
    I'll cite one example of that. SAP, the German company, 
recognized early in time that the use of distributed systems, 
PCs, would allow you to run large corporations in a very 
efficient way. They deployed their systems ahead of anybody 
else. If you look at the world's largest corporations, they 
tend to run on those systems today and so the ability to 
creatively use new technologies is no longer a monopoly that we 
have. We share it with the rest of the world but it has an 
effect on our standing.
    I believe that in the United States, we must focus on next-
generation broadband services and capabilities, especially in 
rural areas because it brings in those areas to become part of 
the world economy, essentially.
    I think it was mentioned earlier by some of the speakers, 
the USDA has made progress through no-interest loans, to spur 
broadband deployment for this purpose. While there may be 
questions of how the program is being administered, I think 
repairing it and making it deliver on its promise would be of 
tremendous value.
    I think this is something where we must all work together 
to balance the role between government involvement and 
incentives in the private sector that are going to build our 
systems for us for the future. We should first determine where 
broadband deployment has not occurred and why so that we can 
identify those incentives and eliminate the barriers to moving 
forward.
    Let me now turn to long-term telecommunications research. I 
think it is the underpinning of what we do and that the impact 
on next-generation systems there again, is profound.
    Other countries have discovered the importance of basic 
research and now are starting to reap the benefits. If you were 
to take a look at Framework Programs in the European Union, 
they are now starting their seventh Framework and actual 
programs in Korea, Taiwan, Hong Kong, Singapore and Japan--all 
of those are partnerships between their national laboratories, 
their private institutions and government. Those programs are 
really starting to accomplish pretty profound things.
    A good example of that would be deployment of what's called 
WiBro in Korea. It is a form of WiMax. What they have done is 
perfected the mobile form of that, which delivers high speed 
services anytime, anyplace and they are likely to be the first 
geography in which that kind of service is actually deployed 
universally.
    Another technology that again started in the United States, 
IPV6, the next generation of protocols for the Internet, was 
really perfected in Europe in the Fifth and Sixth Framework. 
While the United States is still the single largest market for 
communications and has the most robust economy, we now fall 
behind others in the penetration of high speed broadband and we 
have not commercially brought next-generation services to 
consumers.
    What I believe is important is that those who have done the 
deployment are now experimenting with next-generation business 
systems, next-generation e-Government systems. They have the 
test beds on which we can do the experimentation. We do not, at 
this point in time.
    The experience from my own corporation, in fact, finds that 
the ability to fund research of a pre-competitive nature early 
on is very, very difficult to do and sustain for the long term. 
While we were part of the Bell System before divestiture, where 
there was a mechanism for funding this kind of broad research, 
it is very difficult to do today in a very competitive 
industry.
    To maintain our edge, we are finding the necessity to rely 
on growth in foreign markets and are facing increasing foreign 
competition, which is advantaged by public spending in the 
local markets and long range government funding.
    So in summary, we believe there are a number of things that 
Congress can do and I think the first of those is to do no 
harm. It is vital that Congress continue in its current path 
and facilitate deployment of next-generation broadband 
technology. I think Congress has already taken steps in that 
direction and in particular, we commend you for making 
available valuable spectrum through legislation over the last 
few years. Congress must continue to recognize that application 
services with a use for entertainment, public safety, business 
or health will continue to be the single largest driver of 
future broadband deployment.
    I'm not going to through the list but the TIA has a number 
of governing principles that it has enunciated, including 
universal availability, but in regard to our assessment of high 
speed Internet services in the U.S., we believe it will be very 
useful for the Federal Government to create a set of metrics. 
This is both valuable to the public and to the service 
providers so we have transparency on the impacts of broadband, 
where it exists, where it doesn't, the quality of services, 
what the rate of penetration is, and what it is being used for. 
That kind of information, in fact, would allow people to make 
much more informed decisions on the way we do our investments. 
Second, we are asking the Federal Government to invest more of 
its research dollars in this critical area.
    Before closing, I would like to share a number of examples 
where the impacts of this would really be profound on our 
citizens. In everyday life, devices with much simpler 
interfaces but at the same time, much more functionality, can 
be greatly adopted throughout our society. Everything from 
having a PC or a camera, HDTV, music players, things of that 
sort, without a button in sight. If I look at transportation, 
the deployment of communication networks, car-to-car 
communications, and car to roadside appliances, can cause a 
reduction in traffic accidents and deaths and again, a profound 
impact on our Nation.
    If I look at our aging population, healthcare for the 
elderly, the ability to look after chronic diseases from 
diabetes to congestive heart failure, all of those kinds of 
things are made possible by the infrastructure that could be 
deployed. I would say last, new commercial systems can really 
propel the economy.
    These are a few of the examples among many that correlate 
our Nation's next-generation communications infrastructure and 
its related services. New partnerships between industry and 
government are needed to meet tomorrow's challenges to position 
the United States as a leader in the world's economy. Let me 
thank you for this opportunity and in particular, let me thank 
Senator Inouye for his interest in funding future research in 
this vital area. Thank you.
    [The prepared statement of Dr. Drobot follows:]

  Prepared Statement of Dr. Adam Drobot, Chief Technology Officer and 
   President, Advanced Technology Solutions, Telcordia Technologies; 
   Advisor to the Board, Communications Research, Telecommunications 
                          Industry Association
    Thank you, Mr. Chairman, Ranking Member Stevens, and members of the 
Committee. I am appearing today as the Chief Technology Officer of 
Telcordia Technologies and an Advisor to the Board of the 
Telecommunications Industry Association (TIA).
    I am grateful for the opportunity to appear before you today among 
this distinguished panel of witnesses to discuss the importance of 
communications technology and broadband deployment to the United 
States' competitiveness.
    Communications technology is vital to the global economy, serving 
as its central nervous system, and broadband technology will be the 
foundation of 21st century global communications networks. 
Telecommunications, as an industry, represents about 7.1 percent of our 
gross domestic product and plays a fundamental role that touches all 
other industries, impacts the productivity of our industries and our 
economy, and pivotally affects public safety, education, health care, 
and countless other functions in our daily lives.
    The advances we can expect are as profound and far-reaching as what 
we have experienced over the last quarter century--the explosive growth 
of the Internet, computers connected by high speed networks driving 
commerce around the world, the convenience of wireless mobility, and 
information services which are changing everything from how we spend 
our time to how we interact with our fellow citizens.
    It is vital for the United States to maintain the leadership and 
future competitiveness in this critical industry--for the health, 
general welfare and defense of our population.
Communications and Broadband Deployment Incentives
    Next-generation broadband communications capabilities are dependent 
upon incentives, removal of barriers, and experimentation with new 
business models for deployment. In the past several years, we have 
witnessed the demand for broadband and high-speed services fuel the 
revitalization and growth of telecommunications industry, as carriers 
invest in new fiber, new IP technology and new wireless infrastructure 
to provide state-of-the-art voice, video and data services. The U.S. 
market grew 9.3 percent in 2006 to total $923 billion in revenue, and 
the worldwide telecommunications market grew 11.2 percent to total $3 
trillion, according to TIA's Market Review & Forecast.
    We have seen technologies like broadband video, Voice over Internet 
protocol or VoIP, as well as new mobile data services, spark new growth 
in the telecommunications industry. As a result, cable, telcos, 
wireless, and others are offering more competitive all-in-one bundled 
packages, and consumers are seeing lower prices and more services.
    Broadband video is one driving force behind deployment of the 
state-of-the-art fiber needed to carry the high-capacity signal; it 
allows telephone carriers to provide a competitive TV service 
comparable to cable TV. Demand for broadband has also been propelled by 
VoIP. The broadband-based phone technology is forecast to make up 34 
percent of all U.S. residential landlines by 2010, or 25.5 million 
subscribers, up from just 10 percent and 9.5 million subscribers in 
2006.
    Beyond entertainment, the creation and sale of information and 
communications technology equipment creates thousands of jobs, fosters 
health care, education, financial services, transportation, and public 
safety. Important to TIA and its membership, next-generation 
communications capabilities will facilitate public safety 
communications and allow our Nation's first responders assist the 
public in times of emergencies. Technology plays a crucial role in the 
safety and security of our country.
    The exploitation of technology in telecom is important because it 
has a day-to-day impact that improves productivity for individuals, 
government and corporations. For example, advancements in technology 
have led to the removal of economic barriers in the enterprise market. 
Advancements of technology accomplishes two things, it promotes 
creativity, and as we mentioned earlier drives the economy to 
improvements in productivity. In other words, there are new things that 
can be done, and old things can be done at a lower cost.
    There was a point in time that for information and communications 
technology the U.S. was an undisputed source of ideas and their 
implementation. Increasingly, we are finding that the source of new 
ideas is as likely to come from Europe or Asia as it is from the United 
States.
    A good example is SAP, a German-owned and operated company, which 
recognized early on that technology could improve day-to-day business. 
SAP created Enterprise Research Planning (ERP) systems, which perform 
accounting functions for large corporations around the world. With the 
proliferation and use of PCs and the Internet, SAP recognized that 
large centralized mainframes were not necessary and that it is possible 
to share data within large enterprises if one took advantage of the 
fundamental communications technologies that are available already. SAP 
perfected a system that allows data to travel wherever the user demands 
the information, using basic telecommunications capabilities available 
to ordinary users. SAP created a new way of doing business by taking 
advantage of the telecommunications infrastructure that already exists.
    In the United States, we must focus on next-generation broadband 
services and capabilities, especially in the rural areas of our country 
where deployment is costly due to challenges associated with terrain, 
low population density, etc. Health care in rural areas are in demand, 
which will serve as an incentive to next-generation broadband 
deployment in those areas. The USDA has made progress through no 
interest loans, in order to spur broadband deployment for this purpose. 
We applaud this effort, and we believe that it serves as another 
example of how innovative products and services can stimulate 
deployment of next-generation broadband infrastructure.
    We must work together to determine what is the proper balance 
between government involvement and incentives, and the hands-off 
approach which has proven successful in the last several years. We 
should first determine where broadband deployment has not occurred and 
why, so that we can identify incentives and eliminate barriers to 
moving forward.
Basic Long-Term Telecommunications Research
    I now turn to the importance of long-term basic telecommunications 
research and the impact that it can have on next-generation 
communications capabilities. Other countries have discovered the 
importance of basic research early on, and they are now reaping the 
benefits. The Framework Programs in the European Union; national 
programs in Korea, Taiwan, Hong Kong, Singapore and Japan conducted 
through national laboratories and economic development authorities; and 
growing investments in China targeted at all aspects of communications. 
These programs are further accompanied by coordinated transitional 
activities which forge academic, national laboratory, and local 
industry partnerships aimed at native deployment and eventual 
domination in international markets. An example would be the deployment 
of ``Wibro'' in Korea--this is high speed Internet connectivity at 
speeds greater than 10 megabits per second for ubiquitous fixed and 
mobile wireless services based on the WiMax standards. A by-product of 
the early stage investment in innovation that these geographies have 
made is the deployment of next-generation systems significantly ahead 
of the United States.
    Another technology that came out of Europe and is being deployed 
around the world is IPV6, which has been widely adopted by leading 
countries including the United States.
    While the United States is still the single largest market for 
communications and has the most robust economy, we now fall far behind 
others in penetration of high-speed broadband, and we have not 
commercially brought next-generation services to the consumer. As a 
consequence, it is more than likely that the next wave of services and 
technologies will be developed where test beds and deployment of 
infrastructure will support experimentation of new concepts and ideas 
and where the human capital is concentrated--locations where business 
executives, scientists and engineers are familiar with the technology.
    The experience from my own corporation confirms this. Telcordia, 
which traces its heritage to ``Bell Labs'' and which participated in 
the invention of much of modern communications, is the largest seller 
of Operations Support Systems to the telecommunications industry. To 
maintain our edge, we are finding it a necessity to rely on growth in 
foreign markets and are facing increasing foreign competition, which is 
advantaged by public spending in the local markets and long range 
government funding.
What Must Congress Do
    First, do no harm. It is vital that Congress continue on its 
current path and facilitate deployment of next-generation broadband 
technology. And indeed, Congress has already taken steps in this 
direction. In particular, we commend you for making available valuable 
spectrum through legislation over the past few years. Congress must 
continue to recognize that applications and services--whether used for 
entertainment, public safety, business, or healthcare--will continue to 
be the single-most driver of future broadband deployment.
    TIA believes that public policies should foster a climate conducive 
to innovation and investment, avoiding overly-prescriptive regulatory 
regimes. The constant goal must be to achieve a market-based policy 
framework that fosters investment in network facilities and competition 
in the provision of converged, multimedia services and applications. 
TIA's key governing principles are as follows:

   Universally available, high quality, and affordable 
        broadband connectivity

   Competition among existing and emerging platforms and 
        providers

   Increased availability of unencumbered, prime spectrum in 
        adequate blocks for commercial services

   Utilization of market-based mechanisms to drive spectrum to 
        its highest and best uses

   Light-handed, narrowly focused regulation, where it is 
        necessary

   Technology neutrality and flexibility

   Uniformity in regulation, where appropriate, including 
        national rules wherever possible

   Elimination of regulatory barriers to investment

    In regard to an assessment of high-speed Internet access service 
already available in the U.S., our industry would greatly benefit from 
an increase in accurate reporting that is monitored at the Federal 
level, based on metrics that are valuable to the public and the service 
providers. This would be a good first step in determining which parts 
of the country are most in need of access to broadband communications 
technology. We look forward to working with Congress to determine the 
next steps.
    Second, we are asking that the Federal Government invest more of 
its research dollars in the critical area of basic telecommunications-
specific research. Fierce competition and financial realities have made 
it difficult for U.S. industry to self-fund long-term, basic research, 
and because the U.S. Government is not devoting sufficient resources on 
long term communications research, the U.S. position in this vital area 
is waning.
    I would like share some examples where the investments that we 
propose could impact the citizens of our great country:

   In everyday life--devices with much simpler interfaces, but 
        at the same time, much more functionality with greater adoption 
        in our society--Imagine a single device the size of your cell 
        phone today, which is your PC, your camera, a projector, shows 
        HDTV, plays music, is a portal to the Internet--without a 
        button in sight?

   Reduction in traffic accidents and deaths--sensors on a car 
        that could alert you to hazardous conditions, such as black 
        ice, another vehicle in your blind spot when you are about to 
        change lanes, a deer in the roadway, a washout in the highway, 
        and the communications system that can convey warnings about 
        such hazards to traffic behind you.

   Health care for the elderly--a handheld device that your 
        grandmother has, which could diagnose and warn about medical 
        problems, call for a nurse or a doctor's intervention, or 
        improve quality of life by fostering the ties with a grandchild 
        three time zones away through effortless, high-quality 
        communications.

   New commercial systems--a slim and light portable device to 
        securely purchase, receive, redeem, and store concert tickets, 
        airline boarding passes, subway tickets, and conduct financial 
        transactions from anywhere--without printing a thing?

    These are only a few examples, among many, that correlate our 
Nation's next-generation communications infrastructure and its related 
services and applications to the economic growth of the United States 
and the world and the quality of life for all consumers. New 
partnerships between industry and government are needed to meet 
tomorrow's challenges and to maintain the competitive position of the 
United States in the communications industry.
    Thank you again for the opportunity to appear before you today.

    The Chairman. Thank you very much. Dr. Wolf?

        STATEMENT OF DR. JACK KEIL WOLF, STEPHEN O. RICE

       PROFESSOR, UNIVERSITY OF CALIFORNIA AT SAN DIEGO;

          VICE PRESIDENT, TECHNOLOGY, QUALCOMM, INC.;

            MEMBER, COMMITTEE ON TELECOMMUNICATIONS

          RESEARCH AND DEVELOPMENT, NATIONAL RESEARCH

                COUNCIL, THE NATIONAL ACADEMIES

    Dr. Wolf. Good morning, Mr. Chairman, Mr. Vice Chairman and 
Members of the Committee. My name is Jack Keil Wolf. I'm a 
Professor of Electrical and Computer Engineering at the 
University of California at San Diego and Vice President of 
Technology at QUALCOMM. I was a member of the Committee on 
Telecommunications Research and Development of the National 
Research Council that authored the report, ``Renewing U.S. 
Telecommunications Research,'' which was issued in August 2006, 
on which you've asked me to testify.
    The modern telecommunications infrastructure made possible 
by research performed over the last several decades is an 
essential element of the U.S. economy and society and it plays 
a vital role in U.S. national security and homeland defense. 
Yet, telecommunications is not a mature industry and major 
innovation and change, driven by research, can be expected.
    Without making an expanded investment in research, however, 
the Nation's position as a leader is at risk. Strong 
competition is emerging from Asian and European countries that 
are making substantial investments in R&D. As many 
telecommunications products and services become commodities, 
continued U.S. telecommunications strength requires a focus on 
high value innovation that is made possible only through 
research.
    However, as our report concluded, the U.S. position as a 
leader is at risk because of the recent decline in domestic 
support for long-term fundamental research. Prior to the 
restructuring of the telecommunications industry that began in 
1984, the Bell Systems Research Labs played a vital role in 
U.S. telecommunications research and stable funding was 
provided through what amounted to a tax on the service revenues 
of the Bell operating companies.
    Following the 1984 restructuring, industrial support for 
research has declined, become more short term in scope and 
become less stable. Because the benefits of much 
telecommunications research cannot be appropriated by 
individual firms, especially in today's much more competitive 
environment, public funding of such research appears necessary. 
However, Federal funding of long term research has not 
increased to cover the decline in industry's support. No 
systematic efforts such as took place for the semiconductor 
industry with SEMATECH have emerged.
    The National Science Foundation and the Defense Advanced 
Research Projects Agency have been the two primary sources of 
Federal telecommunications R&D support. NSF, long a broad 
supporter of telecom R&D, is currently emphasizing new 
approaches to telecommunication through its Networking 
Technology and Systems program and its proposed Global 
Environment for Network Innovations experimental facility.
    DARPA, which funded a number of important past 
communications advances, including elements of the Internet 
itself, has been generally shifting its emphasis toward more 
immediate military needs and giving less attention to long term 
telecommunications research. Our report's recommendations 
reflect the view that a strong, effective telecommunications 
R&D program for the United States will require a greater role 
for government-sponsored and university research, together with 
more funding of long term research by industry.
    In our first major recommendation, we aim to underscore the 
challenge with a bold recommendation that the Federal 
Government establish a new research program, which we call the 
Advanced Telecommunication Research Activity or ATRA, to 
stimulate and coordinate research across industry, academia and 
government.
    In recommending ATRA, we recognize the challenges of coming 
up with new funds for telecommunications research and did not 
want to see enhanced Federal support for telecommunications 
research come only at the expense of other areas of science and 
engineering.
    I am, however, hopeful that the present budget environment 
in which significantly increased investment in scientific 
research is being considered, offers opportunities for 
supporting additional research in telecommunications. For more 
on the broad case for investment in science and technology, I 
would refer you to the NRC's recent report, ``Rising Above the 
Gathering Storm.''
    Even with the establishment of a national research program, 
NSF and DARPA would remain key contributors to U.S. 
telecommunication research efforts. Both have successful 
research management cultures that compliment each other and the 
activities envisioned for ATRA.
    Our second major recommendation was that all segments of 
the U.S. telecommunications industry increase their support for 
fundamental research, such as through participation in joint, 
cooperative research activities organized by ATRA, which would 
provide industry with a way to pool funds, spread risk and 
share beneficial results.
    Indeed, we recommended that industry should provide a 
significant fraction of ATRA's funding and observe that 
participation in ATRA's activities by both service providers 
and equipment vendors would be required to help identify the 
most critical research needs.
    Mr. Chairman and Members of the Committee, our 
recommendations envision an enhanced and multifaceted role for 
government-sponsored and university research, an additional 
investment by the telecommunications industry that together 
would strengthen the Nation's telecommunications research 
institutions and programs, the telecommunications industry and 
infrastructure and our national security. Thank you. That 
concludes my comments. I would be happy to take any questions 
you may have.
    [The prepared statement of Dr. Wolf follows:]

   Prepared Statement of Jack Keil Wolf, Stephen O. Rice Professor, 
  University of California at San Diego; Vice President, Technology, 
 QUALCOMM, Inc.; Member, Committee on Telecommunications Research and 
     Development, National Research Council, The National Academies
    Good morning, Mr. Chairman and Members of the Committee. My name is 
Jack Wolf. I am professor of electrical and computer engineering at the 
University of California at San Diego and Vice President, Technology at 
QUALCOMM. I served as a member of the Committee on Telecommunications 
Research and Development of the National Research Council that authored 
the report Renewing U.S. Telecommunications Research, issued in August 
2006, on which you have asked me to testify. This study was requested 
by the National Science Foundation.
    The National Research Council is the operating arm of the National 
Academy of Sciences, National Academy of Engineering, and the Institute 
of Medicine of the National Academies, chartered by Congress in 1863 to 
advise the government on matters of science and technology.
    I will start with an overview of the study's key findings before 
turning to our recommendations.
    The modern telecommunications infrastructure--made possible by 
research performed over the last several decades--is an essential 
element of the U.S. economy and society. Telecommunications research 
has yielded major direct benefits such as the Internet, radio frequency 
wireless communications for cellular systems and wireless local area 
networks (which have enabled modern mobile voice and data 
communications), optical networks (which have revolutionized 
communications by providing extraordinary communications bandwidths at 
very low unit cost), and Voice over IP (which provides voice 
communications with enhanced flexibility and efficiency). It has also 
had important spinoffs, from transistors to lasers to the UNIX computer 
operating system.
    Telecommunications has expanded greatly over the past few decades 
from primarily landline telephone service to the use of fiber optic, 
cable, and wireless connections offering a wide range of voice, image, 
video, and data services. Yet it is not a mature industry, and major 
innovation and change--driven by research--can be expected for many 
years to come. Promising opportunities for future research include 
enhanced Internet architectures, more trustworthy networks, and 
adaptive and cognitive wireless networks.
    As our report concluded, the U.S. position as a leader in 
telecommunications technology is at risk because of the recent decline 
in domestic support for long-term, fundamental telecommunications 
research. The risk is magnified by the long period of time--as much as 
a decade or even longer--that it can take to translate a fundamental 
discovery or big new idea into a commercial product or service or to 
educate and train a new researcher.
    The recent fast pace of innovation, the array of new ideas to be 
pursued, and the substantial investment in telecommunications by other 
nations are all indications that telecommunications remains a high-
value sector in which the United States should strive for continuing 
leadership. The importance of maintaining U.S. leadership is 
underscored by telecommunications' critical contribution to U.S. 
leadership in information technology in general, its important 
contribution to improving productivity in nearly all industries, and 
its role in national security and homeland defense.
    Indeed, without a continuing focus on telecommunications R&D, the 
United States will increasingly be forced to purchase 
telecommunications technology and services from foreign sources. Risks 
include: (1) U.S. dependence on foreign sources of technology to meet 
critical defense needs; (2) loss of exclusive or early access to state-
of-the-art communications technology; (3) loss of know-how to employ 
state-of-the-art technology; (4) opportunities for other nations to 
introduce security holes into equipment and networks; and (5) loss of 
technical capability for cyberdefense.
    Strong competition is emerging from Asian and European countries 
that have identified telecommunications as a strategic area for 
economic development and that are making substantial investments in 
telecommunications R&D. Equipment vendors in a number of countries 
(such as China) now compete strongly with U.S. firms and have been very 
successful in emerging markets.
    Telecommunications products and services generally have become 
commodities over time as multiple firms acquire the know-how to supply 
similar, competing products, and such competition has benefits in terms 
of lower prices for goods and services. To maintain leadership--or even 
a strong position--in telecommunications in the face of pressures from 
lower costs overseas for labor and other essentials requires that U.S. 
firms constantly focus on achieving high-value innovation as a 
foundation for developing new, non-commodity products and services.
    For example, notable benefits have accrued to the United States as 
a result of its leadership in defining the Internet's design. However--
by virtue of its very success--the existing Internet architecture has 
become difficult to change. Despite many potential avenues for 
significant improvements in areas ranging from security to real-time 
audio and video transmission, research and development has become 
largely incremental in nature. Moreover, the current architecture is 
largely a commodity, and firms from other nations will become 
increasingly able to deliver competitive products and services. 
Research aimed at defining future architectures promises particular 
benefits because U.S. firms will be positioned to offer new kinds of 
services and not just incremental improvements to existing ones.
    Sustaining a base of researchers and research institutions is 
critical to the long-term health of a research discipline. Without 
adequate research funding, it will be hard to attract new students to 
the field, retain foreign students in the United States, provide 
critically needed support for postdoctoral researchers, or attract and 
develop new faculty and industrial researchers.
    Nevertheless, as the report notes, research support has fallen off 
in recent years. Prior to the restructuring of the telecommunications 
industry that began in 1984, the Bell System's research labs played a 
vital role in long-term, fundamental telecommunications research for 
the United States. Stable research funding was provided that amounted 
to a tax levied on the service revenues of the Bell operating 
companies. Post-restructuring, industrial support for such research has 
declined, become more short-term in scope, and become less stable.
    It is notoriously difficult to compile definitive data on support 
for industry research and development, but the general shape of the 
situation became clear in testimony to the study group. Industry 
support for telecommunications research has decreased (as measured in 
dollars, numbers of researchers, and publications), and the work that 
is funded now has become increasingly short-term in focus--evolutionary 
rather than revolutionary--at a time when global competitors of the 
United States have placed a priority on long-term research in this 
area. Anecdotal reports indicate that basic research scientists in 
industry are being shifted to development work and that publication by 
industry researchers in telecommunications journals has decreased.
    The diverse array of competing telecommunications firms--telephone, 
cable, Internet, and wireless that have emerged--have for the most part 
left research to equipment vendors, which have themselves increasingly 
focused on short-term goals. As a result, telecommunications research 
is increasingly being done at universities rather than industry, and 
outside rather than inside the United States.
    Another consequence of changes in the industry structure with 
implications for innovation is that the diversity of players in today's 
telecommunications industry makes it more difficult to design and 
deploy major, end-to-end innovations. Multiple visions are now being 
pursued by various segments of the telecommunications industry, and 
although an increased diversity of players provides more fertile ground 
for new ideas, it also makes widespread deployment of good ideas more 
difficult. Moreover, no single entity is able to appropriate the 
results of long-term, fundamental research or to comprehensively 
address the engineering and standardization issues associated with end-
to-end solutions that must span multiple service providers and multiple 
sectors of the industry. As a result, vendors tend to favor incremental 
improvements to today's networks over more fundamental and high-risk 
research that seeks major advances in new or enhanced end-to-end 
applications and services and the architectural innovation that 
supports them.
    The National Science Foundation and the Defense Advanced Research 
Projects Agency have been the two primary sources of Federal 
telecommunications R&D support. NSF, long a supporter of 
telecommunications R&D spanning a range of topics, is currently 
emphasizing new approaches through such efforts as the Networking 
Technology and Systems (NeTS) program and the Global Environment for 
Network Innovations (GENI) experimental facility being planned by NSF 
in collaboration with the research community. DARPA, which funded a 
number of important telecommunications advances in the past (including 
elements of the Internet itself), has been generally shifting its 
emphasis toward more immediate military needs and giving less attention 
to long-term telecommunications research.
    Despite these significant investments over the years, Federal 
funding of long-term research did not increase sufficiently to 
compensate for the decline in industry support for long-term research. 
Because of the Bell System's ability to fund and conduct so much 
research in-house the Federal Government historically did not emphasize 
support for academic research in telecommunications and university 
researchers themselves tended to concentrate on research areas more 
amenable to work by individual investigators or small research groups, 
such as semiconductors, communications theory, and signal processing, 
leaving to industry research related to the design and operation of 
large-scale communications networks. Notable exceptions to this 
pattern, such as computer networking research supported by the Defense 
Advanced Research Projects Agency and National Science Foundation 
(which led to the Internet), illustrate the enormous potential payoff 
from government-supported and university-based research on new 
architectural ideas.
    Long-term concerns similar to those now faced in the 
telecommunications sector prompted the establishment of research 
organizations for the semiconductor and power industries, with the 
implicit or explicit participation of government. Indeed, the current 
situation in telecommunications is somewhat analogous to the crisis 
faced by the U.S. semiconductor industry in the 1980s when 
international competition and decreased R&D funding threatened that 
industry's long-term viability. In response, the Semiconductor Research 
Corporation and SEMATECH were formed. Their work is widely credited 
with having played an important role in the recovery, renewed 
leadership, and long-term viability of the U.S. semiconductor industry. 
Notably, there have been no parallel systematic efforts--either 
government- or industry-led--for telecommunications.
    I will now turn to the Committee's key recommendations.
    Our report's first major recommendation reflected the view that a 
strong, effective telecommunications R&D program for the United States 
will require a greater role for government-sponsored and university 
research, and more funding of long-term research by industry. To 
underscore the seriousness with which the study committee viewed the 
challenge, we made a bold recommendation, that the Federal Government 
establish a new research program with the objective of stimulating and 
coordinating research across industry, academia, and government. This 
proposed research program, called the Advanced Telecommunications 
Research Activity (ATRA) , was envisioned as a hybrid of activities of 
the sort historically associated with DARPA (which through the ARPANET 
program managed a research portfolio, developed a vision, and convened 
industry and academia to build what would become the Internet) and 
SEMATECH (which brought the semiconductor industry together, initially 
with some Federal support to complement industry dollars, to fund joint 
research, development, and road mapping activities).
    ATRA's mission would be to: (1) identify, coordinate, and fund 
telecommunications R&D, (2) foster major architectural advances, and 
(3) strengthen the U.S. telecommunications research capability. Key 
suggested steps for implementing ATRA are: (1) establishment of 
mechanisms for carrying out project-based research; (2) establishment 
of advisory committees with high-level industry participation; (3) 
exploration of the need for R&D centers; and (4) establishment of a 
forum for key parties to discuss critical technology development 
issues.
    Our report urged that telecommunications research funding should be 
consistent with the vital role played by telecommunications in the U.S. 
economy and society and with the direct contributions made by the U.S. 
telecommunications industry to the Nation's economy and security. The 
study committee recognized, however, that budgets are often a zero sum 
game, and that a bold proposal of this sort would have been quite 
difficult to implement in the budget environment at the time its report 
came out. Moreover, we were not charged with making budgetary 
recommendations nor examining tradeoffs between research needs in 
telecommunications and other areas of science and technology research--
nor did we in any case believe that increased investment in 
telecommunications research should come at the expense of other areas 
of scientific or engineering research. But our report points to 
telecommunications research as an area where investment is critical.
    For more on the broad case for investment in science and 
technology, I would refer you to the National Research Council's recent 
report Rising Above the Gathering Storm: Energizing and Employing 
America for a Brighter Economic Future. I am hopeful that the present 
budget environment, in which significantly increased investment in 
scientific research is being contemplated, offers new opportunities for 
supporting an initiative in telecommunications.
    As for where within the Federal Government the ATRA program could 
fit, there are multiple options, each with its own set of tradeoffs, 
and our report provides several of these. For example, ATRA's proposed 
mission would align with that of existing agencies within the 
Department of Commerce, and NSF has developed mechanisms for joint 
academic-industry engineering research, albeit more focused and on a 
smaller scale.
    Even with the establishment of an ATRA research program, NSF and 
DARPA would remain key contributors to U.S. telecommunications research 
efforts. Both have successful research management cultures that 
complement each other and the activities envisioned for ATRA. NSF has 
significant strengths in supporting basic research, training 
researchers, and building research communities that can play an 
important role in strengthening the U.S. research base in 
telecommunications. NSF's commitment to supporting research in this 
area has been evident, and NSF has a number of opportunities for 
sustaining such attention, including making efforts to attract and 
develop young research talent in telecommunications. DARPA is well 
known for a culture of focused programs with active program management 
and significant industry participation. In considering investments in 
telecommunications research, DARPA should consider the 
telecommunications capabilities attainable by potential U.S. 
adversaries by virtue of the burgeoning commercial telecommunications 
sector overseas and the risks associated with the United States having 
to rely on communications components and systems that are increasingly 
being developed overseas.
    Second, the report also recommends that all segments of the U.S. 
telecommunications industry increase their support for fundamental 
research, possibly taking advantage of the avenue provided by 
participation in joint, cooperative research activities organized by 
ATRA. Indeed, the Committee recommended that industry should provide a 
significant fraction of total R&D funding for ATRA, which would support 
researchers from academia and industry and provide industry with a way 
to pool funds, spread risk, and share beneficial results.
    Moreover, effective expansion of Federal support of 
telecommunications research through ATRA will require participation 
from both service providers and equipment vendors to help identify the 
most critical research needs together with complementary industry 
investments in research. ATRA can play an important role in 
facilitating mechanisms to enable service providers to pool research 
support.
    Mr. Chairman and members of the Committee, our report contemplates 
a multifaceted, reinvigorated telecommunications research program. Our 
recommendations envision an enhanced and multifaceted role for 
government-sponsored and university research in telecommunications as 
well as additional investment by the telecommunications industry in 
more work of a fundamentally high-risk character, and thus a 
strengthening of the Nation's telecommunications research institutions 
and programs, industry, and infrastructure.
    You can find more information about these and related studies on 
the website of the Computer Science and Telecommunications Board of the 
National Research Council at http://www.cstb.org.
    Thank you. That concludes my comments. I would be happy to take any 
questions you may have.

    The Chairman. Thank you very much, Dr. Wolf and may I now 
recognize Dr. Wallsten.

STATEMENT OF SCOTT WALLSTEN, Ph.D., SENIOR FELLOW AND DIRECTOR, 
     COMMUNICATIONS POLICY STUDIES, THE PROGRESS & FREEDOM 
                           FOUNDATION

    Dr. Wallsten. Thank you very much. Mr. Chairman and members 
of the Committee, thank you for inviting me here and giving me 
the opportunity to testify today.
    My name is Scott Wallsten. I'm a Senior Fellow and Director 
of Communications Policy Studies at the Progress and Freedom 
Foundation as well as a lecturer for Stanford University.
    Notwithstanding the international rankings, the evidence 
indicates that the U.S. does not have a broadband problem. The 
remarkable investment in broadband infrastructure and rapid 
increases in subscribership suggest the market is working well. 
Any policy or regulation intended to further accelerate 
deployment should clearly identify and target the market 
failure it is intended to mitigate.
    Meanwhile, government can continue to remove arbitrary 
barriers to competitive entry by, for example, continuing to 
make more spectrum available for today's high value uses.
    The relatively low position of the United States in 
international broadband rankings creates consternation every 
time new numbers are released. These rankings, however, provide 
little real information. Part of the problem is that it is 
difficult to evaluate the rankings themselves because the OECD 
and the ITU do not explain how they derive their estimates.
    More importantly, many factors differ across countries that 
affect both the cost of supplying broadband, such as population 
density and existing infrastructure, and the demand for 
broadband, such as the ability or inability to subscribe to 
television services over broadband lines.
    Rather than worry about rankings per se, it is more useful 
to ask whether any market failures or other obstacles hinder 
broadband investment, competition and adoption by consumers.
    The evidence shows tremendous investment in broadband 
infrastructure. According to the FCC's latest data, in the 
first 6 months of 2006 alone, the number of broadband 
connections increased by 26 percent to a total of more than 60 
million high speed connections. Moreover, this impressive 
number masks the emergence of new delivery methods and hence, 
enhanced competition. The latest statistics show the importance 
of mobile wireless, a category incidentally, that the OECD does 
not count.
    More than 15 percent of all connections were wireless in 
June 2006, a figure no doubt even higher today. In addition, 
broadband providers like Verizon and AT&T are rapidly deploying 
fiber optic networks. More than 1.3 million homes are now 
connected to those networks and fiber is available to about 8 
million homes, twice the number of only a year ago.
    These are especially welcome developments given that the 
empirical economic research shows the importance of platform 
competition to spurring investment. Indeed, cable companies, 
which provide the largest number of broadband connections, are 
not sitting idly by. They are expected to invest about $15 
billion this year to upgrade their IP networks.
    Overall, North American telecom service providers put about 
$70 billion into capital expenditures in 2006 and this number 
is expected to increase over the next several years.
    Wireless competition is poised to become even more 
vigorous. The recently completed AWS auction put more spectrum 
in the hands of firms wanting to provide high speed wireless 
services. T-Mobile, for example, acquired enough spectrum to 
build out a 3G service to compete with Verizon, AT&T and 
Sprint/Nextel. The upcoming auction for spectrum in the 700 
megahertz band promises to bring even more options for wireless 
broadband access.
    Congress could further stimulate wireless broadband 
competition by continuing to move inefficiently used spectrum 
into the market so that it can migrate easily to higher valued 
uses.
    Given the large amount of investment and stunningly fast 
technological change, it is not obvious that there are market 
failures to correct. However, the quality of the available data 
is low so it is difficult to get a solid grasp of this market.
    While some groups, like ConnectKentucky, in particular, 
have made remarkable strides in assembling useful data, the 
data problem has no simple solution. It is easy to criticize 
existing information but it is not easy to know what data to 
collect, how frequently to collect it and how often to 
reconsider what information remains relevant in an industry 
exhibiting such rapid change.
    For example, the FCC currently reports how many broadband 
providers are in each Zip Code. These data are rightly 
criticized as flawed since a firm serving even only one 
customer in a Zip Code is counted as a broadband provider, 
possibly exaggerating the extent of competition.
    But what is the right geographic level of analysis? A 
census block? The number of broadband access choices available 
to each household? How would one measure the availability of 
wireless broadband? How we should we go about measuring 
bandwidth to consumer?
    Well, one might be tempted to demand as much information as 
possible at as a detailed level as possible but it is important 
to remember that data collection is costly, both for the firms 
that must report it and for the agencies that must collect and 
process it. The more detailed the data, the more costly they 
are likely to be. Any new data requirements should take into 
account both the costs of acquiring that data and the benefits 
we expect to obtain from having it.
    Nevertheless, FCC data collection is due for an overhaul. 
The FCC still requires telecom firms to report data once used 
for rate regulation but they no longer perform any particular 
regulatory purpose. It is conceivable that both the FCC and the 
reporting firms would be amendable to dispensing with some of 
the current data requirements that were intended for regulation 
in another era, in exchange for more useful and perhaps less 
burdensome data that would better inform decisions in today's 
digital world.
    To conclude, let me reiterate that the key issue in making 
broadband policy is not our rank in the world but whether we 
can identify particular market failures or artificial barriers 
suppressing broadband investment and adoption and whether any 
policy interventions are likely to yield net benefits. The 
rapid growth of broadband implies no market failure. Some 
policies are likely to yield unambiguous benefits such as 
moving inefficiently used spectrum to higher valued uses. The 
effects of other proposals are less clear. Precisely because 
the Internet is so important, it is vital that Congress be 
cautious and consider carefully any interventions in this fast 
changing industry to ensure that it does not unintentionally 
reduce incentives to invest in the very infrastructure we all 
believe is so important. Thank you very much.
    [The prepared statement of Dr. Wallsten follows:]

    Prepared Statement of Scott Wallsten, Ph.D., Senior Fellow and 
    Director, Communications Policy Studies, The Progress & Freedom 
                               Foundation
    Mr. Chairman and Members of the Committee, thank you for inviting 
me here and giving me the opportunity to testify today. My name is 
Scott Wallsten. I am a senior fellow and director of communications 
policy studies at The Progress & Freedom Foundation as well as a 
lecturer for Stanford University.
    Notwithstanding the international rankings, the evidence indicates 
that the U.S. does not have a broadband problem. The remarkable 
investment in broadband infrastructure and rapid increases in 
subscribership that have taken place suggest the market is working 
well. Any policy or regulation intended to further accelerate 
deployment should clearly identify and target the market failure it is 
intended to mitigate. Meanwhile, government can continue to remove 
arbitrary barriers to competitive entry by, for example, continuing to 
make more spectrum available for today's high-value uses.
    The relatively low position of the United States in international 
broadband rankings creates consternation every time new numbers are 
released. These rankings, however, provide little real information. 
Part of the problem is that it is difficult to evaluate the rankings 
themselves because the OECD and ITU do not explain how they derive 
their estimates. More importantly, many factors differ across countries 
that affect both the costs of supplying broadband--such as population 
density--and the demand for broadband--such as the ability or inability 
to subscribe to television services over broadband lines.
    Rather than worry about rankings, per se, it is more useful to ask 
whether any market failures or other obstacles hinder broadband 
investment, competition, and adoption by consumers.
    The evidence shows tremendous investment in broadband 
infrastructure. According to the FCC's latest data, in the first 6 
months of 2006 alone the number of broadband connections increased by 
26 percent, to a total of more than 60 million high-speed connections.
    Moreover, this impressive number masks the emergence of new 
delivery methods and hence, enhanced competition. The latest statistics 
show the new importance of wireless. More than 15 percent of all 
connections were wireless in June 2006--a figure no doubt even higher 
today.
    In addition, broadband providers like Verizon and AT&T are rapidly 
deploying fiber optic networks. More than 1.3 million homes are now 
connected to those networks, and fiber is available to about 8 million 
homes.\1\
---------------------------------------------------------------------------
    \1\ http://telephonyonline.com/home/news/ftth-household-
connections-041707/.
---------------------------------------------------------------------------
    These are especially welcome developments given that the empirical 
economics research shows the importance of platform competition to 
spurring investment.
    Indeed, cable companies, which provide the largest number of 
broadband connections, are not sitting idly by. They are expected to 
invest about $15 billion this year to upgrade their IP networks. 
Overall, North American telecom service providers put about $70 billion 
into capital expenditures in 2006, and this number is expected to 
increase over the next several years.\2\
---------------------------------------------------------------------------
    \2\ http://www.infonetics.com/resources/
purple.shtml?msna07.cpx.2h06.nr.shtml.
---------------------------------------------------------------------------
    Wireless competition is poised to become even more vigorous. The 
recently-completed AWS auction put more spectrum in the hands of firms 
wanting to provide high-speed wireless services. T-Mobile, for example, 
acquired enough spectrum to build out a 3G service to compete with 
Verizon, AT&T, and Sprint/Nextel.
    The upcoming auction for spectrum in the 700 MHz band promises to 
bring even more options for wireless broadband access.
    Congress could further stimulate wireless broadband competition by 
continuing to move inefficiently-used spectrum into the market so that 
it can migrate easily to higher-valued uses.
    Given the large amount of investment, rapid adoption, and 
stunningly fast technological change, it is not obvious that there are 
market failures to correct. However, the quality of the available data 
is low, so it is difficult to get a solid grasp of this market.
    While some groups like ConnectKentucky have made remarkable strides 
in assembling useful data, the data problem has no simple solution. It 
is easy to criticize existing information, but it is not easy to know 
what data to collect, how frequently to collect them, and how often to 
reconsider what information remains relevant in an industry exhibiting 
such rapid change. For example, the FCC currently reports how many 
broadband providers are in each Zip Code. These data are rightly 
criticized as flawed since a firm serving even only one customer in a 
Zip Code is counted as a broadband provider, possibly exaggerating the 
extent of competition. But what is the right geographic level of 
analysis? A census block? The number of broadband access choices 
available to each household? How would one measure the availability of 
wireless broadband? How should we go about measuring available 
bandwidth to consumers?
    While one might be tempted to demand as much information as 
possible at as detailed a level as possible, it is important to 
remember that data collection is costly both for firms that must report 
it and for the agencies that must collect and process it. The more 
detailed the data, the more costly they are likely to be. Any new data 
requirements should take into account both the costs of acquiring that 
data and the benefits we expect to obtain from having it.
    Nevertheless, FCC data collection is due for an overhaul. The FCC 
still requires telecom firms to report data once used for rate 
regulation but that no longer inform any particular regulatory purpose. 
It is conceivable that both the FCC and the reporting firms would be 
amenable to dispensing with some of the current data requirements that 
were intended for regulation in another era in exchange for more useful 
and perhaps less burdensome data that would better inform decisions in 
today's digital world.
    To conclude, let me reiterate that the key issue in making 
broadband policy is not our rank in the world, but whether we can 
identify particular market failures or artificial barriers suppressing 
broadband investment and adoption and whether any policy interventions 
are likely to yield net benefits. The rapid growth of broadband 
contradicts the presence of an obvious market failure. Some policies 
are likely to yield unambiguous benefits, such as moving inefficiently-
used spectrum to higher-valued uses. The impacts of other proposals are 
less clear.
    And precisely because the Internet is so important, Congress should 
be cautious and consider very carefully any interventions in this fast-
changing industry to ensure that it does not unintentionally reduce 
incentives to invest in the very infrastructure we all believe is so 
important.
    Thank you.

    The Chairman. Thank you very much. Senator Klobuchar?

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

    Senator Klobuchar. Thank you. Thank you to our panelists 
and I just wanted to first follow up with what you were talking 
about, Dr. Wallsten, with trying to connect and get the 
information that we have. I, too, have struggled with this as 
I've seen some statistics in our own state and then I talk to 
some of our smaller, local telephone companies and they assure 
me they are offering broadband and competing. You correctly 
laid out the problem with the data collection, including the 
FCC issues, where they're just doing it by Zip Code and so that 
leads one to believe that it might be an exaggerated number.
    But you laid everything out on how it would be inefficient 
to require too much data collection. What you didn't answer is 
what you think would be best for collection data so that we 
could best measure our broadband penetration.
    Dr. Wallsten. Well, I have some conflicting interests, I 
guess, because as a researcher, I'd like to have as much as 
possible. I'm always interested in more data. But I don't think 
the policy answer is obvious. I mean, in the first panel, we 
heard several different opinions about what the right approach 
should be. There was one suggestion for block-by-block 
analysis, another suggestion for using geographic information 
systems. ConnectKentucky has adopted a particular model that 
may actually end up serving as the model for everyone else and 
I think that they are really hard questions to answer.
    So far, I believe that the comments have been mostly along 
the lines of criticizing what the FCC has done and those 
criticisms are certainly justified, even though people at the 
FCC are certainly aware of them. I don't think there has been a 
lot of thought yet as to what exactly the right information is 
that we want. I think a good question is what problem do we see 
or what problem do we think we see and how would we actually 
measure whether that problem exists and what sort of things 
would we be looking for to decide whether particular policies 
mitigate that problem.
    Senator Klobuchar. Your testimony also was critical of 
other ideas but I what I was trying to get at, and maybe you 
can provide it to me later, is just your idea of how we best 
collect this data. It just seems to me in other areas of the 
economy, we're able to measure how many people use phone lines 
and how many people go on airplanes, that we should be able to 
figure out how we want to measure this because as we're making 
major decisions about broadband investment, it would be good to 
get ideas, as you said, and not just criticisms.
    Dr. Wallsten. Well, you're asking somebody who can't keep a 
waterfall. But no, it's an important question but I think the 
type of data we want has to be driven by the particular 
questions we want to answer and I'm not sure yet that there is 
actual agreement on that. With technological change, the things 
that we want to measure, it seems to keep changing. And these 
are difficult questions to answer and I don't have the answer.
    Senator Klobuchar. OK. Dr. Wolf, you made this comparison 
to the semiconductor industry in the 1980s. I was in college 
then, not quite following the semiconductor industry in the 
1980s. You talked about how that industry rebounded with a 
focus. Could you tell me the story of what happened there and 
how you think it is relevant to the situation we're in now, 
trying to compete internationally?
    Dr. Wolf. I'm not sure I know the complete story but 
basically, in the 1980s, there was the fear that we were losing 
our expertise in semiconductors and that the industry was going 
to move overseas. So there were several efforts that were made 
but one was SEMATECH and basically, the U.S. Government put 
money into it and companies partnered in it and eventually, the 
government funding was weaned and they found a way where the 
companies could work together on a pre-competitive basis, and 
do research that benefited all, I'll jump to the end of the 
story. The end of the story was that the U.S. semiconductor 
industry recovered nicely. There's been some criticisms of 
SEMATECH. This is something we could learn from. On the other 
hand, the SEMATECH model, I think, is a good one.
    Let me, if I could, deviate a little from your question. 
Let me explain why the communications field is so poorly funded 
by the U.S. Government. The fact is that back before 
divestiture, there wasn't a great need for the government to 
fund communications. There was Bell Labs, which at that point 
was spending $500 million a year on R&D. When I was a young 
professor, I spent a year at Bell Labs, essentially learning 
how to do research in telecommunications. Thus Bell Labs 
trained our educators, it trained our researchers, and played 
many other roles.
    At no point after divestiture did the U.S. feel or see a 
need to jump in and say, okay, there is this gap. I believe we 
are suffering from this now and we're going to suffer from it a 
great deal more unless we do something about it.
    Senator Klobuchar. Dr. Drobot, you wanted to comment?
    Dr. Drobot. Let me actually--I had a couple of things. I 
actually run an organization that came from Bell Labs and in 
fact, was created in 1985 as part of the divestiture. It had 
two charters to look after the reliability and security of the 
U.S. communication plant and part of that organization was the 
researchers that then went on to support the Baby Bells, the 
ARBACs until the Communications Act of 1996, essentially.
    Indeed, the funding for all of this came from tax 
collections, went on to the researchers and there were a couple 
of things that happened. I'd say the first one is that we were 
trusted enough to deal with the real communications system, the 
real data and the real hard problems.
    One of the things that you find in the Internet age is you 
can go through and do what people call plug and play. I go and 
connect to things and I can show--hey, I can get a video signal 
from here to there. It is a very different thing from saying 
you can get a video signal from here to there, do it twice in a 
row in the same way so there is consistency and number three, 
deploy it at large scale so it is economically feasible. 
Because a lot of the research was not about the glossy 
functional things that we find at the surface, it was the ugly 
things under the covers that gave you reliability, that made 
the system recover in a short period of time, that drove a high 
degree of automation that in fact, ended up driving down the 
economic barriers, which made this useful universally, 
essentially. This is what is missing today.
    I think when you look at it, you see this in the 
marketplace and I'll start off with the following. You look at 
video on demand, video services, things of that sort. I have 
now seen five waves of deployment of video. The first one was, 
I can show that a place, I put a business together and I find I 
really can't afford to deploy this at large scale. Second, the 
same thing. Technology not quite ready.
    Today when you ask me what are important metrics in this 
business, I can tell you some and they are very relevant. When 
you do telephony, video services, anything that is critical, 
I'd like to know what latencies are there in the communications 
plan? How can I measure them? How can I make that stuff 
available? Because if we can't deal with it, this stuff will 
not work at large scale, essentially.
    Do you want to experiment and build out a national system 
that you tear down a few years later because there is no money 
for that investment? I think that kind of clarity, being able 
to develop that kind of data really does have tremendous value.
    The next thing, I take a look at events such as Katrina. 
There are parts of our communications system that failed. If 
I'm going to go through and run voice services over IP, I need 
to be able to run the things that are critical for us, like 9-
1-1, calls for help, things of that sort, and make sure that 
system is available when other things go down. It's the 
underpinnings of our infrastructure. If the communications 
system goes down and the power system goes down, you cannot 
bring the power system up without the availability of 
communications. Those kinds of ties exist in our society today.
    Same is true of banking, ATM machines. You just went 
through something like Katrina. You want to go to the bank 
because you have to go somewhere else--those ATM systems are 
down and not functioning, essentially.
    So there is a tremendous amount of stuff that has to be 
done and I want to come back to the question you actually asked 
with SEMATECH. What SEMATECH did for the semiconductor 
industry, is it created roadmaps. It created the common bases 
on which that industry could build some infrastructure that 
could be shared by all and competed on things that mattered. 
The design of the chips, the way the costs could be brought 
down essentially, the fundamental things that would have to be 
there for the next generation of chips to be able to go to 
higher speeds. Everybody benefited as a consequence.
    While the manufacturing may have gone overseas, the 
intellectual property, the fundamental designs, those things 
stayed in the United States, essentially. I think the same is 
true of telecommunications if the right investments are made.
    Dr. Wallsten. Could I make an additional comment?
    Senator Klobuchar. Sure.
    Dr. Wallsten. The first point is we just heard another 
possible piece of data that should be collected and I think, 
that sort of illustrates why it is going to be hard to answer 
the problem because everybody points to another piece of 
information that should be collected and I'm not saying it's 
not important. It just points to how difficult it is to figure 
it out.
    I've also done a fair amount of work on science technology 
policy and the question of how to spend funds on research is an 
important one. Research demonstrates this classic market 
failure that the returns can be appropriated by other people 
than just the investor. The old AT&T was able to get around 
that by being a monopolist and it could fund Bell Labs as a 
result and as a country, we benefited from that particular part 
of the monopoly. We certainly don't want to go back to those 
days, however, and the question is how to sort of recapture 
some of that.
    In going forward with something like that, it's important 
to think in advance how you might want to measure whether such 
a program is successful. SEMATECH was controversial. Some of 
the economics research shows that SEMATECH mostly just crowded 
out private sector spending and wasn't successful.
    There are other opinions on this, obviously and so you want 
to ensure, for example that when you try to evaluate whether 
such an approach is successful, it's not just whether it funds 
something that ultimately succeeds in the market because then 
you could just fund things that would succeed anyway. So it's 
hard to figure out whether you're funding something on the 
margin.
    We've seen other programs like this that weren't successful 
at all. The partnership for a new generation of vehicles, we 
might remember that. It was a federally funded program meant to 
develop, I think, 100 mile per gallon car and while we were 
sort of playing around with that for years, we didn't develop 
hybrid cars.
    So there are lots of examples of these kinds of research 
programs that need to be thought about very carefully in 
advance to make sure that what we're measuring is really what 
you want to achieve in the end and that might include, for 
example, funding a lot of failures, too, because people have to 
be able to work on something and have it not succeed. But 
failed programs often are not something that are politically 
sustainable.
    Those are some things to think about if implementing this 
sort of program.
    Senator Klobuchar. So when we're not in the monopoly 
environment anymore, how would you suggest we do it? The 
funding?
    Dr. Wallsten. Well, I haven't looked at the specific 
funding of research in telecom so I don't want to comment on 
that. I just think these principles are important to keep in 
mind and there are other tools as well. For example, antitrust 
policy has taken an increasingly lenient view toward research 
joint ventures, for example, starting in 1984 with the National 
Cooperative Research and Production Act and extending, being 
looser and looser until in 2004, they passed the Standards 
Development Organization and Advancement Act, which basically 
makes it easier for firms to cooperate on standards without 
worry of being prosecuted for antitrust violations. There are 
plenty of tools to use to try to help move these interests 
along.
    Senator Klobuchar. Mr. Chairman, thank you for allowing me 
to go on.
    The Chairman. Thank you. Eleven years ago when we completed 
the drafting of the Telecommunications Act of 1996, we were 
amazed with the broad scope of communications and I must say 
that we are rather proud of ourselves. Now, Dr. Drobot, you 
spoke of the Internet age. If my recollection is correct, the 
Telecommunications Act of 1996 uses the word Internet twice. We 
really had no idea what it was. We had a very vague idea of the 
potential of broadband. The thing that amazes me today as I 
look back to that time, we looked upon the breakup of AT&T in 
1984 with the political eye. Monopolies should be broken up but 
then we began to realize in recent years that with the breakup, 
we also broke up the Bell Labs, the one thing that made America 
foremost in this area because they did research on a long-term 
basis. They did basic research and today, research is done for 
product and for selling and for the bottom line.
    Now I'm glad all of you are here to testify but what we'd 
like to know is, what can we do first, simply put, to make up 
for the lack of a Bell Lab? How should we go about increasing 
our activity in research? Because obviously from what we've 
heard about basic research, we're going to stay where we are. 
And the numbers indicate that we are no longer the way we were 
15 years ago or 20 years ago. So what do you suggest?
    Dr. Drobot. I'd say a couple of things on this. The first 
one is, when you look at Bell Labs, while there were a 
tremendous amount of things that came out of it, at the heart 
of it, it really was driven by telecommunications. The 
applications were in telecommunications. So you had a driver 
that forced you to think along a certain path.
    The second thing, as Dr. Wolf said, is there was ample 
funding and it was long term. I think it is very important and 
I have to say, I don't know any other way of doing it, but 
encouraging a part of our population, starting at the 
kindergarten level, to be participants in this, to look forward 
to a career, I would say, in science as much as they would to a 
career in the arts, in law or some other endeavor. I don't see 
many television shows that feature a scientist in something 
like L.A. Law, where thousands or millions of people think of 
this as their future. I think that's important.
    You mentioned earlier that 40 percent of the PhDs granted 
in the United States are actually not U.S. citizens. I can tell 
you when I look at two fields, which are sort of fundamental 
for telecommunications, electrical engineering and computer 
science, we did a survey of that recently and we found that at 
the undergraduate level, this country produces roughly 50,000 
graduates each year. Ninety percent plus of those tend to be 
U.S. citizens. At the Doctorate level, it's roughly 5,000. Of 
those, something like 67 percent are non-U.S. citizens. So I 
look at it from one point of view. It's a great export for us 
as a country. I look at it from another point of view and say 
it is fairly sad that we cannot attract people to enter these 
exciting fields from the best and brightest in our society.
    So I would say there would have to be some economic 
incentives--money for education and I would say money for 
research that is plentiful, that drives people to these 
disciplines and funds them well so they have careers in the 
future and don't experience the ups and downs that they have 
seen over the last 15 or 20 years, essentially. I think that's 
important.
    I would say the next item is that in this kind of research, 
you do have to have access to real things. The partnership with 
industry has to be deep. Again, as Dr. Wolf said and I've heard 
this from a lot of my academic colleagues, they say, we don't 
know who to interact with in industry.
    There isn't a place to go in the summer where you spend 
time with the telephone company and get to see the nitty gritty 
of what's actually going on. This is where you contribute your 
ideas. Again, who funds it? What is the mechanism? It's hard 
for me to tell. But I find at a corporate level, it's very hard 
when you are under pressure from Wall Street for the next 
quarter for the bottom line to actually supply those funds. 
This is where the public/private partnership makes a tremendous 
difference, essentially.
    I would say last, when I look at things like USAC, I can 
think of some small portion of it saying this is what we do to 
renew the future, essentially. I think all of those are things 
that should be examined. I don't a see monolithic solution. I 
think there has to be some experimentation that is done. But 
having places that have the critical mass, that are focused on 
a problem, I think are much more likely to see the results. 
Thank you.
    The Chairman. Dr. Wolf?
    Dr. Wolf. Thank you, Mr. Chairman. In answer to the 
question of what should be done; our Committee did make a 
recommendation about an ATRA program.
    Let me give you numbers as to what other countries are 
doing now. The European Union's Sixth Framework program funds 
telecommunications at about $300 million a year, U.S. Japan's 
National Institute of Information and Communications Technology 
has an almost entirely government funded budget over $500 
million a year. I believe the government has to step in at this 
point, if something is going to be done. The only research that 
is being conducted now in telecommunications, outside of the 
universities is very, very short timeframe research and it's 
being done mainly by the equipment manufacturers. To the best 
of my knowledge, the service providers aren't doing any 
research at all.
    As far as university research in telecommunications, as I 
said, the money has come in the past from NSF and DARPA. NSF 
has a Directorate of Computers and Information Science and 
Engineering (CISE) and it has a reasonable budget.
    But the amount of research that is being funded in 
telecommunications is a very small percentage of the budget of 
that division. If you look at the number of proposals that are 
being funded by NSF, in telecommunications the success rate is 
very low. That means that the vast majority of the proposals 
are not being funded. There may be some poor ones but I can't 
believe it is anywhere near the number of rejected proposals.
    If the U.S. Government does not pick up the slack I don't 
know who else will.
    Dr. Wallsten. That's not my particular area of expertise. 
I'll try not to say too much. But I guess I would want to know 
then what the right share of PhDs should go to Americans if we 
think that the current number is too low. I just don't know. I 
mean, as Dr. Drobot said, it's good that people come here and 
get PhDs. I don't know what the right number is. The fact that 
other countries have government funding of a particular kind of 
research, again by itself, doesn't say that we should. We 
should look at the effectiveness of their programs and I know 
that there are big debates about the effectiveness of 
government funded research aimed at markets because it is so 
hard to figure out what exactly it is you want to measure. 
That's true of our Small Business Integration Research Program, 
the Advanced Technology Program, several similar programs 
around the world and it still remains controversial. I'm not 
going to speak to whether or not we need something like that 
here but we should consider carefully the evidence around the 
world to the effectiveness of their programs. That's all I 
would say.
    Dr. Drobot. Senator Inouye, let me just add one item. We 
actually polled the CTOs of our organizations and the TIA last 
year produced a White Paper that did two things. A, it pointed 
out the areas in which investment should be made. It pointed 
out the institutions that are most likely to handle these 
programs and they included, in fact, DARPA and DOD, NSF, 
National Institute of Standards and DOE as the organizations 
that have the infrastructure to conduct the research.
    Then we also put in a section that looked at how this 
should be governed and the belief that you should put together 
some kind of a national board that has representation from 
industry, academia, and in fact, the Federal Government but 
focused on this particular problem.
    I would say there is one element that is probably 
worthwhile sort of picking up on. You mentioned that in the 
Telecommunications Act the Internet was mentioned twice. A lot 
of what it was about wasn't anticipated. Look at technology and 
sort of the underlying goods from which we build the Internet 
and from which we build telecommunications. I'd put computing 
in there, storage of information, the interfaces that we use, 
the software that binds everything together and the ability to 
transmit stuff at various speeds, whether it's wireless, 
whether it's over fiber. All of those technologies amazingly 
are on exponential curves today. They follow a Moore's Law. 
They double every one to two years in terms of what you can 
expect. As far as we see technically, this will be true for the 
next 10 to 15 years. The roadmaps are there.
    I think what is not appreciated is that as the cost of 
goods come down, the kind of services you can provide are also 
likely to grow exponentially, if there are no barriers to the 
deployment of those services. In economic terms, what's 
happening is that the transaction costs for the services have 
come down very significantly and will continue to do so. So you 
can anticipate even more than the Internet as the next round.
    The Chairman. I wish I could continue this discussion for a 
while longer but I've just been notified there is a vote 
pending. You should realize that we politicians are usually 
much more sensitive to people's needs. For example, in this 
area, under the guidance of Senator Stevens, we developed the 
Universal Service Fund to take care of the folks in the rural 
areas, in the millions. But we have done very little in the 
other areas where we don't have much pressure or activity like 
research. It has to emanate from the government itself, like 
the Defense Department saying, we need more research money.
    Senator Stevens and I are convinced that we have to do 
something about this because if we do business as we've been 
doing it for the past few years, we're not going to get 
anywhere. So if I may, will you share with me your ideas of 
what can be done to fund research? Should it be something with 
a new agency or should it be a group with a board or should we 
just go through the process of providing monies to DARPA and 
providing monies to DOE and such?
    Dr. Drobot. My own feeling is, I think you should have 
something like a board that focuses on this area and spend as 
little of that money building yet another bureaucracy and 
another infrastructure.
    The Chairman. So can you share those thoughts with us? 
We'll be submitting questions for the record.
    And with that, the hearing stands adjourned.
    [Whereupon, at 12:24 p.m., the hearing was adjourned.]

                                  
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