[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                       FULL COMMITTEE HEARING ON 
                    THE RECOVERY ACT AND BROADBAND: 
                  EVALUATION OF BROADBAND INVESTMENTS 
                   ON SMALL BUSINESS AND JOB CREATION 

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            OCTOBER 28, 2009

                               __________

                    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 111-053
Available via the GPO Website: http://www.access.gpo.gov/congress/house

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

52-893 PDF                       WASHINGTON : 2009 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, 
Washington, DC 20402-0001 



















                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                        PARKER GRIFFITH, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  


                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama

                                 (iii)

  


               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
PARKER GRIFFITH, Alabama             Ranking
MELISSA BEAN, Illinois               STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama                MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                 HEATH SHULER, North Carolina, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)

  















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Strickling, Hon. Lawrence E., Assistant Secretary for 
  Communications and Information, National Telecommunications and 
  Information Administration (NTIA), U.S. Department of Commerce.     3
Adelstein, Hon. Jonathan, Administrator, Rural Utilities Service, 
  (RUS), U.S. Department of Agriculture..........................     7
Gleason, Mr. James, President and CEO, NewWave Communications, on 
  behalf of the American Cable Association.......................    21

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    28
Graves, Hon. Sam.................................................    30
Strickling, Hon. Lawrence E., Assistant Secretary for 
  Communications and Information, National Telecommunications and 
  Information Administration (NTIA), U.S. Department of Commerce.    32
Adelstein, Hon. Jonathan, Administrator, Rural Utilities Service, 
  (RUS), U.S. Department of Agriculture..........................    46
Gleason, Mr. James, President and CEO, New wave Communications, 
  on behalf of the American Cable Association....................    60

Statements for the Record:
Clarke, Hon. Yvette..............................................    70
Wilson, Mr. Delbert, Hill Country Telephone Cooperative, Ingram, 
  TX.............................................................    71
Computing Industry Technology Association (CompTIA)..............    76

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                    THE RECOVERY ACT AND BROADBAND:
                  EVALUATION OF BROADBAND INVESTMENTS
                   ON SMALL BUSINESS AND JOB CREATION



                              ----------                              


                      Wednesday, October 28, 2009

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:49 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] presiding.
    Present: Representatives Velazquez, Dahlkemper, Michaud, 
Altmire, Clarke, Bright, Halvorson, Graves, Bartlet, 
Luetkemeyer, and Thompson.
    Chairwoman Velazquez. This hearing is now called to order. 
The American Recovery and Reinvestment Act was a blueprint for 
renewed job growth. As part of a larger effort to put Americans 
back to work, that legislation included important investments 
in broadband deployment. And in fact, every $10 billion in 
broadband investment creates or saves 498,000 jobs annually. Of 
those positions, more than half are supported by firms with 
fewer than 500 employees. In other words, this is an 
opportunity for small businesses to really shine. And with 
efforts to expand the technology now underway, small firms are 
already vying for that chance.
    By next month, the first round of broadband awards will 
have been announced, and because telecom giants like Verizon 
and Comcast decided not to compete, small firms should win a 
sizeable chunk of available grants and loans. In fact, NTIA and 
RUS are required to give special considerations to 
disadvantaged small firms.
    But, unfortunately, that process has been less than 
seamless. Many small businesses have complained of challenges 
ranging from excessive paperwork to restrictive capital 
requirements.
    In today's hearing we are going to discuss those obstacles. 
We will also look for ways to ensure small firms can enjoy the 
benefits of broadband deployment both as the beneficiaries of 
an enhanced IT infrastructure and as its engineers.
    Expanded access to broadband presents an enormous 
opportunity. Since the mid-1990s, the Internet has played a key 
role in our economy. With a high-speed Internet connection, any 
entrepreneur, regardless of location, can tap that growing 
marketplace.
    While overall growth in broadband has been steep, progress 
has varied by region. Today, only 46 percent of rural 
households use technology, compared to 67 percent in nonrural 
areas. Many low-income urban communities have also fallen 
behind. Given the role that the Internet plays in our economy, 
this disparity marks more than a simple digital divide. It 
means missed opportunities for small businesses. New 
investments in broadband can help recapture those 
opportunities, but so far, efforts are off to a rough start.
    There are a number of challenges working against 
entrepreneurs. For example, an overly complex application 
process, one that requires nearly 200 pages of paperwork. More 
often than not, small businesses cannot afford in-house 
lawyers, accountants, or support staff. A streamlined 
application process will mean less red tape and more 
productivity and is worth considering.
    For small firms struggling to access capital, a decreased 
matching requirement could also go a long way. Asking small 
businesses to match 20 percent of total project costs is a tall 
order, especially at a time when capital is increasingly hard 
to come by. Nine times out of ten, small businesses offer the 
best value for the taxpayer dollars. Our policies should 
reflect that fact. But when it comes to broadband projects, it 
seems we are not there yet.
    Small firms deserve a level playing field. I know that both 
RUS and NTIA are committed to creating a more efficient 
process, and look forward to working with both agencies in the 
coming weeks and months.
    Technology is often called the great equalizer of the 
business world. If done properly, increasing access to 
broadband will allow small firms to compete with big companies. 
It would also create new opportunities for small businesses, 
all while connecting our country with the fastest means of 
communication. We have come a long way since the days of 
dialogue. New investments in broadband can take that progress 
one step further and allow America's small businesses to help 
rebuild our economy.
    I would like to thank the witnesses in advance for their 
testimony. I know this is an exceptionally busy time for them, 
and I am grateful that they could be here to discuss this 
important issue.
    [The information is included in the appendix.]
    Chairwoman Velazquez. With that, I will yield to the 
Ranking Member for his opening statement.
    Mr. Graves. Thanks, Madam Chair. And good morning, 
everyone, and thank you for participating in today's Committee 
hearing reviewing the broadband provisions in the stimulus 
package. And thank you, Madam Chair, for holding this timely 
hearing.
    It is no secret that I voted against the American Recovery 
and Reinvestment Act, or the stimulus bill. I felt that the 
amount of spending contained in the measure was unprecedented 
and, I believe, fiscally irresponsible. However, that vote has 
come and gone, and I think we need to move forward to ensure 
that the $787 billion worth of taxpayers' dollars is used 
wisely and not abused.
    The stimulus bill provided $7.2 billion primarily for 
broadband grant and loan programs to expand broadband access to 
those who do not have it, a very worthy goal and one with 
significant economic consequences. The advantages of broadband 
service in communities both urban and rural are substantial. 
Access to these services puts information at the fingertips of 
our students. Job seekers can search and apply for job 
opportunities at many of today's leading businesses. Small 
businesses can improve market access and compete with larger 
counterparts on a more level playing field. Health information 
technology can help doctors share patient information that 
leads to quicker diagnosis. Consumers can shop better, smarter, 
and more efficiently, and the economic opportunities are 
absolutely endless.
    However, the lack of sufficient access and speeds has put a 
growing number of people at a disadvantage. Students can't 
access the level of information as their connected peers. Job 
searches are more difficult. Communities are unable to attract 
new investment. And opportunities for small businesses are 
limited.
    The advantages of broadband service are clear. Now we must 
review the various programs that are designed to bring 
broadband to everyone, and ensure that dollars are being spent 
efficiently, effectively, and without abuse. If an application 
is too complicated or costly to complete, then we need to 
reinvent or reevaluate the process. If definitions are defined 
by government officials, if they are having unintended 
consequences, then they should be revised. Bureaucratic red 
tape should not be prohibiting businesses from providing high-
speed broadband service to everyone. Moreover, the government 
should not be subsidizing areas with adequate broadband 
coverage. It is important to make sure that steps are being 
taken to prevent government-subsidized competition.
    As the first round of broadband funding concludes, it is 
imperative that the government make changes to address these 
concerns and ensure that future rounds operate in a way that 
improves the economy, helps small businesses and providers, and 
expands broadband coverage to everyone.
    We have a distinguished panel of witnesses here today, and 
I look forward to hearing all their thoughts on the broadband 
issue and programs, including the stimulus bill and how they 
have been working again.
    Thank you, Madam Chair, for coming. Thank you to the 
witnesses for coming in today, too.
    Chairwoman Velazquez. Thank you.
    [The statement of Mr. Graves is included in the appendix.]
    Chairwoman Velazquez. And it is my pleasure to welcome the 
Honorable Lawrence E. Strickling. He is the Assistant Secretary 
for Communications and Information at the Department of 
Commerce. Mr. Strickling serves as Administrator of the 
National Telecommunications and Information Administration, the 
agency with responsibility for advising the President on 
communications and information policies. Mr. Strickling was 
confirmed on June 25 of this year, and has more than two 
decades of experience in technology policy. Welcome, sir.

              STATEMENT OF LAWRENCE E. STRICKLING

    Mr. Strickling. Thank you, Madam Chair, and Ranking Member 
Graves and members of the Committee. Thank you for your 
invitation to testify on behalf of the NTIA on the 
implementation of the broadband initiative set out in the 
Recovery Act. I welcome the opportunity to testify this 
morning, and I bring you the message that these broadband 
initiatives have the potential to have a profoundly positive 
impact on the growth and development of small businesses.
    I am very pleased to appear here today with Jonathan 
Adelstein, who oversees the Broadband Initiatives Program at 
the U.S. Department of Agriculture. Our two agencies have 
worked hand in hand to implement the broadband provisions of 
the Recovery Act, and the result has been a highly coordinated 
and well thought-out approach that has taken advantage of the 
individual expertise of each agency.
    The President's innovation plan announced in September 
makes clear that the foundation for durable, sustainable 
economic growth must be innovation and investment. The Recovery 
Act, by providing over $7 billion for broadband grants and 
loans, directly supports building that foundation. With these 
funds, I am confident that America will take a significant step 
forward in achieving President Obama's vision of bringing the 
benefits of broadband to all Americans.
    Small businesses are the backbone of the American economy, 
and broadband connectivity is essential for small business. 
They stand to gain significantly from the broadband stimulus in 
the Recovery Act either by applying for funds directly or by 
benefiting from the improved infrastructure that will result 
from projects built in their communities.
    The economic impact of broadband access is real and 
measurable. Studies by experts at MIT and Carnegie-Mellon have 
demonstrated how communities with broadband see more rapid 
growth in employment, more rapid growth in business activity, 
relative to comparable communities without broadband. With 
access to modern infrastructure, small businesses can reach 
consumers worldwide in a manner they could have only dreamed of 
years ago, and they can now cost effectively compete against 
the largest corporations if they have a product the world 
wants. And these benefits reach small business wherever they 
are located, including rural areas.
    A recent report from the Department of Agriculture 
concluded that rural communities with high-speed broadband 
facilities experienced greater economic growth, specifically 
job growth and higher revenues, than their counterparts that 
lack the infrastructure.
    There are a myriad of other benefits to small businesses 
and communities from increased broadband availability. For 
example, the increased use of telehealth assists rural 
hospitals and remote health care systems in improving their 
capacity for treating patients. Telehealth can help cut health 
care costs for all firms, but especially for small businesses 
which consistently cite the rising cost of health care as a 
major concern.
    Our agencies have received an extraordinary response to our 
initial round of funding, and we look forward to the challenge 
of rewarding grants to a diverse set of recipients.
    Between our two agencies, we received over 2,200 
applications requesting nearly $28 billion in funding, seven 
times the funding we had made available in the first round. At 
least one application was filed for each State, territory, and 
the District of Columbia.
    The applicant pool is diverse, includes States, tribal 
nations, local governments, nonprofit organizations, telephone, 
cable, and wireless companies, and anchor institutions such as 
libraries, schools, and hospitals. We are particularly pleased 
to see strong participation from the small business community 
in the first round, particularly socially and economic 
disadvantaged businesses.
    Out of the total pool of applications submitted to us, 
around 15 percent were made by socially disadvantaged 
businesses or from applicants who were partnering with SDBs. 
These applications account for just under $2 billion of the 
total $28 billion requested in the first round.
    This occurred because we made special efforts to encourage 
SDBs to apply to our programs. During our educational campaign 
last summer to informed interested parties about the grant 
program, we conducted three workshops that focused exclusively 
on providing guidance to small businesses, including small and 
economically disadvantaged businesses, as to how they could 
apply for grants. The Minority Development Business Agency and 
the Department of Commerce also helped publicize the 
opportunities of the grant programs to minority firms.
    Overall, I believe the significant number of applications 
filed by SDBs demonstrates the success of our outreach campaign 
to this business community, and we look forward to 
strengthening the program in our next funding round.
    We are currently in the midst of reviewing our 
applications, and as I noted yesterday at the Senate Commerce 
Committee oversight hearing, we are now targeting mid-December 
for the announcement of the first grant awards.
    But even in the middle of all this activity to review the 
current applications, we are constantly thinking about ways to 
improve the program. We are working with the Department of 
Agriculture to finalize a request for information to collect 
input from the public as to how to improve the program in the 
second round. In this RFI, we will ask for suggestions as to 
how we can streamline the application process and for comments 
on some of the key program definitions.
    As has been previously reported, RUS and NTIA are 
evaluating whether to combine the original rounds 2 and 3 into 
a single funding round. If we do so, we would expect to 
initiate the new application round after the first of the year. 
The key for us in setting that start date will be to make sure 
that we are able to apply the lessons learned from the first 
round in designing the second funding round. But, as required 
by the Recovery Act, we will award all of the broadband 
stimulus dollars by September 30, 2010.
    In my remaining time I would like to spend just a minute on 
our progress in developing the national broadband map. Under 
our State Broadband Development Data and Development Grant 
Program, for which Congress appropriated $350 million, our plan 
is to award a broadband mapping grant to every State and 
territory for the purpose of collecting and verifying broadband 
data in accordance with the standards we have set. We have now 
awarded eight grants totaling over $14 million under this 
program to Indiana, North Carolina, West Virginia, Arkansas, 
Vermont, as well as California, New York, and the District of 
Columbia. In addition, we are in the final stages of awarding 
additional grants next week, and we will continue to announce 
these awards on a rolling basis. Our statutory deadline to 
publish a comprehensive interactive national broadband map is 
February 2011.
    In closing, we are working extremely hard to ensure that 
the broadband projects funded by the Recovery Act and the 
broadband mapping information developed from our Mapping Grant 
Program serve as valuable inputs to the Nation's long-term 
broadband strategy.
    Thank you again for the opportunity to testify, and I look 
forward to your questions.
    Chairwoman Velazquez. Thank you, Honorable Strickling.
    [The statement of Mr. Strickling is included in the 
appendix.]
    Chairwoman Velazquez. Our next witness is the Honorable 
Jonathan Adelstein, the Administrator of the Rural Utilities 
Service in the U.S. Department of Agriculture. The Rural 
Utilities Service is charged with enhancing public utilities to 
rural areas in the United States via public-private 
partnerships. Prior to his appointment, Mr. Adelstein served as 
the Commissioner of the Federal Communications Commission from 
2002 to 2009. Welcome, sir.

              STATEMENT OF HON. JONATHAN ADELSTEIN

    Mr. Adelstein. Thank you, Madam Chairwoman, Ranking Member 
Graves, and members of the Committee. We are certainly 
appreciative of the opportunity to testify here today, and it 
is a special honor to appear with my good friend, Assistant 
Secretary Larry Strickling, who has done such an outstanding 
job of leading the NTIA. And it is a real tribute to his 
leadership and our good working relationship that we have 
worked so seamlessly together, as he noted, in making sure 
these programs are coordinated from top to bottom.
    RUS has a long and highly successful experience since its 
beginnings as the Rural Electrification Administration back in 
1935 in deployment of electric, telephone, and water service to 
rural areas. I think it is especially fitting that we are 
having this hearing here today, because today, actually this 
very day, marks the 60th anniversary of the telecommunications 
programs at RUS.
    We first began the telephone program trying to serve areas 
of the country. One third of the country of people in rural 
areas did not have a phone in 1949. And thanks to the RUS' 
programs, today it is virtually universal.
    We are now applying this expertise that we developed 
beginning 60 years ago to this newer technology, to broadband. 
And, as indicated by the major resources that Congress provided 
in the Recovery Act, improved access to affordable broadband is 
a high priority for the Obama administration and Congress, and 
I know it is for this Committee as well. It is certainly 
critical for the small business community, as you noted. 
Broadband levels the playing field, gives rural businesses 
access to national and international markets, enables very 
small and home-based businesses to succeed. It is one of the 
key foundations of the 21st century economy that rural 
businesses need to survive and remain competitive.
    We have done extensive outreach to small businesses, 
Assistant Secretary Strickling has noted. We have to put the 
benefits to small businesses front and center, as you are doing 
here through this hearing today. This summer, the USDA's own 
Economic Research Service examined the economic effects of 
having broadband in rural communities. This report concluded 
that employment growth was higher and nonfarm private earnings 
greater in counties with a longer history of broadband 
availability. Benefits include access to online course 
offerings, telemedicine, telehealth services living in those 
remote areas. Agricultural producers and farm-based businesses 
are also more reliant on Internet access to conduct sales 
transactions, advertise their businesses, and monitor real-time 
changes in commodities markets, and tracking global crop 
prices.
    It is clear that broadband access is a necessary component 
for sustainable growth in rural communities. Small businesses 
are the engine of economic growth, and they just can't make it 
without broadband today in rural America. So we need to make 
sure that small businesses in rural America have every bit as 
much access to broadband as those in any other parts of the 
country if our overall economy is to survive and to thrive and 
our growth is to be maximized.
    This isn't just an issue for rural areas. The success of 
rural small business is an issue of concern to our overall 
economy. We are seeing jobs outsourced overseas at a time when 
they should be insourced to rural parts of the United States. 
That can't happen if they have broadband in Korea, but they 
don't have it in rural Alabama. We have to make sure that we do 
that. And the RUS I think is in a position to help.
    Since 1959 we have required that all new telecommunications 
capacity that we finance be broadband capable. Our Community 
Connect and Distance Learning and Telemedicine programs are 
examples of highly successful and oversubscribed programs that 
are key in the ability of rural areas to attract and retain 
small business.
    The USDA broadband loan program, which was created in the 
2002 farm bill, has provided over $1.1 billion to more than 90 
broadband projects in rural communities spanning 42 States; 36 
percent of those loans have gone to startup companies, many of 
which, of course, are small businesses. So we know how to work 
with small business. We like to do it. We like to work with 
startups. And on top of that, we have provided $4.4 billion in 
loans since 2001 to our regular program for broadband-capable 
infrastructure.
    Now, the Recovery Act marks a huge new chapter for us in 
this effort. Since its enactment, we have worked side by side 
with our partners at NTIA, the White House, the FCC, and 
throughout the administration to fulfill the President's vision 
of promoting broadband access to every part of the United 
States, and the collaboration we have seen has really been 
unprecedented.
    So the RUS and NTIA are now engaged in our respective 
reviews of applications for over $28 billion in funding 
requests, and we are using the 75 years' experience that we 
have in lending to rural America.
    We have less than a 1 percent default rate for our 
telecommunications portfolio. So I think you had a hearing last 
week on capital, formation of capital availability, and we 
are--at a time when most lenders are reluctant to extend loans, 
we are looking at doubling our entire loan portfolio in 1 year 
with these Recovery Act funds.
    We are a rural development bank and we are open for 
business. We want to provide those loans to these small 
businesses, and we are going to use the $2.5 billion in funding 
that Congress provided to leverage them to use our budget 
authority to provide loans, grants, and loan-grant combinations 
to prospective applications. We will stretch those $2.5 billion 
significantly to facilitate the deployment of broadband 
technology as far and wide as we can.
    We are now in the process of evaluating first-round 
applications and expect to begin issuing awards shortly. Our 
initial plan might have moved back by a few weeks, but we still 
hope to make announcements within a month of when we originally 
planned.
    Well over half of the investment we have is planned for the 
second round. So the concerns that you raised today and the 
changes we make can be applied in future rounds of funding. I 
think we should continue to plan to combine or plan for second 
or third rounds into a single round in order to give applicants 
additional time to create strong proposals and to ensure that 
we are able to meet the goal of obligating all funds by 
September 2010. And we certainly do need to streamline the 
process, as you indicated.
    We want to make this as easy for small business as we 
possibly can, and we understand some of the challenges that 
they face in the application process. So we will put forward an 
announcement soon about how we are going to move forward on 
these rounds. And we will certainly take to heart what we 
learned in the first round, some of the problems that small 
business have experienced. We want to listen to the concerns 
that have been raised. We are very aware of concerns that have 
been raised about a wide range of issues, not only the 
application process, but things like the definition of rural 
and remote areas, eligibility standards for unserved and 
underserved areas, scoring weights for various factors, and 
some concerns raised by satellite companies as well.
    Without speculating on specific changes we might make, we 
will certainly be guided by an evaluation of our experience in 
the first round and prepared to make changes accordingly. So we 
certainly welcome your input from this Committee on how we can 
best move forward and apply the lessons learned in round one 
toward the work ahead of us in the next round, which we 
anticipate in the coming months.
    Toward that end, the RUS and NTIA, as Assistant Secretary 
Strickling indicated, plan to seek formal written comments on 
ways to better meet the requirements of the Recovery Act very 
soon. We will release a request for information shortly to 
gather that information, and certainly welcome the Committee's 
input on that.
    We will continue to assure that implementation of the 
broadband initiatives are a collaborative and coordinated 
effort with our partners at NTIA and throughout the 
administration. It is certainly an honor and a privilege to 
work with you on behalf of the 65 million Americans who live in 
rural America. We look forward to continue to work closely with 
Congress in making affordable broadband service widely 
available throughout the country.
    Thank you again for the opportunity to testify, and we 
would be happy to answer any questions you may have.
    Chairwoman Velazquez. Thank you.
    [The statement of Mr. Adelstein is included in the 
appendix.]
    Chairwoman Velazquez. In the first application period, you 
each took different approaches to evaluating applications by 
small businesses. Can you discuss that process and what steps 
are being taken to maximize participation by small firms?
    Mr. Strickling. I will start for NTIA. In our application 
process, we made it clear that applications brought by the 
SDBs, the socially disadvantaged businesses, would receive 
extra consideration. This appears in two parts of our 
evaluation. We have four areas in which we review applications, 
and in two of the areas, purpose and viability, the reviewers 
evaluating these applications are directed to give extra 
consideration in terms of extra scoring for projects where the 
applicant is an SDB or where the applicant has partnered with 
an SDB. Those two categories account for over 50 percent of the 
total score of an application. So depending on how the reviewer 
evaluates the application, they can give substantial weight to 
that. In fact, in one of the categories they cannot even give a 
perfect score unless an SDB is actually part of the 
application.
    Chairwoman Velazquez. Mr. Adelstein.
    Mr. Adelstein. We also provided advantage for small 
disadvantaged businesses in our application process. We did 
extensive outreach, along with the NTIA, throughout the 
country, particularly trying to reach out to small businesses. 
One of the problems we have had, of course, you talked about 
the application process being unwieldy. We did agree to have a 
two-step process so that rather than having to provide all the 
information in the first round, there would be a two-step 
application process where the applicant would give initial 
information and we would ask certain applicants that were to 
advance into the process for additional information so that a 
small business would not be burdened with the entire need to 
provide all the detailed financial information in the first 
round but, rather, we would give them a two-round process.
    And also during the application process we found some 
issues in the system that were making it difficult for 
businesses to get their applications in. We tried to respond to 
that by providing an extra week to respond, allowing applicants 
who were having issues to get us their applications through 
different media if it wasn't working through our online intake 
system.
    Chairwoman Velazquez. You provided stats on a number of 
firms applying. Do you have any preliminary estimates of how 
much money will actually go to small firms?
    Mr. Adelstein. We don't know yet. We are still in the 
middle of the application process, and it is very difficult to 
predict who is going to end up with the awards. We know how 
many we got in, but we don't necessarily know yet how many will 
go out to small businesses.
    Mr. Strickling. That is true for us as well.
    Chairwoman Velazquez. Mr. Strickling, the requirement that 
BTOP applicants provide matching funds of 20 percent could 
prove a major obstacle for small businesses, and especially 
now, given the economic climate and the fact that they are 
having so much trouble in accessing affordable capital. Given 
that the NTIA has the authority to grant waivers, how is your 
agency working to reduce this challenge for small companies?
    Mr. Strickling. Well, you are correct that in the first 
instance we do have the waiver authority where an applicant can 
make a compelling case that they were unable to provide the 
full match. We can take that into consideration. We have not 
yet brought forward any of those requests for decision yet, and 
will only do so as projects go through the due diligence 
process.
    The other thing that I guess I would urge consideration of 
is the fact that one of the big benefits of this program, even 
in communities that don't actually receive funding from us, is 
the discussions that this program has generated all across the 
country. And we are getting groups together who haven't been 
talking to each other in the past, to talk about how can our 
community be served by the broadband grant program, and 
organizing themselves in partnerships and consortia in terms of 
putting applications together.
    So even if an individual small business might find the 
application process challenging, might have concerns about 
finding the matching dollars on its own, we are seeing case 
after case of groups of entities forming together, banding 
together to bring an application to us. We think that that is a 
very important and interesting development that the act has 
caused, without spending a single dollar, and we hope to see 
that sort of organizational activity continue on across the 
Nation as a way for people to kind of bring their demand, 
aggregate their demand together into a project that maybe we 
will be able to fund. But even if we are not, it becomes 
perhaps a more attractive project for private industry to fund.
    Chairwoman Velazquez. Thank you. You are supposed to 
announce grant and loan awards by November 7. Are you on 
schedule to meet this target?
    Mr. Adelstein. We said no sooner than November 7. But we 
are really looking like it is more likely to be in December 
possibly. We may be able to get some out in November, not 
clear; but given the complexity and overwhelming demand for the 
program, it appears that that is slipping by at least a few 
weeks.
    Chairwoman Velazquez. So what type of updates have you 
given to the applicants regarding their pending applications.
    Mr. Adelstein. Well, we are still evaluating most of the 
applications. We have sent some forward to due diligence and we 
have asked for that second round of information from a handful 
of applicants and we are considering asking for more of that 
information in the very near future. So we generally have not 
given them a lot of updates. We are still going through and 
processing this applications.
    Chairwoman Velazquez. Some small service providers, Mr. 
Adelstein, have been critical of the requirement giving the RUS 
an exclusive first lien on projects receiving Federal money. 
Many small firms have suggested that this was a detractor to 
even applying. Is anything being done to mitigate this 
challenge for small applicants?
    Mr. Adelstein. Yes. We are looking at different legal 
opportunities for them. I actually spoke before the hearing 
with the representative who will testify this afternoon for the 
American Cable Association, who indicated for them it was a 
major hurdle, and we understand that.
    Obviously we have a very long history in doing loans, that 
we tend to put a very strong first lien on the assets of the 
company in order to secure the position of the United States so 
that we can ensure that our position is protected. That is 
critical for a number of reasons, not only to protect the 
taxpayers but also to protect the program so that, going 
forward, we can continue to have that 1 percent default rate I 
talked about. And to the extent we do get defaults, there is 
either a small or minimized loss to the United States.
    That being said, I understand that for small businesses 
they have a hard time because they may have financing out from 
a private bank or financier, and we come in and say we need to 
have the first lien. And that can create a conflict with their 
existing--
    Chairwoman Velazquez. Violating the terms of those loans 
that have been granted to them.
    Mr. Adelstein. Exactly. So that requires a renegotiation 
with their existing financier or some fear about applying in 
the first place. Normally what we do in this situation is do an 
individualized custom mortgage and work with the other lenders 
to come up with an arrangement and accommodation. In the case 
of this program, our concern is that because of the size and 
the scope and the number of applications that are coming 
through in short order, that it is more difficult for us to do 
a custom mortgage for each one of the applicants, which makes 
it tougher basically to accommodate these concerns.
    Chairwoman Velazquez. So how can you mitigate that?
    Mr. Adelstein. Our plan to mitigate--good question--is to 
think about are there some different options for mortgages that 
we can provide. We provided a model on our application portal 
so people can see what it would look like to have the first 
lien, which is a fairly strong one. I think might have scared 
away some applicants and understandably so.
    Now we are looking at coming up with maybe a variety of 
them. Rather than having custom ones for each applicant that 
comes in, maybe a small number, a limited number of different 
options that they could choose from, some of which may 
accommodate their existing financial arrangements.
    Chairwoman Velazquez. This is a very important issue for 
small companies, and I hope that you can get a way to mitigate 
such a requirement.
    Mr. Adelstein. Thank you. We will try to do that.
    Chairwoman Velazquez. Mr. Graves.
    Mr. Graves. I appreciate it. I have a couple questions. The 
first one is what steps are your agencies going to take--and I 
kind of talked about this in my opening statement--but what 
steps are your agencies going to take to ensure that stimulus 
dollars are not used to duplicate or build existing 
infrastructure? Can you be the backstop to make sure that we 
are not going to be spending money going into areas that are 
already adequately served? And that is a pretty important 
question.
    Mr. Strickling. I will take the first response on that.
    For infrastructure projects, we will not award dollars 
unless the funds are going to a proposed service area that 
meets our definition of unserved or underserved. So in either 
situation, those would be areas that by definition are not 
being adequately served by existing providers. So I think we 
meet your concern.
    Mr. Graves. What is that definition, just out of curiosity?
    Mr. Strickling. "Unserved" would be that 90 percent of the 
people living in the proposed service area do not have access 
to broadband service. For "underserved," it is a three-part 
test--any part of which can be satisfied--to satisfy the 
definition, which would be that 50 percent or more of the 
residents do not subscribe--do not have it available, that 40 
percent or more do not actually subscribe, or that there is not 
already an existing provider who advertises a service at three 
megabits per second or faster. If any of those conditions are 
met, then the area is deemed underserved for purposes of 
infrastructure projects.
    Mr. Adelstein. We use the same definition of unserved. We 
have, as he said, a coordinated program. So the same definition 
of underserved and unserved. And we really try to target those 
most remote areas of the country that have no service at all.
    We are going to continue to figure out ways to even approve 
that process and target the funds towards unserved areas. It is 
really the mission of the USDA to get service to people who 
don't have any at all. There are other important areas that are 
underserved that we are permitted and encouraged by the statute 
to serve as well. But I think we need to try to target our 
areas on the most remote areas. In fact, we have come under 
some criticism for going to too remote of an area, and we are 
thinking about ways that we can adjust that. But we do want to 
focus on unserved areas.
    Mr. Graves. That is extremely important. If anything, we 
want to make sure that those areas that don't have any access 
at all are going to get it. In the future, at least with future 
funding rounds, are you all taking steps or trying to figure 
out ways to make this process easier or less costly?
    Mr. Strickling. Absolutely. And as we both indicated in our 
statements, we will be going out to the public very soon to get 
their input as to what changes they would like to see, and so 
that we are in a position to consider and accommodate as many 
of those concerns as we can for the second round.
    Mr. Graves. Okay.
    Chairwoman Velazquez. Would the gentleman yield?
    Mr. Graves. Absolutely.
    Chairwoman Velazquez. So you mentioned before, the second 
round will start at the beginning of the year?
    Mr. Strickling. We don't have a firm date set, but today I 
would say I would expect it would start sometime in January.
    Chairwoman Velazquez. November is almost here. You will be 
listening to small businesses. This is a session that you are 
going to be conducting with those who applied for this, and 
then coming up with the recommendations or making the 
adjustment or the changes?
    Mr. Strickling. The RFI process is a paper process where 
people would submit written comments. We are still evaluating 
what other outreach we might conduct during that period. 
Certainly once our rules are issued to kick off the second 
round, just as we did for the first round, we will go around 
the country and conduct workshops, just as we did the last 
time, including some focused exclusively on small business and 
socially disadvantaged businesses to help them work their way 
through the application process and explain ways that they can 
get through the system.
    Chairwoman Velazquez. Thank you.
    Mr. Graves. I have got a letter I am putting together now 
with many suggestions, particularly for rural areas, which I am 
going to make available to all the members of the Committee if 
they want to sign on. But we will be sending that over right 
away with our suggestions.
    Chairwoman Velazquez. Ms. Dahlkemper.
    Mrs. Dahlkemper. Thank you, Madam Chair. And I thank the 
distinguished witnesses here for coming forward to this 
Committee, this very important topic.
    In July, Vice President Biden, Secretary Vilsack, Secretary 
Locke, and other top administrative officials actually traveled 
to Erie County in my district to highlight the role of the 
Recovery Act broadband programs. As I noted then, broadband 
access is critical to rural business competitiveness.
    Mr. Adelstein, can you highlight how some of the proposed 
projects you have seen address rural competitiveness issues 
particularly in the areas of education and health care?
    Mr. Adelstein. We have seen a lot of that. Your district is 
where this whole thing kicked off and my boss, Secretary 
Vilsack, came out there and was thrilled to see the 
possibilities for Erie.
    We have been involved in a number of projects in the past, 
community connect projects that for what we call our distance 
learning--telemedicine program, and our community connect 
program--that fund educational and health care services that 
are really critical for sustainable growth in rural areas, and 
many people want to live there.
    We have seen great success in allowing remote clinics, for 
example, to be able to get access to specialty hospitals that 
have the expertise that can deal with emergency issues that 
come up in rural areas that otherwise they wouldn't have 
available that kind of expertise in a rural clinic and they may 
not have time to get to the urban area. But because of the 
beauty of telemedicine, they can do that.
    But you can't send these large data, radiographical 
information and instant communication with the specialty 
hospitals, to do the diagnostics they need to unless you have 
broadband. So for health care I think it is critical.
    I was in Alaska up in Kotzebue one time, and if you are out 
in the bush outside of Kotzebue, these villagers that can take 
60 miles by dogsled is the only way to get to Kotzebue, just to 
even that health clinic. So we don't have broadband out there, 
and they are using satellite now which has got issues in that 
particular community. They don't have the ability to get the 
health care they need.
    So for education, for health care, I think you are exactly 
right that these are critical applications for small rural 
businesses and small rural areas.
    Mrs. Dahlkemper. I have a question regarding the actual 
process of determination of who actually receives these grants. 
I had one of the applicants come into my office actually this 
week, and they have come through highly recommended, but were 
not recommended by the State. How much is the State's 
recommendation going to play in this? Because part of the 
question was, because the State is also applying for their own 
projects, you know, is there some waiting going on there within 
the State to try to make sure that their own projects are 
getting funded, and then recommending who gets funded and who 
does not? So I guess I am asking the question, you know, is 
there a fairness in this, and how much is at stake?
    Mr. Strickling. This is really unique to our program at the 
Department of Commerce. We did give each State an opportunity 
to provide input to us on the applicant pool. What we were 
primarily focused on was getting information from them in terms 
of what they would identify as the areas geographically that 
they viewed as priority areas for our project dollars.
    You are correct that in some cases States have applied 
directly themselves for grants. The statute, however, gives 
States the ability to provide this input to us. I think the 
conflict is out in the open for everyone to see. When we get 
these letters back, they are just another piece of input for 
our process. They are not determinative of anything.
    For an application to pass into due diligence, it is 
reviewed by three independent reviewers and it has to pass a 
threshold score from those reviewers to be passed into due 
diligence. The State cannot recommend a project and have it 
come into due diligence if it doesn't otherwise merit that 
evaluation from our independent reviews.
    Mrs. Dahlkemper. So there were two projects, though, that 
were equal, and the State recommendations probably would have 
some weight in that?
    Mr. Strickling. It is another factor that we would look at, 
along with a host of other issues.
    Mrs. Dahlkemper. But I should be able to tell this 
applicant that they are not out of the picture because the 
State did not put them on the list?
    Mr. Strickling. That is correct.
    Mrs. Dahlkemper. I appreciate that.
    Mr. Adelstein, in testimony delivered earlier this year. 
NTIA's Mark Seifert encouraged applicants that involved 
partnerships amongst small businesses and municipalities and 
others join together to promote broadband. In my own community, 
I have got these two applications who have joined together. 
What steps are being taken to encourage this partnership across 
the country and as we go into further application process?
    Mr. Adelstein. It is great you raise that issue, because it 
is something we are thinking a lot about at USDA. Our 
Secretary, Secretary Vilsack, is very interested in regional 
economic development. Being any regions that are banding 
together to try to work towards the development of that area 
tend to be more successful historically than those that are 
operating on their own.
    So we are, in the RFI that we are going to put out, 
planning to ask questions about how can we encourage exactly 
those efforts? How can we look to regional planning that 
includes an element that would support broadband? How would 
broadband fit into that regional economic development plan to 
encourage these communities to work together towards a 
comprehensive solution? It is not enough to get broadband into 
the community. We want them to have a broader economic 
development plan.
    Mrs. Dahlkemper. So do they get a higher score if this is 
included? I have seen great things happen in my own district 
where they are coming together, county governments, small 
businesses, other economic development engines.
    Mr. Adelstein. That is sort of the options that we have for 
the next round. That is sort of the questions we are going to 
ask in this request for information: Should we award higher 
points to those that have regional development plans that 
include a broadband element? I think it is a good suggestion.
    Mrs. Dahlkemper. My time has expired. Thank you.
    Chairwoman Velazquez. Mr. Thompson.
    Mr. Thompson. Thank you, Madam Chairwoman. And thank you to 
those who are testifying today. I really appreciate it.
    As I travel throughout my district, which is the 
Pennsylvania Fifth, it is larger than eight States so it meets, 
I think, a fair amount of those definitions of remote or 
underserved or unserved in terms of broadband technology. The 
importance and the need for access to rural broadband is just 
really illustrated time and time again as I spend time 
throughout that district. Business and economic development, 
jobs, is a result of that, education and health care. And 
certainly within the Pennsylvania Fifth there are many, many 
communities and counties that are unserved or underserved with 
broadband technology. Communities like Renovo, Pennsylvania and 
Western Clinton County, where the small businesses, the school, 
the rural hospital, frankly, are very hopeful that this 
investment may at some point finally bring access to the 
broadband that they need, because it hasn't--broadband has not 
been successful by conventional means for that area.
    I wanted to follow up on Mrs. Dahlkemper's question, being 
a fellow Pennsylvanians, and in terms of--Mr. Strickling, what 
guidance of criterion were provided to the States such as 
Pennsylvania, ensuring that the projects that they recommended 
met the definition of unserved or underserved? Were there 
criterion or guidance provided, or this is just the wish lists 
that come from the States?
    Mr. Strickling. The States were given an opportunity to 
provide whatever input they wanted to us. We are not relying on 
them to tell us what is an underserved or unserved area. We 
wanted them to tell us what they view as a priority area for 
projects.
    Mr. Thompson. Priority based on?
    Mr. Strickling. Largely based on the absence of the service 
being in the community today. But we will make the judgment 
whether any particular application satisfies our test for 
unserved or underserved. We absolutely invited States to 
provide data that they might have to help us answer that 
question. But they won't make that decision. We will.
    Mr. Thompson. Thank you. I understand there are about 2,200 
applications. Can you explain the process for reviewing those 
applications seeking Federal funds and your use of volunteers 
to helping the processes?
    Mr. Strickling. Sure. As I said yesterday, I prefer to call 
them independent experts, but in fact they are doing this at no 
cost to the Federal Government. I like to say they are doing 
their patriotic duty to help us. And the pool is an impressive 
pool. We have folks who are volunteering their time, who have 
served as senior executives in telecommunications companies, 
people who have built these kinds of projects before but maybe 
they are retired and they just want to give back to the 
community. We have in one case the former chair of a State 
public utility commission who has dealt with these issues for 
years and years.
    So they are highly qualified people. Our pool of experts is 
over a thousand. Each of them was vetted for expertise. We 
reviewed their resumes and we also reviewed whether or not they 
might have a conflict of interest because they had worked on an 
application that had been filed or they worked for a company 
that either filed an application or might be competing with 
somebody who filed an application. So we eliminated about 300 
people from the pool for conflicts or for lack of 
qualifications.
    So the process is that each application is reviewed by a 
panel of three of these experts, and they each individually 
provide us a score based on criteria that we provide them in a 
fairly voluminous manual to guide them through the process.
    All that is a screening, though. All that does is those 
scores come back, and those applications who have an average 
score above a certain threshold are then moved into due 
diligence. At that point, my staff, the professional staff, 
supported by experts from our contractor, Booz Allen, do a 
complete top-to-bottom scrub of the application and really look 
very carefully at do these people have the management 
capability to build a project? Does the budget make sense? Is 
this project sustainable? Meaning, will it still be operating 5 
years from now when there is no Federal money to support it. 
Are the benefits that are claimed really real benefits that we 
can expect? So we do all that evaluation ourselves on the top 
applications, and then we will select from that pool based on 
the review that we do.
    So the first part of this is really just an initial screen 
to find the best applications in the pool. As I have said 
repeatedly, and I tell my staff every day, don't worry. We are 
going to have good applications that don't get funded because 
we were oversubscribed by seven times.
    What we need to do, though, is to make sure that every 
application we do fund is a good application and is one that 5 
years from now will still be operating and still be providing 
service in their community.
    Mr. Thompson. Thank you, Madam Chairwoman.
    Chairwoman Velazquez. Mr. Michaud.
    Mr. Michaud. Thank you very much, Madam Chairwoman, for 
having this hearing. There has been--and I want to thank the 
panels as well for your testimony this morning. There has been 
more than approximately 830 parties that submitted applications 
jointly to RUS and NTIA. Has RUS gone through the projects and 
advised NTIA which ones that they will not fund?
    Mr. Adelstein. We are still in the process of consultation 
with NTIA on that. There are large numbers, as you indicated, 
of joint projects and we are evaluating them simultaneously. At 
the same time, we are looking at them, NTIA is looking at them, 
so we are not slowing one another down. Yet we haven't made 
determinations as to which ones exactly we are or are not going 
to fund in most of these categories, so we are not yet in a 
position to indicate to NTIA which ones we are turning down. I 
can't speak for Secretary Strickling, but I don't think that is 
slowing them down in their evaluation.
    Mr. Michaud. And when do you plan on having your part of 
the process done?
    Mr. Adelstein. Well, we have made a lot of progress and we 
are starting to wrap up in certain categories where we are in 
some of the remote projects. So I think this month we will have 
a much better sense--I should say November this coming month--
of where we are.
    Mr. Michaud. Does NTIA plan on preserving any funds for 
jointly submitted projects that RUS decides not to fund?
    Mr. Strickling. Yes. Absolutely. We had indicated a total 
funding round of $1.4 billion to $1.6 billion, and we 
absolutely are interested in looking at the projects that RUS 
determines not to fund. And as Administrator Adelstein said, we 
are reviewing the applications in parallel, so we are not 
waiting to hear from the Department of Agriculture to actually 
initiate the review of a joint application. We are looking at 
them right now.
    Mr. Michaud. And if a project sponsor that has requested--
submitted a project to RUS due to the rural nature of its 
proposed service area, if they haven't heard anything back from 
RUS by now or NTIA, does mean that the project is no longer 
being considered?
    Mr. Adelstein. No. Definitely not. We are considering a 
number of projects for which they haven't heard back from us 
because we are still reviewing them. A number of them are live. 
And I know we have had some concern from some applicants that 
are wondering where they are at in the process, because they 
haven't heard back from us but we are--because of the number of 
applications we received, we haven't yet made those 
determination. So there is no need for concern.
    We have sent out a small handful of due diligence requests 
for a number of companies, but it is a very small number and we 
are going to be sending out many more. So just because somebody 
hasn't heard from us doesn't mean that, under any circumstance, 
they are not necessarily a live application.
    Mr. Michaud. Thank you. Mr. Strickling, in your testimony 
you mentioned that NTIA is considering the funding 
recommendation made by each State. How much weight does NTIA 
give to the State's recommendation?
    Mr. Strickling. It is another factor for our evaluation. So 
we will look at it, we will take it into account. It doesn't 
have any particular weight on its own.
    Mr. Michaud. And what about RUS? Does RUS give any weight 
to a State's recommendation?
    Mr. Adelstein. We don't have a legislative requirement to 
create a formal State process like NTIA does. We do have a very 
good relationship with the States. And I think that to the 
degree that they have input, we are looking at what they have 
to say as a factor, but it is not something that we are 
required to do through a formal process like NTIA.
    Mr. Michaud. Has RUS established any general guidelines to 
direct the first rounds of awards? Do you have anything in 
writing on your general guidelines?
    Mr. Adelstein. We do. It is in the NOFA, very detailed 
requirements and very explicit criteria by which we are 
indicating what we are looking for in the funding pot. So we 
have been very clear, I think, about what the main criteria are 
by which we are going to judge applications in an objective 
way.
    Mr. Michaud. Will a greater amount of funding be committed 
to smaller-type projects over larger initiatives?
    Mr. Adelstein. Well, we certainly hope so. We have a lot of 
applications from small businesses; 34 percent of our 
applications are for less than $1 million. So we traditionally, 
in our past experience, have given a lot of funding to small 
companies and startups, and we hope to continue down that path; 
and this process is really a good application and scores high 
in our objective criteria, we are going to look forward to 
funding a lot of them.
    Mr. Michaud. And you plan on utilizing all the funding that 
you have? I have heard some concerns about RUS, even though 
there is money appropriated, sometimes they don't like to give 
all the money out.
    Mr. Adelstein. We like to give the money out, but we won't 
do it unless somebody reaches all the eligibility criteria and 
scores high enough. We will--we do think we will able to 
obligate all of the funding that was provided to us by 
September 30, 2010.
    Mr. Michaud. Thank you.
    Chairwoman Velazquez. Mr. Bright.
    Mr. Bright. Madam Chair, thank you very much for this 
important timely meeting, and I promise never to speak out of 
turn again, much less since I am the last one to be called on, 
and I do appreciate your consideration. And let me thank the 
witnesses for being here. You have really given us some 
tremendous information today that we can take back to many of 
our constituents out there who are interested in these very 
valuable resources.
    And as we all acknowledge, America's small businesses stand 
to benefit greatly from increased access to broadband. We know 
that while dial-up Internet services can provide some of the 
same applications and services, broadband services permit 
faster downloading and unloading of bandwidth rich 
applications: video, music, pictures, and data. And as 
consumers or producers of these services and applications, 
small businesses stand to benefit from broadband deployment and 
its use.
    One project, one particular project in my district does 
exactly do what you say, Mr. Strickling, and that is forge a 
relationship and a partnership between several different 
entities out there. And it would also do something that we are 
all trying to do, and that is to integrate the smart grid 
technology with the broadband in order to serve over 14,000 
homes in my district and nearly 400 businesses in unserved and 
underserved areas of my district.
    I applaud these projects, and this project specifically, 
and others, and would ask that you seriously consider those 
applications or these applications or all these applications in 
awarding any of these resources to these particular areas.
    And, Mr. Adelstein, you acknowledge that Alabama is in 
great need because we are a very rural area. My area is very 
rural, and we are really looking with great anticipation of 
where these resources can be applied in our district so that we 
can have access to this unique and very important service out 
there.
    Broadband development would be particularly beneficial in 
small businesses in my State, in Alabama. I have a large number 
of small businesses in my district that operate in rural areas, 
and studies indicate that this puts them at a further 
disadvantage when it comes to competing with other businesses 
out there.
    The Small Business Administration found that rural small 
businesses do not subscribe to broadband services as frequently 
as urban small businesses do, finding the difference in 
broadband use between rural and urban areas to be statistically 
different.
    I also know that rural small businesses tend to pay higher 
prices for broadband services than rural small businesses do, 
probably because of the cost associated with serving less 
populated areas and a lack of competition in rural areas. This 
fact highlights the importance of the $7.2 billion made 
available through the American--or the stimulus project 
legislation, and for increased deployment and adaptation of 
broadband technologies.
    Of further importance is ensuring that in the process of 
awarding these funds we get it right. I am appreciative of your 
willingness to do that. I look forward to working with you and 
working with your staff to make sure we do get it right.
    Many of my questions have already been asked and you have 
answered them. I am just really concerned with one area because 
we are so rural. And I guess, Mr. Adelstein, this question 
would go to you. And that is the definition of "remote" areas. 
I heard you mention that in your opening statement, and you 
really didn't go into great detail.
    I would like for you to go into great detail as much as you 
can as defining and going through the procedure of determining 
what is a remote area or a rural area, if you would.
    Mr. Adelstein. In the first round we defined "remote," 
which we focused all of the grant funds on, as being 50 miles 
away from a town or 20,000, or urbanized area of 50,000 or 
more, and there was a circle around them which some have 
complained excluded too many communities. And we understand 
those concerns that have been raised, and we are really 
reconsidering whether that is the right way to go forward in 
the second round.
    We understand that a number of communities were excluded 
that, in fact, have very high costs of providing service that 
are truly underserved or unserved. And so we are looking at how 
we can alter that definition. We would certainly welcome your 
input on how best to define that going forward.
    You know, we really wanted to target the funds on the most 
remote areas and the most hard-to-serve areas. But maybe we 
didn't draw the line exactly where we should have, and that is 
something that we are contemplating now and we are going to ask 
that question in the next round of funding. Where should we go? 
How should we define this? What are some of the other factors?
    Mr. Bright. Do you intend to withdraw or remove that to 
definition at all, at this point in time in the new or the next 
round?
    Mr. Adelstein. We are completely open to changing it. I 
think we are finding that there are challenges associated with 
that that we haven't fully anticipated, and we are doing a top-
to-bottom review of whether or not it is a good idea to change 
that and, if so, how? What are the other factors we might look 
at besides simply distance from an urbanized area?
    So we are open to change and really welcoming all comments 
on that in the next week or two through our RFI to figure out 
how to address that going forward.
    Mr. Bright. Thank you very much. My time has expired, and I 
will turn it back over to the Chair.
    Chairwoman Velazquez. Mr. Altmire, do you wish for time?
    Mr. Altmire. No questions, Madam Chair.
    Chairwoman Velazquez. I do have another question, Mr. 
Adelstein. Of the $2.5 billion being allocated for the bid 
program, 2.4 has been set aside for this first round. Given the 
concerns about the application process, is your agency 
considering reallocating some of the funding towards the second 
round?
    Mr. Adelstein. That is a very good question. Let me explain 
what we meant by the $2.4 billion, because we actually are able 
to leverage our budget authority provided by Congress to 
provide up to 7 to 9 billion in loans and grants. So the 2.4 
billion is only the loan and grant amount combined, not just 
grant. So we anticipate that well over half of the amount is 
still left.
    I know the math doesn't sound right with 2.4 versus 2.5, 
but that is because the 2.4 we anticipate includes a major loan 
component. So our total program amount being 7 to 9 billion, we 
are using only 2.4 out of 7 to 9 total program level. So, in 
fact, upwards of two-thirds of the funding remains for the 
following rounds of funding and will be available for any of 
the changed criteria that we use.
    Chairwoman Velazquez. Okay. Any other members who wish at 
this point?
    Well, thank you so very much for being here today, and we 
will continue this conversation with you, making sure that you 
are listening to small businesses and that in the second round 
some of the concerns that have been raised will be addressed so 
that we could have a more level playing field for small 
business. Thank you.
    Mr. Adelstein. Thank you.
    Chairwoman Velazquez. You are excused at this time.RPTS 
MERCHANTDCMN NORMAN[11:49 a.m.]
    Chairwoman Velazquez. The Chair recognizes the Ranking 
Member for the purpose of introducing our next witness.
    Mr. Graves. Thank you, Madam Chair. Madam Chair, I would 
like to introduce Mr. James Gleason from Sikeston, Missouri. 
Mr. Gleason is the President and CEO of NewWave Communications 
and has served in this capacity since 2003. Mr. Gleason serves 
on the board of the American Cable Association and was formerly 
the chairman. It is an honor to have a fellow Missourian here 
before the Committee. And thanks for coming to Washington to 
participate in our hearing today.
    Mr. Gleason. Thank you very much.
    Chairwoman Velazquez. Mr. Gleason, you are recognized for 5 
minutes.

                   STATEMENT OF JAMES GLEASON

    Mr. Gleason. Thank you Madam Chairwoman Ranking Member 
Graves and members of the Committee. The ACA based in 
Pittsburgh, Pennsylvania represents nearly 900 small- and 
medium-sized cable companies, providing Internet access to 
predominately rural and smaller markets in every State.
    My company NewWave serves 115,000 customers in Kentucky, 
Illinois, southeast Missouri, northeast Arkansas, west 
Tennessee and is headquartered in Sikeston, Missouri. Our 
members have historically invested in communities where the big 
guys find it unattractive to provide service. ACA members have 
built these networks without any direct Federal subsidy. We 
view the broadband stimulus program as an important investment 
to bore our networks deeper into rural communities so they can 
enjoy the benefits of access that many urban consumers take for 
granted.
    I am pleased to report that all 83 ACA members have applied 
for $1.3 billion in grants and loans. My company, NewWave, has 
applied for $10.1 million in funds to upgrade fiber and cable 
facilities in 11 needy communities in Illinois, Indiana, 
Missouri and South Carolina. The network upgrades will be 
state-of-the-art fiber-to-the-curb designs that will offer data 
speeds up to 100 megabits per second.
    While we are hopeful that our application will be accepted, 
the process costs us over $50,000 to complete with no guarantee 
on funding. The vast majority of these areas NewWave has 
applied for are currently unserved and would not have broadband 
access without this program.
    As companies with decades of experience in rural America, 
ACA members have a proud track record of achievement that 
demonstrates why they are ideal candidates to receive funding 
from NTIA and RUS. ACA is pleased with the $800 million that 
has been dedicated for middle-mile projects which are critical 
to the goal of speeding broadband deployment in rural areas.
    Our members have already upgraded their last-mile networks 
to provide faster broadband speeds. What is still needed is a 
better and more affordable middle-mile connection. That is the 
part of the network that runs between a cable broadband 
provider's central office and an access point to the Internet's 
backbone. Even though ACA members have upgraded their last-mile 
networks, the data chokepoint persists due to the lack of 
middle-mile facilities and insufficient capacity. End user 
speeds in rural areas suffer as a result of limited or 
nonexistent middle-mile capacity.
    Concerning the application process, there are many ACA 
members who would have applied for funding but were discouraged 
because of two specific requirements, both of which were 
discussed previously. And that is the first lien rule and the 
resale rule. The government's insistence on holding a first 
lien would violate the terms and conditions of many of our bank 
loan agreements, making it impossible to apply for funds.
    Next, the resale rule prohibits the sale of a federally 
funded project for ten years. Such a restriction ignores that 
sometimes such transactions can be beneficial for consumers.
    While a company can seek a waiver, the standard to meet the 
waiver is very ambiguous. The application review process should 
be streamlined and simplified too. Because the agencies have 
not vetted applications to determine whether a market is 
already served, every broadband provider, whether they apply 
for funds or not, is burdened with reviewing all of the 
applications. Otherwise the government could waste the limited 
resources, funding a project where we are already providing 
broadband service.
    NewWave alone is spending more than $30,000 just to prove 
to the government where we already provide broadband service. 
This process is burdensome and time-consuming. It is almost 
impossible for our members to fully respond to applications in 
our service areas within the 30-day deadline.
    As recently as yesterday, the mapping tool was down for 
significant periods of time, limiting the ability of existing 
service providers to respond. If no objections are filed, the 
agencies presume there is no existing service where the 
applicant applied for funds. The agency should confirm if an 
area is already served and therefore not eligible for funding. 
Such information is readily available. Our members are already 
required to report to the FCC the broadband areas we serve, 
along with the number of subscribers and speeds every year by 
census track location. At the very least, the agencies could 
eliminate those applications that clearly do not meet the 
minimum criteria before incumbents are expected to review 
applications.
    Finally, we believe applicants should be able to apply for 
funding through either RUS or NTIA. All rural applicants must 
first file with RUS. The definition of "remote," as has been 
discussed here today, is so narrow that it is hard to find 
areas even in Iowa that meet that standard. Nonremote rural 
areas are only eligible for a 50 percent loan grant 
combination.
    In conclusion, we believe that reasonable revisions to the 
funding programs will offer greater efficiency for all 
providers so rural communities receive the service they 
deserve.
    Thank you very much and I would be happy to answer 
questions you all may have.
    Chairwoman Velazquez. Thank you Mr. Gleason.
    [The statement of Mr. Gleason is included in the appendix.]
    Chairwoman Velazquez. You discussed the importance of the 
modern middle mile in providing a more robust, faster Internet. 
How can Congress, the FCC, or other agencies encourage greater 
investment in this critical infrastructure?
    Mr. Gleason. Well, the middle-mile component is something 
that I think a lot of times gets missed in the discussion of 
fast Internet speeds. And as I mentioned, particularly in our 
company's case, the last-mile component, the part that goes 
throughout the community and to the customer's home, has been 
upgraded and is very capable of delivering very high data 
rates.
    What is missing in many cases is if you think of the 
interstate highway system, the broadband long-haul fiber 
network in this country is similar to the interstate's. It goes 
to the big cities. What is different is there is not really off 
ramps to rural areas.
    And so I think the agencies have done a good job by 
dedicating $800 million to the development of open access 
middle-mile components so that there will be more competition 
in that area, bringing higher capacity lines out to rural 
areas. So we are very hopeful that since they have done that, 
that after the funding period and after applicants are awarded 
grants, that that will begin to change.
    Chairwoman Velazquez. You raised the issue of the 
restriction preventing an award received from selling or 
leasing an award funding facility, and this has been raised by 
small business advocates as well. How does this requirement 
impact innovation and growth for small companies?
    Mr. Gleason. In the first lien requirement?
    Chairwoman Velazquez. Yes.
    Mr. Gleason. Well, I can tell you in our case we already 
have a bank and they already have a lien on the assets of our 
company in the systems that have not yet been upgraded, and 
that is due to the fact that they are remote and not 
commercially feasible.
    So I applaud what Mr. Adelstein said, that they are going 
to come up with five or six different options for applicants to 
apply for, or to try to buttonhole into options to where that 
first lien might be modified. I really think that they are a 
lender, so what they are going to have to do in order to get 
these funds out, they are going to have to be a flexible 
lender. Because you don't want to eliminate incumbents in 
certain areas that already have customers. We are applying for 
an area in Cairo, Illinois, which is a very disadvantaged area 
and no broadband service exists today, but there is already a 
lien on those properties. So in order--and we already have 350 
video customers there. So we would be a very qualified provider 
of broadband service in Cairo because we have an embedded 
customer base. But we have got to have them be flexible when it 
comes to lien requirements so that we can work around that.
    I know for a fact that in our membership's case, we had a 
number of companies that would have applied but for the first 
lien rule and the 10-year hold.
    Chairwoman Velazquez. You heard that a lot of the members 
here raised the concern about the frustration with the 
application process to both gentlemen that were here because it 
is complex and it really discouraged participation. Of the 
information requested in the application, what were the most 
intensive to complete?
    Mr. Gleason. The biggest part, the biggest problem that we 
found in the application process is that we were required to 
have complete design projects done for the communities we 
propose to serve. And by doing that, that meant we had to go 
and specifically walk out from pole to pole, house to house, 
provide measurements, do a complete system design project for 
every community. That cost somewhere in the neighborhood of at 
least $500 a mile. Even in a small town you are talking about 
25 miles of cable to provide broadband service. So that was a 
very expensive and time-consuming proposal.
    What we would like to have seen would have the ability to 
say, look, we provide service to 250 communities and we propose 
to build a system in Cairo that looks just like this one, and 
the design we will warrant will look just like this design that 
currently provides broadband service. And I think if RUS would 
take a look at that, that would really lower the threshold and 
the expense in supplying an application.
    Chairwoman Velazquez. If you had any question about the 
application, were you able to get a person on the phone to 
answer any questions?
    Mr. Gleason. In the early parts of the application process 
we were, and they were helpful. But some of the rules are so 
specific that were set out in the process, like the one I just 
discussed, they weren't able to say, well, here is a way around 
it, it just has to be that way. So while they were accessible, 
I am not sure exactly how helpful that was.
    Chairwoman Velazquez. Mr. Thompson. Thank you.
    Mr. Thompson. Thank you, Madam Chairwoman. And thanks, Mr. 
Gleason, for your testimony.
    I have a couple of questions, including a couple that Mr. 
Graves had left with me, that he wanted to make sure that we 
asked as well. First of all, just in general, what 
recommendations would you make to the Committee to improve the 
process and ensure that taxpayers are getting the most out of 
these provisions?
    Mr. Gleason. Well, I have got a couple of issues I think 
that still exist. One, the application review process is very 
troublesome, particularly for small businesses. I had a fellow 
cable operator who is a small businessman in Missouri give me a 
call, and he is a company that has got 2,000 cable customers 
and 1,000 broadband customers. And the process is where all the 
applications have been put out on the Internet for incumbent 
operators to notify RUS of where broadband service already 
exists. And he called, and he said I am not sure what I am 
supposed to do, I don't even know how to do this; have you 
hired help to go and get this done? We did and we spent in 
excess of $30,000 to show where our areas already serve.
    But many small business guys who were already providing 
broadband service have to do that. And the problem I see is 
that all 2,200 applications have been put out on the Web for 
incumbents to go look at and vet through. I think the 
organization should have done some pre-vetting of all those 
applications to say, look, these clearly don't meet these 
criteria so we need to set those aside.
    Secondly, I am still concerned, even though it was 
mentioned earlier, that we are going to make sure we don't 
duplicate service and provide money to duplicate service in 
underserved and unserved areas, I am not completely convinced 
that they are going to be able to do that. One reason is the 
mapping hasn't been done, and, as it was said here today, the 
mapping won't be done until 2011. That is very concerning.
    And I have some follow-up concerns after the application 
review process goes forward as to what we are supposed to do to 
ensure that duplication doesn't occur. So I am not completely 
convinced that we are real sure that we are going to keep from 
doing that.
    Mr. Thompson. Do you feel that you will have access to the 
adequate resources to refute applications that plan to service 
areas already served?
    Mr. Gleason. Well, I hope so, although it is expensive. And 
that goes back to having to go through all 2,200 applications 
and see if any of them are in our current service areas.
    You know, we have launched, we have built thousands of 
miles of fiber optic cable just ourselves in the last 3 years 
and launched broadband service in more than 100 new 
communities, mostly very rural small-town communities. And our 
take rates and our success has been wonderful. But we are 
trying to go out here with private capital and do that, and we 
want to make sure that we make sure we tell the government that 
those areas are already served.
    We provide, as I mentioned in my testimony, that data to 
the FCC every year. And I think on that Form 477 that we fill 
out, I think these agencies could use that data to pre-vet 
these applications.
    Mr. Thompson. You had mentioned that it cost approximately, 
your company specifically, $50,000 to apply within this 
process.
    Mr. Gleason. Right.
    Mr. Thompson. With no guarantees.
    Mr. Gleason. That's right.
    Mr. Thompson. Going forward. Has the industry done any 
estimates of--if that is $50,000 just with your organization, 
your business--has any, across the industry, any projections of 
what the cost has been, the investment for applications? 
Because I assume there are a lot of applications that--I don't 
know what percentage of applications will, on the final day, 
will be funded.
    Mr. Gleason. We have not, but I would think that you could 
extrapolate that number pretty easily across the miles of last-
mile cable and fiber optic cable to be built like ours. Of that 
$50,000 about two-thirds of that was in the mapping and design 
process that had to be completed prior to filing your 
application.
    That kind of goes back to the suggestion of why don't you 
say our design will be this type of design and here is a sample 
and here is exactly what it will look like; and, once granted, 
then we will go and design specifically that community.
    I think to a certain extent that process favors wireless 
providers over wire-line providers. Because a wireless 
distribution system is much easier to design; you just pick 
points on a map of where you are going to put towers--I may be 
oversimplifying a bit, but points on a map where towers are 
going to go and how you are going to communicate between those 
towers.
    But the broadband speeds that we currently offer and will 
offer, up to 100 megabits per second, are far and away in 
excess of what wireless communications can provide. So while 
the process is supposed to be tech-neutral, it doesn't seem to 
be in the application process.
    Mr. Thompson. My final question is do your members plan on 
hiring more people if they are successful in obtaining stimulus 
dollars, or will the work be manageable at the current staffing 
levels?
    Mr. Gleason. Absolutely we will hire additional people. And 
that is, I think, what the beauty of this program does, is not 
only does it provide economic advantages to these rural 
communities that we are going to provide, but also just in 
amongst our company we have hired hundreds more people over the 
last 3 years as we have developed our broadband infrastructure 
in our current operations. So these systems will do the same 
thing as we have done in our past operations.
    Mr. Thompson. Just a follow-up. Then are there folks out 
there with the skills available that you are--I am not sure 
what different type of positions you will need, but I mean are 
there people there in the qualified workforce to hire?
    Mr. Gleason. It is interesting, in a lot of cases we look 
kind of for two-fold people: one, technicians that are field-
based people that do insulation work and maintenance work on 
broadband networks. And that is a little tougher to find, 
although we are working with community colleges and other 
institutions to help train that workforce. So, so far that is 
good.
    On the flip side where you use customer support personnel, 
and we are finding--you know, we operate our call center in 
Sikeston, Missouri, so it is a small community, rural 
community. And I worried about that when we established that 
call center there. But we have been pleasantly surprised at the 
abundance of people that can work on computers and know 
computer-related tasks and that sort of thing, particularly 
younger people who have been trained--and schools are doing a 
good job with that. So we have had a very--that has been a good 
opportunity for us and has worked out well for us actually.
    Mr. Thompson. That is good to hear. Thank you.
    Chairwoman Velazquez. Mr. Gleason, in August 2009 the USDA 
released a report that basically highlighted the relationship 
between farming and broadband. My question to you is for a 
small rural cable operator, how do you promote greater adoption 
among small businesses in your local community?
    Mr. Gleason. That is a good question. And I think it is 
kind of two-fold, and I think our membership of our group is 
very similar to us. One, we have developed a complete business 
sales force that is different from our residential work. And 
that business sales force, we have done a lot of work because 
we are obviously incentivized to sell more services that we 
can. So that business sales force has done a good job of 
learning applications for broadband services. So we can go to 
an insurance business and say, Here is why you ought to buy our 
broadband service. We can go to an Ag, a grain elevator, and 
say, Here is why you ought to buy our broadband service. So 
that is one area where we have really gone to very, very small 
businesses, and we have come up with very, very affordable 
business rates for those businesses to get extremely fast data 
contentions.
    Then, secondly, we have done a lot of partnerships, 
particularly in this application. We have done a partnership 
with a local community college, we have done a partnership with 
school systems in these communities we have applied for, the 
city governments, the first responders' groups, a mental health 
center, chambers of commerce. So we have really tried to be 
very broad in terms of reaching out to get organizations to 
support our application, but also to get out to those 
organizations to say here is why broadband is important to you. 
So we have conducted a lot of city-wide events, things like 
that, that really go a long ways, I think, to promote the 
adoption of broadband usage.
    Chairwoman Velazquez. Okay. Well, thank you. Do you have 
any other questions?
    Mr. Thompson. No.
    Chairwoman Velazquez. Well, thank you so very much for 
being here. You have shed a lot of light into the importance of 
expanding broadband deployment into rural areas. And at a time 
when our economy is struggling to create jobs, this is a way to 
do it. So thank you so very much.
    Mr. Gleason. Thank you for having me.
    Chairwoman Velazquez. I ask unanimous consent the members 
will have 5 days to provide materials and supporting materials 
for the record. Without objection, so ordered.
    Chairwoman Velazquez. This hearing is now adjourned.
    [Whereupon, at 12:15 p.m., the Committee was adjourned.]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                                 
