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



 
     A DISCUSSION DRAFT OF THE UNIVERSAL SERVICE REFORM ACT OF 2009

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

                                HEARING

                               BEFORE THE

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 17, 2009

                               __________

                           Serial No. 111-81


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

    HENRY A. WAXMAN, California      JOE BARTON, Texas
              Chairman                 Ranking Member
JOHN D. DINGELL, Michigan            RALPH M. HALL, Texas
  Chairman Emeritus                  FRED UPTON, Michigan
EDWARD J. MARKEY, Massachusetts      CLIFF STEARNS, Florida
RICK BOUCHER, Virginia               NATHAN DEAL, Georgia
FRANK PALLONE, Jr., New Jersey       ED WHITFIELD, Kentucky
BART GORDON, Tennessee               JOHN SHIMKUS, Illinois
BOBBY L. RUSH, Illinois              JOHN B. SHADEGG, Arizona
ANNA G. ESHOO, California            ROY BLUNT, Missouri
BART STUPAK, Michigan                STEVE BUYER, Indiana
ELIOT L. ENGEL, New York             GEORGE RADANOVICH, California
GENE GREEN, Texas                    JOSEPH R. PITTS, Pennsylvania
DIANA DeGETTE, Colorado              MARY BONO MACK, California
  Vice Chairman                      GREG WALDEN, Oregon
LOIS CAPPS, California               LEE TERRY, Nebraska
MICHAEL F. DOYLE, Pennsylvania       MIKE ROGERS, Michigan
JANE HARMAN, California              SUE WILKINS MYRICK, North Carolina
TOM ALLEN, Maine                     JOHN SULLIVAN, Oklahoma
JANICE D. SCHAKOWSKY, Illinois       TIM MURPHY, Pennsylvania
HILDA L. SOLIS, California           MICHAEL C. BURGESS, Texas
CHARLES A. GONZALEZ, Texas           MARSHA BLACKBURN, Tennessee
JAY INSLEE, Washington               PHIL GINGREY, Georgia
TAMMY BALDWIN, Wisconsin             STEVE SCALISE, Louisiana             
MIKE ROSS, Arkansas                  
ANTHONY D. WEINER, New York          
JIM MATHESON, Utah                   
G.K. BUTTERFIELD, North Carolina     
CHARLIE MELANCON, Louisiana          
JOHN BARROW, Georgia                 
BARON P. HILL, Indiana               
DORIS O. MATSUI, California          
DONNA M. CHRISTENSEN, Virgin         
    Islands                          
KATHY CASTOR, Florida                
JOHN P. SARBANES, Maryland           
CHRISTOPHER S. MURPHY, Connecticut   
ZACHARY T. SPACE, Ohio               
JERRY McNERNEY, California           
BETTY SUTTON, Ohio                   
BRUCE L. BRALEY, Iowa                
PETER WELCH, Vermont                 
                                     

                                  (II)
      Subcommittee on Communications, Technology, and the Internet

                         RICK BOUCHER, Virginia
                                 Chairman
EDWARD J. MARKEY, Massachusetts      FRED UPTON, Michigan
BART GORDON, Tennessee                 Ranking Member
BOBBY L. RUSH, Illinois              CLIFF STEARNS, Florida
ANNA G. ESHOO, California            NATHAN DEAL, Georgia
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
DIANA DeGETTE, Colorado              JOHN SHIMKUS, Illinois
MICHAEL F. DOYLE, Pennsylvania       GEORGE RADANOVICH, California
JAY INSLEE, Washington               MARY BONO MACK, California
ANTHONY D. WEINER, New York          GREG WALDEN, Oregon
G.K. BUTTERFIELD, North Carolina     LEE TERRY, Nebraska
CHARLIE MELANCON, Louisiana          MIKE FERGUSON, New Jersey
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
PETER WELCH, Vermont
JOHN D. DINGELL, Michigan (ex 
    officio)
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Rick Boucher, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
    Prepared statement...........................................     4
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     6
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     6
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     7
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................    11
Hon. Roy Blunt, a Representative in Congress from the State of 
  Missouri, prepared statement...................................    17
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................   184

                               Witnesses

Peter Davidson, Senior Vice President of Public Affairs, Policy, 
  and Communications, Verizon....................................    22
    Prepared statement...........................................    25
Leslie Greer, Chief Executive Officer, DTC Communications........    35
    Prepared statement...........................................    37
Michael Rhoda, Senior Vice President for Government Affairs, 
  Windstream Communications, Inc.................................    49
    Prepared statement...........................................    51
Joel Lubin, Vice President of Public Policy, AT&T Services, Inc..    57
    Prepared statement...........................................    59
Catherine Moyer, Director, Legal and Regulatory Affairs, Pioneer 
  Communications.................................................    65
    Prepared statement...........................................    67
Ray Baum, Chairman, NARUC Committee on Telecommunications, State 
  Chair, Federal-State Joint Board on Universal Service, 
  Commissioner, Oregon Public Utility Commission.................    73
    Prepared statement...........................................    75
Kyle McSlarrow, President and Chief Executive Officer, National 
  Cable and Telecommunications Association.......................    89
    Prepared statement...........................................    91
Eric Graham, Vice President of Government Relations, Cellular 
  South, Inc.....................................................   104
    Prepared statement...........................................   106
Karen Rheuban, Senior Associate Dean for CME and External Affairs 
  Medical Director, Office of Telemedicine, University of 
  Virginia.......................................................   124
    Prepared statement...........................................   126
Gregory Rosston, Deputy Director, Stanford Institute for Economic 
  Policy Research................................................   143
    Prepared statement...........................................   146


     A DISCUSSION DRAFT OF THE UNIVERSAL SERVICE REFORM ACT OF 2009

                              ----------                              


                       TUESDAY, NOVEMBER 17, 2009

        Subcommittee on Communications,    
              Technology, and the Internet,
                  Committee on Energy and Commerce,
                                  House of Representatives,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:39 a.m., in 
Room 2123, Rayburn House Office Building, Hon. Rick Boucher 
[chairman of the subcommittee] presiding.
    Present: Representatives Boucher, Markey, Eshoo, Stupak, 
Doyle, Inslee, Butterfield, Matsui, Christensen, Castor, Space, 
McNerney, Welch, Dingell, Stearns, Shimkus, Blunt, Buyer, 
Walden, Terry, Blackburn, and Barton (ex officio).
    Staff Present: Roger Sherman, Chief Counsel; Greg Guice, 
Counsel; Shawn Chang, Counsel; Amy Levine, Counsel; Pat 
Delgado, Waxman Chief of Staff; Phil Barnett, Staff Director; 
Bruce Wolpe, Senior Advisor; and Sarah Fisher, Special 
Assistant.

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. The subcommittee will come to order.
    Good morning to everyone, and thank you for your attendance 
today.
    This morning, our hearing focuses on the Universal Service 
High-Cost Fund and the reforms to it that are proposed in a 
legislative discussion draft that is now before us.
    Having affordable telephone rates for all Americans is 
essential to our national wellbeing. At a time when electronic 
commerce and communications are central to national economic 
performance, keeping all Americans connected should be a 
priority for rural and metropolitan residents alike.
    While the universal service support is largely targeted to 
the rural areas where costs are high because of terrain, low-
population density, and the long distances the communications 
lines have to traverse, the benefits of having everyone 
connected flow to urban and rural areas alike. And I hope that 
members will not lose sight of that reality as we consider the 
reforms that are needed to ensure the sustainability of the 
Universal Service Fund.
    It is now under tremendous pressure, and a comprehensive 
reform is clearly called for, and I think it is urgently 
needed. New technologies and business models that make local 
and long-distance telephone traffic essentially 
indistinguishable are combining to diminish the long-distance 
revenues that are relied upon to support universal service.
    Since the universal service long-distance surcharge is 
being imposed on a declining revenue base, the surcharge rates 
are rapidly raising. Today, the contribution rate is 12 percent 
of long-distance revenues. And, in January, that contribution 
rate is set to rise to a record-breaking 14.2 percent. And 
unless we enact comprehensive reforms, further escalation will 
continue after that.
    This status quo is simply not acceptable and sustainable. 
New controls must be placed on costs so that the level of 
universal service support can be contained. The bill before us 
caps the High-Cost Fund. It requires competitive bidding for 
the provision of support to wireless carriers. It imposes 
rigorous auditing and reporting requirements on the carriers 
that receive support. We also expand the contribution base to 
intrastate services and to all entities that provide a 
connection to the network as a means of relieving pressure on 
the declining-revenue long-distance base. These changes on both 
the contribution and the expenditure sides should produce a 
sustainable Universal Service Fund.
    The bipartisan discussion draft that we now have before us 
I circulated with our colleague from Nebraska, Mr. Terry. And 
it results from almost 4 years of consultations that Mr. Terry 
and I have undertaken with literally dozens of stakeholders 
having competing interests with respect to universal service. 
We have sought and now we have achieved a consensus among these 
parties that have competing views with regard to universal 
service.
    Our draft bridges the divide on universal service issues 
between large carriers, such as Verizon and AT&T, that are net 
contributors into the Universal Service Fund and the smaller 
rural carriers that are net recipients of universal service 
funding. As we will hear from our witnesses this morning, 
stakeholders on both sides of this classic divide are now 
united in their support for the bill before us.
    The draft makes a broad range of other changes, such as 
qualifying broadband as an eligible subject for universal 
service expenditures for the first time. Other elements in our 
measure include a better targeting of support to high-cost 
areas by switching from statewide to wire center averaging; 
fixing the phantom traffic problem by requiring carriers to 
pass through call identifying information; eliminating traffic 
pumping, which has become a major problem of late, by 
prohibiting carriers from sharing access charges with third 
parties that offer free or reduced-cost services; making rural 
exchanges more marketable for telephone companies that desire 
to sell them by eliminating the parent trap; and making 
permanent the Antideficiency Act exemption for universal 
service so that annual waivers are not required on 
appropriations bills on an ongoing basis.
    We welcome this morning the views of our witnesses and 
members of the subcommittee as we seek to broaden the consensus 
on the reforms that are needed in order to make sustainable the 
Universal Service Fund.
    That completes my opening statement, And I am pleased to 
recognize at this time for 2 minutes the gentleman from 
Nebraska, Mr. Terry, for his opening statement.
    I might just note, if you will excuse me for a moment, Mr. 
Terry, for the benefit of our witnesses that our Republican 
colleagues are having a conference at the moment, and that is 
urgent business for them, I am sure. And that accounts for the 
fact that on our side of the aisle we are somewhat better 
represented here than on the Republican side. But they are 
embarked, I am sure, on a good mission.
    Mr. Terry is recognized for 2 minutes.
    [The prepared statement of Mr. Boucher follows:]

    [GRAPHIC] [TIFF OMITTED] T4852A.001
    
    [GRAPHIC] [TIFF OMITTED] T4852A.002
    
   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Thank you, Mr. Chairman, for everything.
    Reform of the Universal Service Fund has been a long time 
coming, and, under your leadership and dedication to this 
issue, I am confident that meaningful reform is within the 
consumers' reach.
    Over 4 years ago, when we set out to introduce the first 
comprehensive universal service reform bill since 1996, we 
agreed that the principles and goals of universal service are 
still as relevant today as they were in the 1930s. However, the 
USF has failed to keep up with the changing telecommunications 
landscape, and today's draft legislation is needed more than 
any time before.
    Our draft legislation improves many of the existing USF 
mechanisms. Specifically, we target USF support to high-cost 
areas to ensure that USF is meeting its goal of making 
telecommunication services available to all rural high-cost 
consumers. The targeting provision is especially important to 
address the equity issue of ensuring that all customers living 
in rural America receive the benefits of USF regardless of the 
carrier that serves them.
    The draft legislation also makes broadband a supported 
service. Including broadband as a supported service is 
commonsense and brings the fund into the 21st century. For 
those that fear adding broadband as a support service will 
subsidize competition, I would like to highlight that the 
targeting provision in our legislation will move support 
outside the town centers into the high-cost areas where support 
is needed the most.
    And, finally, I would like to highlight that the draft 
legislation addresses important issues of cost, accountability, 
and fairness. The draft legislation broadens the base of 
contributors while placing a cap on the overall High-Cost Fund. 
I recognize that the cap has caused some heartburn with some of 
our witnesses and appreciate your support throughout the 
process. As the process moves forward, it is my hope that we 
can continue to work together.
    I yield back.
    Mr. Boucher. Thank you, Mr. Terry.
    The chairman emeritus of the full Energy and Commerce 
Committee, the gentleman from Michigan, Mr. Dingell, is 
recognized for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, I thank you. I commend you for 
holding today's hearing--it is important--and also for you and 
Mr. Terry in your fine work on the discussion draft of the 
Universal Service Reform Act of 2009. This is an important 
piece of legislation.
    Due to the explosive growth in the use of Internet and 
wireless services for communications, the revenues of 
telecommunications subject to universal service fees have 
declined, thus leading to increased fees on consumers to allow 
companies to meet their required universal service 
contributions.
    Lamentably, the Universal Service Fund has not been 
modified to reflect this market dynamic. And, further, by 
reason of this inaction, the fund has within denied the 
necessary streams of revenue that could be derived from 
assessments on nontraditional communication providers, such as 
Voice over Internet Protocol, VoIP, which are now competitive 
players in the telecommunications industry.
    Consequently, now, more than ever, it is incumbent on the 
Congress to make the necessary changes to the Universal Service 
Fund's structure so as to preserve as well as to modernize its 
ability to facilitate the provision for high-quality 
telecommunication services at affordable rates to all Americans 
regardless of geography or income.
    As I have pointed out in the past, I believe that three 
principles should guide our efforts in this matter. First, all 
providers of telecommunications should contribute equitably to 
support universal service. Second, all communications, and not 
simply interstate and foreign communications, should be subject 
to assessments to support universal service. Finally, we should 
not play favorites with new communications technologies when it 
comes to Universal Service Fund contribution requirements. This 
would have the undesirable effect of shortchanging the fund, to 
which I have just alluded, as well as picking winners and 
losers in the marketplace. Indeed, it would constitute an 
exercise in unfairness.
    I am pleased that your draft, the Boucher-Terry draft 
legislation, incorporates these principles. Moreover, in 
keeping with Chairman Waxman's and my belief that reform in 
this area should be forward-looking, the draft bill recognizes 
broadband as a universal service and makes provisions to 
support the expansion of its infrastructure. In brief, this 
legislation is a much-needed step in the right direction for 
universal service reform, and I am proud to extend my support 
for it.
    Mr. Chairman, I thank you for your courtesy, and I commend 
you for the congenial, bipartisan process that has produced 
this bill pending before the committee's consideration today. 
This matter of collaboration has always been a hallmark of this 
committee's finest work, and I look forward to further 
improvement to this legislation under your auspices and under 
these principles.
    Thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Mr. Boucher. Thank you very much, Chairman Dingell.
    The gentleman from Florida, Mr. Stearns, the ranking 
Republican member of our subcommittee, is recognized for 5 
minutes.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Good morning. And thank you, Mr. Chairman. 
This is a very important hearing. It is nice to see a lot of 
folks here, a very distinguished group of witnesses here.
    I am encouraged that your view towards reforming the broken 
Universal Service Fund is a high priority. There are many 
different ideas on how to best achieve this, as we can see from 
the number of witnesses we have today, so I look forward to 
their testimony.
    The Universal Service Fund needs to be reformed, and 
quickly, if possible. We can all, perhaps, agree on that one 
point. The system is fraught with waste, fraud, and abuse. A 
major overhaul is necessary. So the question before us is, what 
are the appropriate goals of the program and, obviously, how do 
we best achieve that?
    The 1996 Telecom Act codified universal service, but the 
concept goes back decades earlier to a time when there was only 
one phone company. Now the landscape looks a whole lot 
different, yet the fund is still administered by outdated 
rules.
    Among the impacts of the growth of the Universal Service 
Fund have been the growing universal service fees. This 
contribution factor is a percentage of interstate end-user 
revenue that telecom companies must pay and changes quarterly, 
depending upon the needs of the program. Now, in the second 
quarter of 2000, the fee was 5.7 percent. It has since grown to 
12.3 percent. That means that consumers are paying fees in 
excess of 12 percent of their monthly phone bills. And that fee 
is expected to go up to 14 percent next year.
    Accordingly, there is a need to reform the program away 
from subsidies that may no longer be necessary as technology 
and services improve and, of course, become more widespread. 
Instead, we need to move towards a solution that ensures the 
goals of universal services but minimizes consumer cost. 
Throwing additional money at this crumbling program makes 
little sense at this time.
    The purpose of this hearing is to examine the discussion 
draft of the Universal Service Reform Act of 2009. This draft 
takes several positive steps towards reform, but it also 
contains some questionable direction. In particular, it is not 
clear that this draft restrains costs in any real significant 
way. In fact, the size of the fund, perhaps, will ultimately 
increase.
    More can and should be done to rein in costs and to improve 
transparency. First, we need to impose a firm cap to prevent 
uncontrolled growth in the fund. While this draft bill would 
cap the high-cost portion of the fund, the cap is subject to 
several significant exceptions that would grow the fund, in my 
opinion.
    These exceptions include: an annual growth factor; changes 
to increase support for certain nonrural carriers and carriers 
that buy other local carriers; and an upward adjustment if the 
FCC adopts an alternative recovery mechanism for intercarrier 
compensation revenues that increases demand for Universal 
Service Fund support.
    So, it is not clear how much these exceptions would cost 
the fund and consumers. The FCC and other sources have given 
us, recently, an estimate that the changes to nonrural support 
alone range from an increase of $200 million to $700 million. 
This is only if no additional carriers request this type of 
support and if the support is for voice service, not broadband 
service.
    In addition, reforming intercarrier compensation, as this 
draft would require, could cost upwards of $1 billion. While 
some of that increase would be offset, I understand, by 
reductions in other charges, some customers are likely to see 
their overall phone bills obviously go up.
    I think we ought to know the price tag before we start 
handing out subsidies. So I question the reform that is 
proposed, and I am hoping that we can find out from our 
witnesses today how this would work.
    Moreover, we need to institute competitive bidding 
procedures that apply to all carriers. This type of process 
will help ensure that we are getting the most out of the 
subsidies. Otherwise, we will continue to see an inefficient 
use of consumers' money.
    We also need to target the money to the places and the 
people who obviously really need it. Cable companies, for 
example, suggest that we eliminate subsidies anywhere there is 
an unsubsidized wireline provider. It certainly seems to make 
good sense that we eliminate subsidies where the market has 
demonstrated clearly service can be offered without subsidies.
    So, again, thank you, Mr. Chairman, for holding this 
hearing. It is important to examine the goals, and I look 
forward to hearing from our witnesses.
    Mr. Boucher. Thank you, Mr. Stearns.
    The gentleman from Massachusetts, Mr. Markey, is recognized 
for 2 minutes.
    Mr. Markey. Thank you, Mr. Chairman.
    It is long overdue that we fix the bloated system that 
likely overpays eligible telecommunications carriers more than 
what is warranted. When approaching reform proposals, I believe 
that we should harness advances in technologies and insist on 
administrative efficiencies to first drive down costs and 
create savings wherever and whenever possible. And, second, we 
must also shift over time to more rational, stable sources of 
funding while embracing broadband as a supported service.
    Broadband will be indispensable in the 21st century. It 
will provide our ability to be able to manage energy-efficiency 
technologies, lower health-care costs, along with other social 
and economic benefits. And that is why I successfully amended 
the American Recovery and Reinvestment Act in February and 
required the FCC to develop a national broadband plan for the 
country that is due next February.
    While the U.S. lags behind other countries in the world in 
several key broadband metrics, there is one area where the 
United States leads the world: connections to classrooms. Why? 
Well, because in the 1996 Telecom Act we had a plan. As the 
primary House author of the E-Rate program in that landmark 
bill, I have seen firsthand what we can do when we actually 
have a plan. And the 90-percent-plus of classrooms today 
connected to the Internet is testimony to a forward-leading 
approach.
    With the national telecommunications broadband plan, the 
Federal Communications Commission has a chance to give the 
country a blueprint for our broadband future. I urge the 
Commission to give a plan to us that is practical but 
consistent with our history of tackling the big infrastructure 
challenges with big ideas and a commitment to action.
    Without question, any national broadband plan focused on 
deployment to all Americans and on addressing affordability 
must include universal service and related issues of 
intercarrier compensation as a key ingredient. I congratulate 
Chairman Boucher and Mr. Terry for their work on this issue.
    And I yield back the balance of my time.
    Mr. Boucher. Thank you very much, Mr. Markey.
    The gentleman from Illinois, Mr. Shimkus, is recognized for 
2 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman.
    It is good to see so many friends here. And I applaud you 
and Lee for your bulldog approach to this.
    The Universal Service Fund should always be about the 
customers, not the companies. And I focus on bringing broadband 
to the rural areas, and I think there has been a lot of support 
for that. I agree, we need to target waste, fraud, and abuse. 
And we need to legislate, and we do not need the FCC to 
regulate on this.
    On a side note, I don't want to throw a wrench in this 
whole debate, but, as we focus on pushing out, I hope, 
broadband connectivity to places that don't have it, or high-
speed, this Net neutrality debate could come in here because it 
could change the business plan. And so, it is not explicitly 
written in this bill, but it is of concern that if we cannot 
make a decision on issues like telemedicine, then you have 
another problem with the whole Net neutrality debate.
    And I yield back my time.
    Mr. Boucher. Thank you very much, Mr. Shimkus.
    The gentlelady from California, Ms. Eshoo, is recognized 
for 2 minutes.
    Ms. Eshoo. Thank you, Mr. Chairman, for holding this 
hearing and providing us with your discussion draft of the 
Universal Service Reform Act of 2009.
    The draft is a springboard for a healthy discourse on the 
next step for the fund. And we have held more than a few 
hearings on this subject, and I think that it is time to 
develop a workable piece of legislation.
    I welcome all the witnesses and, certainly, Mr. Rosston, 
who is a constituent and a good friend. It is wonderful to see 
you here.
    There are myriad range of problems with the Universal 
Service Fund based, in part, on changes in the 
telecommunications industry. In 1996--which is only 13 years 
ago in regular years, but in telecommunications years it might 
as well be a century. During that time, we have seen a virtual 
explosion of new services and products.
    The current system reflects the mid-20th century's 
telecommunications economy, when long-distance calls were 
defined as distinct from local calls and classified as a more 
expensive service. This is the age of broadband and mobile 
telephony, and national and international packages have made 
this system a relic fit for the national history museum.
    The program as it now stands is inefficient and fragmented, 
with episodes of corruption. But we know that the fund would 
cost too much even if its administrative problems are solved 
because the ways it collects revenue and compensates vendors 
doesn't make sense anymore.
    We heard arguments at our last hearing about the need for 
change and whether that change should come in the form of a 
reverse auction or request for proposals when picking 
recipients. We heard ideas about how to fix intercarrier 
compensation and the identical support rule. A discussion draft 
should take us to the next level, to concrete solutions. I 
think it is time to integrate broadband into the fund base for 
contribution purposes, and I am pleased that the draft bill 
does so.
    But I am concerned about issues related to minimum speed 
and broadband rollout. I signed on to Congresswoman Matsui's 
bill because I want to discuss the next steps for utilizing the 
fund to support broadband access. Unfortunately, the bill 
before us does not address the Low-Income Lifeline Program that 
would support universal broadband deployment under Ms. Matsui's 
bill. So I am interested in alternative methods that you would 
have for addressing this issue.
    It also does not discuss the Schools and Libraries Program. 
That leaves a lot out of the equation. Schools and libraries 
are our anchor institutions, and I have voiced my concern for 
funding their broadband access. And the last mile of broadband 
needs to go to urban as well as rural areas quickly, both in 
terms of time and speed.
    So I look forward to working on the bill, Mr. Chairman, 
with you and Mr. Terry, on developing this important piece of 
legislation that, I believe, needs to be comprehensive and 
holistic in its approach.
    And I yield back.
    Mr. Boucher. Thank you very much, Ms. Eshoo.
    The ranking Republican member of our full committee, the 
gentleman from Texas, Mr. Barton, is recognized for 5 minutes.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman.
    I want to thank all of our witnesses.
    I think we need a few more, Mr. Chairman. I don't think you 
have quite covered the total spectrum. My next-door neighbor 
wasn't invited, and we need to get them out here.
    I am going to submit my opening statement for the record.
    To put it in terms that average people understand, I like 
the bill. I am ready to take you to the prom, but I am not 
ready to marry you. You know? There is still work that needs to 
be done, cosmetic touchups, you know, a little better attitude 
maybe. But you are on the right track, Mr. Chairman.
    It is obvious that the fund is broken. I mean, you know, 
more people have cell phones than have hardline phones. The 
United States is the most wired country in the world. Those of 
us that have all the ideocentric laws that we have to deal with 
have two BlackBerrys, three cell phones, plus all the hardline 
phones.
    At my condo here in Washington, in Virginia, I basically 
just have a phone there to have a phone in case there is some 
emergency or something. My USF fee is probably 20 to 30 percent 
of my bill because I pay the absolute minimum each month. I 
just think that is not appropriate.
    You and Mr. Terry's bill, which you have worked with me on 
and Mr. Terry has worked with me on, I really, really want to 
support. But it does concern me that, under this bill, the size 
of the fund could actually increase and not decrease. I think 
we need a firm cap. Obviously, that is something that we need 
to work on or discuss.
    There are some things that we could do that are not in the 
bill to make it more competitive in the service fund. I think 
it is ridiculous that some areas have 30 different phone 
companies that get subsidies. I don't buy that. I can buy two, 
maybe, or three for competitive purposes, but 30? I just think 
that is wrong.
    And while you and I have discussed this at some length, 
having a mandate is a difficult concept for somebody like me to 
swallow for broadband. I am not saying it is--it may not be 
appropriate, but it is something that I have to think about.
    So, overall, great prom date, marriage proposal possible.
    And, with that, I yield back, Mr. Chairman.
    Mr. Boucher. Well, thank you very much, Mr. Barton. Given 
the distance that we have traveled, a prom date is good enough 
for today, and I am happy to get the invitation.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 2 minutes.
    Mr. Doyle. Thank you, Mr. Chairman. I am still trying to 
get that image of Mr. Barton taking you out to the prom out of 
my head.
    Mr. Barton. That is just metaphysical. It is not literal.
    Mr. Doyle. Even that is scary.
    Thank you, Mr. Chairman, for holding this hearing. I am 
pleased that you are holding a hearing on your bill to reform 
the Universal Service Fund.
    I think we have to rethink what ``universal service'' means 
and how the Universal Service Fund implements these goals. I 
have said many, many times that we need an overhaul for the 
broadband age, a ``Universal 2.0.'' ``Universal Service 2.0'' 
shouldn't build on the current structure just because it is 
what we have. That structure should undergo a thorough review 
to make sure that every dollar spent is a dollar that the 
private sector isn't competing against and that every dollar 
spent enables low-income consumers to choose the communication 
services they need.
    I think the bill takes a number of steps in the right 
direction, but I have some concerns that I believe have to be 
addressed before I can support it. Today, my constituents pay a 
lot of money into that fund, and I want to make sure that the 
fund just doesn't take from those in urban areas just to hand 
it over to rural areas who are capable of paying for 
themselves.
    I think that Ms. Matsui's bill that allows for low-income 
Americans to qualify for a broadband lifeline subsidy is a good 
start, and I intend to add my name as a cosponsor.
    However, although it is critically important in many cases, 
monthly price isn't always the biggest reason that people 
aren't online at home. There is the other program, Link-Up, 
that needs to be addressed also in ``Universal Service 2.0,'' 
because there are other barriers, like access to a computer or 
even a lack of understanding the benefits of broadband.
    Some people suggest that we shouldn't be subsidizing 
telephone service for upper-income communities in areas like 
Aspen, Colorado. Perhaps we need to consider legislation that 
will move the Universal Service Fund to a voucher system for 
low-income consumers that will allow them to communicate in the 
ways that they want to. I am interested in learning if that is 
a viable solution to meet the goals of ``Universal Service 
2.0.''
    I look forward to hearing from our panelists today, and I 
look forward to asking some questions, Mr. Chairman. Thank you.
    Mr. Boucher. Thank you very much. I appreciate your 
comments this morning.
    The gentlelady from Tennessee, Mrs. Blackburn, is 
recognized for 2 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman. I do thank you for 
the hearing. I know that you and Mr. Terry are hard at work on 
this issue.
    And I want to say welcome to all of our visitors here 
today. It looks like, with the large number of you, we are 
going to be spending the day together talking about this issue. 
But I am glad that you are here.
    And I hope that, as we go through this hearing today, that 
we are going to touch on a number of issues that really need to 
be addressed: the intercarrier compensation, competitive 
bidding, caps on the USF distribution, the reverse auctioning, 
cost of this to the consumer. Several of us have mentioned 
these, and, as you know, they are of concern to us.
    I am concerned that the legislation in its current form 
is--we are not really addressing hitting the problems that we 
are hearing from our constituents. We are just not hitting them 
head-on. And I think the American people have grown ill and 
fatigued of lots of talk. They want to see some action on some 
issues.
    I am hearing from some of my constituents who would be 
affected by this, why is it not going to dramatically increase 
access or improve access? Exactly what is going to happen with 
the broadband plan and expansion; how are you going to handle 
that?
    Mr. Shimkus mentioned Net neutrality. I term it ``fairness 
doctrine for the Internet.'' Indeed, there is concern about 
complications and how that would be handled.
    People are concerned that we put taxes on the books and 
then we don't take taxes off the books, but we cannot always 
define what is a better use or a fair distribution for those 
taxes.
    So there is plenty for us to look at and talk about. And I 
do hope we are going to have some good common sense coming from 
all of you.
    I want to say a special welcome, Mr. Chairman, if I may, to 
Mr. Greer, who is from Tennessee and is someone that I enjoy my 
conversations with when we talk about how this affects our 
rural areas and as we look at the telecommunications issues in 
the rural areas.
    I also want to say a special welcome to Mr. Graham, who 
graduated from Mississippi State University and, like me, a 
fellow bulldog. Looking at you, I can tell you were there much 
later in life than was I and that you probably graduated many 
years after I had left. But welcome. We are glad you are here.
    I yield back.
    Mr. Boucher. Thank you, Mrs. Blackburn.
    The gentlelady from California, Ms. Matsui, is recognized 
for 2 minutes.
    Ms. Matsui. Thank you, Mr. Chairman. And thank you very 
much for holding this hearing today on reforming the Universal 
Service Fund. I would also like to commend your efforts to 
expand broadband access to more Americans in your draft USF 
reform legislation.
    And I would like to thank the witnesses for joining us 
today.
    I would also like to thank Ms. Eshoo and Mr. Doyle for 
their supportive comments on my Broadband Affordability Act.
    In today's economy, the Internet has become a necessity, 
not a luxury. Americans need it to obtain emergency information 
for educational purposes, to find low-cost health-care options, 
and to seek employment assistance. In fact, about 75 percent of 
all large U.S. employers now require applicants to apply 
online, creating a significant disadvantage for those without 
broadband.
    We need to not only expand broadband access but also to 
address the fact that millions of Americans simply cannot 
afford to pay up to $60 a month for broadband. A recent ITIF 
study found that 96 percent of Americans have access to 
broadband services, while less than 65 percent actually 
subscribe.
    Other current prominent studies by the Pew Institute and 
PPIC have strongly suggested that broadband adoption rates are 
largely associated with income. Lower-income families in urban 
and rural areas are severely disadvantaged in large part by the 
lack of access to affordable broadband services.
    To help close the digital divide, I have introduced the 
``Broadband Affordability Act,'' which would direct the FCC to 
create a program for universal broadband adoption similar to 
the current USF Lifeline assistance program. The bill will 
ensure that lower-income Americans living in urban and suburban 
and rural areas all have access to affordable broadband 
services. In doing so, households who currently possess 
broadband options but have not subscribed because of cost would 
no longer be unserved or underserved.
    It is my hope that any USF reform legislation helps bridge 
this Nation's digital divide by addressing affordability 
barriers.
    I look forward to working with Mr. Chairman and Mr. Terry 
and all my colleagues, looking forward. And I yield back the 
balance of my time.
    Mr. Boucher. Thank you very much, Ms. Matsui.
    The gentleman from Oregon, Mr. Walden, is recognized for 2 
minutes.
    Mr. Walden. Thank you very much, Mr. Chairman.
    The topic of today's hearing, Universal Service Fund 
reform, is one that it appears everyone has something to say 
about, judging by the panel of 10 witnesses. And we welcome you 
all. This is a complex matter, So I appreciate your assembling 
such a thorough complement of witnesses, Mr. Chairman. This 
should be most helpful.
    It isn't often that there are two Oregonians in the room 
for one of our subcommittee hearings, but today is one of those 
times. And I welcome my friend, Ray Baum, who is commissioner 
with the Oregon Public Utility Commission and chair of the 
National Association of Regulatory Utility Commissioners' 
Committee on Telecommunications.
    Wearing both these hats and as the State chair of the FCC's 
Joint Board on Universal Service, Ray will share his insight 
with us on USF reform. And I appreciate his testimony, which I 
read through last night.
    During my years as a State legislator, I worked alongside 
Ray, and I found his perspective to be both thoughtful and 
comprehensive. And I am pleased that he is here to help this 
subcommittee in its efforts to reform the USF.
    Congress continues to discuss the issue of ubiquitous 
broadband deployment and how best to achieve it. The FCC, USDA, 
and Commerce Department are engaged in this topic, as well. 
With the Nation's unemployment rate at a 26-year high, Oregon's 
unemployment rate at 11.3 percent, and some counties in my 
district pushing 20 percent, the economic development potential 
that broadband service provides cannot come fast enough.
    I am interested to learn more about the implications, 
however, of using USF to support broadband service. I would 
like to hear from our witnesses about how this would 
functionally work in a district as rural as mine that has 
several counties with population densities less than one person 
per square mile. If you overlaid my district over the East 
Coast, it would start at the Atlantic and end in Ohio.
    I realize that none of our witnesses here today can speak 
to specific problems within, for example, the USF Schools and 
Libraries Program. However, I would like the hearing record to 
reflect that we should address the challenges that applicants 
face in navigating this very complex program. My office has 
been working with the Baker County, Oregon, library district 
for a year and a half on delays it has experienced with 
receiving E-Rate funds. If it is the intent of the USF program 
to support schools and libraries through the E-Rate program, 
then let's make sure it functions properly and remove 
roadblocks which cause applicants to give up completely on that 
program.
    So I welcome the witnesses here today, and I yield back my 
time.
    Mr. Boucher. Thank you very much, Mr. Walden.
    The gentlelady from the Virgin Islands, Mrs. Christensen, 
is recognized for 2 minutes.
    Mrs. Christensen. Thank you, Chairman Boucher. And thank 
you and Ranking Member Stearns for holding this hearing to 
receive testimony on the draft of the Universal Service Fund 
act.
    I also want to commend you, Mr. Chairman and Congressman 
Terry, for your work in drafting the bill and your long-term 
legislative efforts to try to keep the Universal Service Fund 
program in sync with a rapidly changing technology landscape.
    I am pleased that today we will have an opportunity to have 
a meaningful discussion of the issues that are important to 
reforming the USF, including the overall budget for the High-
Cost Fund, new contribution methodology, and expanding the USF 
support broadband adoption, among others.
    I think everyone is in agreement on the need for reform but 
also on preserving the intent codified in the 1996 act, which 
is to provide affordable telecommunication services across the 
United States.
    As a representative of a district that is a high-cost, 
insular area which reportedly received an estimated $22.5 
million in high-cost support in 2007, we have benefited from 
the program. However, in some areas, like the Virgin Islands, 
funding has been declining for wireline carriers, which 
represents a serious threat to the need for increased 
investment in the telecommunications infrastructure in rural 
areas. It is important that places like the Virgin Islands, 
rural areas with minimal-level competition and a small market, 
that they are not left out or left behind or underserved by 
this critical industry.
    So I look forward to our discussion today on challenges to 
reforming and taking the USF into the 21st century. And I want 
to welcome the panelists, and look forward to the testimony and 
their views on the bill.
    Thank you.
    Mr. Boucher. Thank you very much, Mrs. Christensen.
    The gentleman from Missouri, Mr. Blunt, is recognized for 2 
minutes.
    Mr. Blunt. Thank you, Mr. Chairman.
    I have a statement for the record. Let me just quickly 
summarize that statement, which is really: How do we bring down 
the rapidly growing cost to customers, to consumers here? The 
whole topic of unserved versus underserved is of concern to me. 
And how do we control the cost of the program? And is the 
definition of ``underserved'' and ``served'' part of that?
    And I will submit my full statement for the record, Mr. 
Chairman. And thank you.
    [The prepared statement of Mr. Blunt follows:]

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    Mr. Boucher. Thank you very much, Mr. Blunt.
    The gentlelady from Florida, Ms. Castor, is recognized for 
2 minutes.
    Ms. Castor. Good morning. Thank you, Mr. Chairman, for 
holding this important hearing and for the progress that you 
and Representative Terry have made in beginning to craft a 
bill.
    My State of Florida has a particular interest in universal 
service reform because, out of all the States in the Union, 
Florida is the single largest contributor to the fund. In 2007, 
Florida consumers made a net contribution of $297 million to 
the Universal Service Fund. Floridians paid in about $480 
million and received $180 million of that back in support, 
largely, for schools and libraries.
    The overriding goal of the USF is laudable, but it is 
unclear that the draft adequately addresses inequities in 
distribution or modernizes the USF with concepts like those 
contained in Congresswoman Matsui's bill relating to broadband 
and low-income consumers.
    Florida's disproportionate contribution has only been 
exacerbated by the out-of-control growth in the High-Cost Fund. 
So I am pleased that the discussion draft contains a cap on the 
High-Cost Fund and other measures to hold down the growth in 
the fund.
    I am interested in the witnesses' opinions regarding the 
auction mechanisms and whether such auctions will be effective 
in reducing the growth in wasteful and duplicative spending 
that has been driven by the identical support rule.
    And, Mr. Chairman, prior to markup, it would be helpful to 
see an analysis, monetarily, of the effect of these changes. 
Several of the changes proposed in this bill have the potential 
to further grow the fund. And, while I understand the 
importance of some of these changes, I do not believe we should 
expand the fund except in the context of a solution to the 
inequities in the contribution and distribution methodologies 
that exists today.
    Thank you, and I look forward to the testimony of the 
panel.
    Mr. Boucher. Thank you very much, Ms. Castor.
    Is Mr. Buyer here? No, he has not arrived.
    The gentleman from Michigan, Mr. Stupak, is recognized for 
2 minutes.
    Mr. Stupak. Mr. Chairman, I will waive and ask for an extra 
2 minutes for questions.
    Mr. Boucher. Thank you, Mr. Stupak. Two minutes will be 
added to your questioning time.
    The gentleman from Ohio, Mr. Space, is recognized for 2 
minutes.
    Mr. Space. Thank you, Chairman Boucher and Ranking Member 
Stearns, for convening today's hearing.
    I would also like to thank our witnesses for taking their 
time to be here today, as well.
    Mr. Chairman, I applaud your efforts, along with those of 
Mr. Terry, to reform the Universal Service Fund through the 
draft legislation that we are considering today. As I have 
shared many times before, the 18th Congressional District is 
largely rural. Fourteen of my 16 counties are within 
Appalachian proper. And, that said, we are the poster child for 
the Universal Service Fund support.
    Many of our towns are small, insular, and expensive for 
providers to serve, and much of my district, consequently, 
lacks access to broadband. And as my colleague from Oregon 
stated, this has an extremely significant effect on our 
economic development and the potential afforded by the advent 
of new and diverse technology.
    It also has an extremely detrimental effect on our ability 
to deliver health care and education. What we are seeing now is 
really the beginning of the integration of technology into 
those processes, and we can no longer afford to remain so far 
behind in such a vital area.
    I am extremely pleased to see that Chairman Boucher and 
Congressman Terry's draft bill explicitly authorizes the 
coverage of broadband under the Universal High-Cost Fund. I 
believe that, coupled with the investment we have made through 
the American Recovery and Reinvestment Act, we are on the path 
to ensuring that Americans everywhere, regardless of how rural 
their hometown is, may have equitable access to vital 
infrastructure.
    I further support the efforts of my colleagues to restore 
some accountability and cost containment to the Universal 
Service Fund through sensible auditing and oversight provisions 
and through capping the fund with built-in accommodations for 
future changes.
    I look forward to continuing to work on Universal Service 
Fund reform with my colleagues on this committee. And I think 
we all agree that such reform is long past overdue and that 
rural areas of our country have, in the meantime, gone 
shortchanged.
    Thank you, and I yield back.
    Mr. Boucher. Thank you, Mr. Space.
    The gentleman from Vermont, Mr. Welch, is recognized for 2 
minutes.
    Mr. Welch. Thank you. I am going to reserve my time.
    Mr. Boucher. That is fine. Thank you, Mr. Welch.
    The gentleman from California, Mr. McNerney, is recognized 
for 2 minutes.
    Mr. McNerney. Thank you, Mr. Chairman. I will waive my 
opening statement.
    Mr. Boucher. Thank you, Mr. McNerney.
    The gentleman from North Carolina, Mr. Butterfield, is 
recognized for 2 minutes.
    Mr. Butterfield. Let me thank you, Mr. Chairman, for your 
outstanding work on this issue and for the work you and your 
staff have put into developing your Universal Service Reform 
Act discussion draft.
    As a member of this committee who represents a particularly 
rural district in my State of North Carolina, I am acutely 
aware of the need for the USF and to ensure telecommunication 
services are made available to the high-cost remote areas of 
our country. At the same time, should we do nothing to reform 
USF, we put ourselves on an unsustainable path, a path that 
already projects the contribution factor rising to over 14 
percent in the coming year.
    I am pleased to see much-needed provisions addressed in the 
Boucher-Terry universal service draft, including requiring USF 
recipients to include broadband Internet access; broadening the 
base of contributors to help bring down the rising contribution 
factor; directing the FCC to address the intercarrier 
compensation system; and targeting support to rural wire 
centers as opposed to a formula based on statewide averaging. 
And these are steps in the right direction. And I look forward 
to hearing the comments from the witnesses before us today and 
also from my colleagues about these and other proposals.
    Finally, I remain particularly interested in the comments 
of Dr. Rheuban regarding much-needed reforms in the Rural 
Health Care Program. That is very special to me. We have not 
been able to achieve the full effectiveness of this program, 
and I look forward to discussing how the addition of broadband 
services in USF will potentially enhance broadband telehealth 
infrastructure and deployment in the Rural Health Care Program. 
I have been an advocate of telehealth and telemedicine, and I 
believe these health-care delivery tools will be vital in rural 
communities across America.
    And so I want to thank the 10 witnesses. I sat here and 
counted all of you. I want to thank the 10 witnesses on the 
panel, and I look forward to hearing your testimonies today.
    I yield back.
    Mr. Boucher. Thank you, Mr. Butterfield.
    The gentleman from Washington State, Mr. Inslee, is 
recognized for 2 minutes.
    Mr. Inslee. Thank you. And I will pass. Thank you, Mr. 
Chair.
    Mr. Boucher. Thank you, Mr. Inslee.
    All members now having had an opportunity for opening 
statements, we welcome our panel of witnesses. And we thank 
each of you for taking time to join us here this morning.
    I will say just a brief word of introduction about our 
witnesses today.
    Mr. Peter Davidson is senior vice president of public 
affairs, policy, and communications for Verizon.
    Mr. Leslie Greer is the chief executive officer of DTC 
Communications, testifying this morning on behalf of the 
National Telecommunications Cooperative Association, a very 
large organization representing rural carriers.
    Mr. Michael Rhoda is the senior vice president for 
government affairs at Windstream Communications.
    Mr. Joel Lubin is a vice president of public policy for 
AT&T Services, Incorporated.
    Ms. Catherine Moyer is the director of legal and regulatory 
affairs for Pioneer Communications, testifying today on behalf 
of OPATSCO.
    The Honorable Ray Baum is a commissioner of the Oregon 
Public Utility Commission, testifying today on behalf of NARUC.
    Kyle McSlarrow is president and chief executive officer of 
the Cable Television Association.
    Mr. Eric Graham is vice president of government relations 
at Cellular South, Incorporated, testifying today on behalf of 
the Rural Cellular Association.
    Dr. Karen Rheuban is a professor of pediatrics and the 
medical director of the Office of Telemedicine at the 
University of Virginia Health Systems. She also serves as 
president of the American Telemedicine Association and as board 
chair of the Virginia Telehealth Network.
    Mr. Gregory Rosston is a deputy director at the Stanford 
Institute for Economic Policy Research at Stanford University.
    Without objection, all of your opening statements will be 
made a part of the record, and we would encourage your oral 
summaries. And, given the number of you this morning, we would 
ask that you try to hold those statements to approximately 5 
minutes.
    Mr. Davidson, we will be happy to begin with you.

 STATEMENTS OF PETER DAVIDSON, SENIOR VICE PRESIDENT OF PUBLIC 
  AFFAIRS, POLICY, AND COMMUNICATIONS, VERIZON; LESLIE GREER, 
  CHIEF EXECUTIVE OFFICER, DTC COMMUNICATIONS; MICHAEL RHODA, 
   SENIOR VICE PRESIDENT FOR GOVERNMENT AFFAIRS, WINDSTREAM 
  COMMUNICATIONS, INC.; JOEL LUBIN, VICE PRESIDENT OF PUBLIC 
 POLICY, AT&T SERVICES, INC.; CATHERINE MOYER, DIRECTOR, LEGAL 
AND REGULATORY AFFAIRS, PIONEER COMMUNICATIONS; HON. RAY BAUM, 
 CHAIRMAN, NARUC COMMITTEE ON TELECOMMUNICATIONS, STATE CHAIR, 
 FEDERAL-STATE JOINT BOARD ON UNIVERSAL SERVICE, COMMISSIONER, 
OREGON PUBLIC UTILITY COMMISSION; KYLE McSLARROW, PRESIDENT AND 
CHIEF EXECUTIVE OFFICER, NATIONAL CABLE AND TELECOMMUNICATIONS 
    ASSOCIATION; ERIC GRAHAM, VICE PRESIDENT OF GOVERNMENT 
    RELATIONS, CELLULAR SOUTH, INC.; KAREN RHEUBAN, SENIOR 
 ASSOCIATE DEAN FOR CME AND EXTERNAL AFFAIRS MEDICAL DIRECTOR, 
  OFFICE OF TELEMEDICINE, UNIVERSITY OF VIRGINIA; AND GREGORY 
   ROSSTON, DEPUTY DIRECTOR, STANFORD INSTITUTE FOR ECONOMIC 
                        POLICY RESEARCH

                 STATEMENT OF PETER B. DAVIDSON

    Mr. Davidson. Thank you. Good morning, everyone. Thank you, 
Chairman Boucher, Ranking Member Stearns, and members of the 
committee. Thank you for the opportunity to address the 
committee this morning on the new Universal Service Reform Act 
of 2009 circulated recently by Chairman Boucher and Mr. Terry.
    This committee has always been a leading voice on universal 
service reform, and today we endorse the Boucher-Terry 
legislation because we believe it embraces policies to reform 
and sustain the fund. It directs funds to meet the true 
communications needs of consumers. We will continue to work 
with the sponsors and this committee to ensure that this 
legislation accomplishes the objectives of modernizing the 
universal service program so that it meets the needs of 
Americans in the 21st century.
    In the past decade, the communications industry has 
invested hundreds of billions of dollars in private capital to 
deploy new, innovative broadband technologies. Recently, 
Congress passed mapping legislation, funded broadband grants 
for unserved areas, and now we have a full complement of FCC 
commissioners focusing on broadband adoption and deployment 
policies.
    Encouraging deployment and adoption of next-generation 
networks will keep America competitive in our global economy 
and will help address some of our most pressing challenges, 
such as health-care reform, education, and energy conservation.
    We also believe that there should be a role for the 
Universal Service Fund related to broadband. But right now the 
fund is in trouble and, left unchanged, is in no shape to 
contribute to the broadband solution. The USF contribution 
factor is near an all-time high and, just to pay the fund at 
today's levels, as everyone has noted this morning, is 
projected to rise again next year to more than 14 percent. When 
added to other communications charges and fees, these 
assessments really hit consumers hard, especially in these 
economic times, and this trend is simply unsustainable.
    The problem with universal service is not that we spend too 
little money; it is that we do not spend it on the right 
services in the right places. We cannot put off any longer the 
tough choices on major issues. We must fix the broken universal 
service framework before layering on additional priorities.
    Verizon supports the draft Universal Service Reform Act 
because it takes a big step toward addressing five of the most 
pressing issues: one, an overall budget for the High-Cost Fund; 
two, a contribution methodology; three, competitive bidding for 
wireless support; four, a date certain for related reform of 
intercarrier compensation; and, five, an end to traffic 
pumping.
    Allow me to briefly--and I will be brief--address each of 
these points.
    First, the bill recognizes the need to set an overall 
budget for the High-Cost Fund. This is important because 
consumers pay for the fund, and consumers have limited 
resources. The High-Cost Fund is already at a tipping point, 
having grown to about $4.5 billion from less than $3.5 billion 
only 5 years ago while the assessable revenue base declines 
rapidly. Without some restraint, the USF contribution factor 
will surely rise to 15 percent, perhaps even 20 percent or 
more. We simply must have the discipline at the outset of any 
overhaul of the High-Cost Fund to define some reasonable 
funding boundaries.
    Second, the way that we fund the fund, through an 
assessment on interstate revenues, is a mess. This system may 
have worked in the days of one network and only two services--
local and long-distance calls--but it is not practical with the 
converged, any-distance services consumers expect today. The 
draft bill acknowledges the need to update the universal 
service contribution system and would commit the FCC to take a 
hard look at an alternative contribution system. For many 
reasons, the best contribution method is one mentioned in the 
bill, a flat charge on each working phone number, to pay for 
all or part of the USF contribution base.
    Third, a competitive bidding system is the best way to 
distribute high-cost support to wireless carriers. The draft 
bill recognizes the benefits of this market-based approach and 
sensibly puts in place a forward-looking competitive bidding 
system to support and expand the reach of wireless networks. 
The FCC will need to address quality-of-service requirements 
and rules in a competitive bidding system, but that is 
manageable through legally enforceable contracts signed with 
those wireless carriers that win the bid to provide service in 
high-cost areas, just as the Federal Government does in 
hundreds of procurement areas to ensure quality of goods and 
services.
    Fourth, we must fix the broken intercarrier compensation 
system at the same time that we update the Universal Service 
Fund. All that is needed is the resolve to get this done. And 
the draft Universal Service Reform Act requires the FCC to act 
on intercarrier compensation reform within 1 year. That is 
certainly workable.
    And, fifth, we have to stop the so-called ``traffic-pumping 
schemes'' that have plagued the industry the last several 
years. The draft Universal Service Reform Act would help do 
that by making it illegal for traffic pumpers to charge other 
carriers for access on traffic subject to those revenue-sharing 
agreements.
    Mr. Chairman, with your and the committee's leadership, the 
Universal Service Reform Act, we can get the fund back on the 
path of sustainability and focused on meeting the 
telecommunications needs of our country. And I thank you for 
the opportunity to testify here this morning.
    [The prepared statement of Mr. Davidson follows:]

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    Mr. Boucher. Thank you very much, Mr. Davidson.
    Mr. Greer.

                   STATEMENT OF LESLIE GREER

    Mr. Greer. Chairman Boucher, Ranking Member Stearns, 
members of the subcommittee, good morning, and thank you for 
the invitation to participate in today's discussion regarding 
the Universal Service Reform Act of 2009.
    My name is Leslie Greer. I am the CEO of DTC Communications 
in Alexandria, Tennessee. As a resident of Tennessee, I would 
like to take this unique opportunity to thank Representative 
Gordon and Representative Blackburn for their service on the 
subcommittee and to our great State.
    My remarks today are on behalf of DTC Communication, as 
well as NTCA and its other 580-plus community-based members 
that serve rural areas throughout our Nation. NTCA would like 
to recognize Chairman Boucher and Representative Terry for 
their longstanding focus and awareness of the critical need for 
continued universal service support for our Nation's 
telecommunication network, which will help usher in the new era 
of advanced communication.
    The Universal Service Reform Act contains many program 
modifications we have advocated for many years. I will briefly 
outline our position on some of the most critical positions of 
the bill from a rural provider's perspective. However, I would 
like to remind the subcommittee that further analysis of these 
provisions and others can be found in my written testimony.
    Government policies and programs, including universal 
service, are instrumental to the realization of affordable and 
comparable telephone service for all. The United States public 
switched telecommunication network remains the envy of the 
world. The same should be true for the United States national 
broadband network.
    The Universal Service Reform Act takes many important steps 
toward making this a reality. However, to achieve truly 
ubiquitous broadband, much more needs to be done. Therefore, 
NTCA looks forward to continue working with the FCC in the 
coming months to develop a national broadband plan to meet the 
needs of broadband networks in high-cost rural areas throughout 
the country to ensure Americans living in these areas are not 
denied the opportunity to realize the full promise of the 
Internet.
    The bill would expand assessments of contributions. NTCA 
supports this change and believes all broadband access 
providers should contribute to the Universal Service Fund. This 
change alone will dramatically reduce the quarterly 
contribution factor on all providers while simultaneously 
ensuring that all those who utilize and benefit from the 
network are, in fact, supporting it.
    The bill gives the FCC the authority to determine whether 
to use a contribution methodology based on revenues, numbers, 
or a combination of the two and requires a study and findings 
in support of the method chosen.
    Telephone numbers have nothing to do with broadband 
Internet access, which will be the basis for all communication 
services in the future. With this in mind, as well as other 
provisions that ensure all revenues may be assessed, it is 
clear the FCC study will have to arrive at the correct 
conclusion that the tested and proven revenues approach must be 
used.
    NTCA recognizes the fundamental roles audits play in the 
oversight of policies and programs if they are conducted 
appropriately. Unfortunately, the audit process has mostly been 
a failure. Therefore, we support efforts by Congress and the 
provisions included in this bill to ensure the FCC uses 
appropriate audit methodologies.
    The solution for intercarrier compensation is a simple one. 
If a service provider uses another provider's network, that 
service provider must compensate the other provider for such 
use at an appropriate rate. We fully support the bill's 
provisions directing the FCC to reform intercarrier 
compensation within 1 year.
    The Universal Service Reform Act requires carriers to 
identify all traffic on their network and to pass through 
traffic identification details. NTCA supports this provision to 
eliminate phantom traffic, which has become one of the most 
pervasive problems facing the telecommunications industry 
today.
    NTCA supports the elimination of the FCC's long-standing, 
arcane and nonsensical identical support rule that allows a 
competitor in a given market to receive support based on the 
incumbent's embedded costs, even though the competitor's costs 
are usually far less because they have not been required to 
serve all customers throughout the market areas as incumbents 
have to.
    The draft contains other provisions that will help ensure 
this program's effective operations, including primary line and 
Antideficiency Act prohibitions, removal of the parent trap, 
and allowances to accommodate potential future regulatory 
shifts of intercarrier compensation or access charges within 
the universal service system.
    With these things in mind, we support passage of this bill.
    Thank you, and I look forward to answering any questions 
you may have.
    Mr. Boucher. Thank you very much, Mr. Greer.
    [The prepared statement of Mr. Greer follows:]

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    Mr. Boucher. Mr. Rhoda.


                   STATEMENT OF MICHAEL RHODA

    Mr. Rhoda. Chairman Boucher, Ranking Member Stearns and 
members of the subcommittee, thank you for this opportunity 
this morning to discuss our views on the draft text of the 
Universal Service Fund Act of 2009. My name is Mike Rhoda, and 
I am the Senior Vice President for Government Affairs at 
Windstream, which provides communications and entertainment 
services to consumers in 16 States.
    Windstream serves more than 3 million voice customers and 
more than 1 million high speed Internet customers. We provide 
affordable broadband services at speeds of at least three megs 
to virtually every community in our service territory and we 
have deployed high speed Internet access to more than 90 
percent of our voice customers. Windstream's service areas are 
primarily rural, with an average density of 19 customers per 
square mile.
    Mr. Chairman, let me say that I have great respect for your 
and Mr. Terry's work, and thanks to your bipartisan leadership, 
the draft bill fairly balances the many conflicting interests 
in this complex area. Windstream supports passage of this bill.
    Unlike other rural carriers, Windstream receives relatively 
little high cost support on a per line basis. Instead, 
Windstream must implicitly subsidize service for customers in 
remote high cost areas with revenues from its customers in 
larger, more densely populated towns.
    More than a decade ago, Congress recognized in Section 254 
of the Communications Act that such implicit subsidies would be 
unsustainable in a competitive telecommunications marketplace, 
and, unfortunately, universal service regulations remain 
virtually unchanged since that time.
    We have seen the programming's shortcomings up close. A 
good example is one of our customers residing in rural Nebraska 
who recently contacted us to ask why he could not purchase 
broadband at speeds comparable to his rural neighbors down the 
road. His neighbors are served by a smaller company whose 
network has been modernized by universal service. His 
frustration is understandable.
    Windstream's commitment to deploying affordable broadband 
in rural America is undeniable, but existing universal service 
mechanisms have created drastic imbalances in rural Nebraska 
and rural America at large. Some high cost areas receive 
arguably too much support, while many others receive far too 
little or no support at all. While the neighboring companies in 
this example receive an average of $800 annually per line in 
support, Windstream's Nebraska operations receive approximately 
$10 per line annually.
    The Boucher-Terry bill takes a large step toward 
eliminating these disparities in high cost rural areas by 
narrowly targeting support to those areas that need it most. 
The bill's use of targeting eliminates two significant 
shortcomings of the current system.
    First, under the rule mechanism, price kept carriers costs 
are averaged across study areas, which can cover vast 
geographies. A single Windstream study area stretches the full 
width of Texas, a distance of more than 700 miles, and contains 
more than 200 exchanges, ranging in size from 44,000 customers 
to 47. With competitive pressures mounting and lower costs and 
more densely populated areas, severe strains are placed on a 
carrier's operations because low cost wire centers no longer 
generate sufficient revenues to offset costs in remote higher 
cost areas.
    The second problem lies with the non-rural mechanism's 
classification of entire States as either eligible or not 
eligible based on statewide average costs. This limitation 
disqualifies rural areas in a State like California from 
receiving support, no matter how small, how remote or how 
costly a community is to serve.
    The Boucher-Terry draft establishes a sensible transition 
path for incorporating broadband into universal service. The 
strength of the Boucher-Terry draft is that it sets the Nation 
on a path to universal broadband, but with recognition of the 
significant costs to achieve this goal and an opportunity to 
amortize those costs over time.
    Finally, Windstream strongly supports the bill's 
recognition of the important role that revenues from the 
existing intercarrier compensation mechanisms play in 
offsetting the high costs in rural areas.
    Many on this subcommittee remember that one year ago, the 
FCC considered a proposal to eliminate most intercarrier 
compensation revenues. That proposal would have been disastrous 
for consumers and businesses in high cost rural areas. 
Windstream recognizes that the current rates and arcane rules 
of intercarrier compensation are unsustainable and the company 
has presented practical alternatives to the FCC that would not 
hobble the ability of mid-sized carriers to serve rural 
consumers.
    In closing, Mr. Chairman, I would like to assure all 
members of this subcommittee that there is broad agreement 
within the telecom industry on the need for significant 
universal service reform and that that reform is long overdue. 
While reforms carry certain risks, the larger risk is to stand 
by and watch well-documented problems continue to pull down 
communities and consumers residing in rural America. 
Significant change is the only way to save this program and 
position it to fulfill its mission.
    Thank you.
    Mr. Boucher. Thank you very much, Mr. Rhoda.
    [The prepared statement of Mr. Rhoda follows:]

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    Mr. Boucher. Mr. Lubin.


                    STATEMENT OF JOEL LUBIN

    Mr. Lubin. Good morning. Thank you, Chairman Boucher, 
Ranking Member Stearns and other members of the subcommittee, 
for again including AT&T in this continuing dialogue of 
universal service reform. AT&T is the largest provider of 
telephone service to rural America.
    This is the second time I have had the opportunity to 
address this subcommittee this year. The first time was in 
March of 2009. At that point in time, when we were talking 
about high cost universal service reform, AT&T identified three 
critical areas that needed to be addressed.
    The first one was contribution reform. Contribution reform 
is so important because it is all about what customers pay and 
which customers pay.
    The second was intercarrier compensation. Intercarrier 
compensation is critical because it is just another form of 
subsidization to rural America.
    The third is, once and for all, to identify an explicit 
endorsement for the use of high cost universal service 
mechanisms to promote the deployment of next generation 
broadband and expanded and improved wireless in rural areas.
    Mr. Chairman and Representative Terry, I wish to 
congratulate you, for this legislation when introduced and 
enacted will address the three items that AT&T highlighted in 
March of 2009. We support and endorse this legislation.
    From AT&T's perspective, universal service, as it exists 
today at both the Federal and State levels, is fundamentally 
grounded on a dying business model and a dying regulatory model 
which no longer serves the foundation of sustainable social 
policy. The plain old telephone service, POTS, by which local 
exchange providers provide basic local exchange service with 
inter-exchange access to long distance service will soon go by 
the way of a slide rule, an earlier casualty of digital 
technology.
    In today's communication marketplace, the only thing 
falling faster than subscribers on local basic service called 
POTS is the switched access minutes on these collective 
networks. In these circumstances, no government could hope to 
prop up the POTS model for long, even if it wanted to, in order 
to sustain universal service. Instead, universal service reform 
must be forward-looking and policymakers must continue to work 
on comprehensive national universal service reform policies in 
order to promote and advance universal service objectives for 
the 21st century.
    The Universal Service Reform Act of 2009 both appropriately 
reflects the insights of its sponsors and the committee 
leadership and recognizes the reality of the rapidly eroding 
implicit subsidies in the disappearing switched access world, 
as well as the need to establish explicit funding mechanisms in 
order to ensure universal service objectives are met for the 
21st century.
    Let me return to the three pressing areas of reform that I 
described before.
    First is with respect to contribution reform. The 
importance of this provision cannot be overemphasized. 
According to the preliminary numbers submitted by the Universal 
Service Administration Company to the FCC a few weeks ago, the 
assessment rate could approach and exceed over 14 percent of 
interstate telecommunications revenues. When I was here in 
March of 2009, that factor was 9.5 percent. In less than a 
year, we see a 50 percent increase.
    We have asked the FCC to act on a long-standing proposal by 
AT&T and Verizon, which is supported by a number of individual 
companies and individual associations, to implement a telephone 
numbers-based contribution mechanism that would address the 
problem posed by the overall reduction of interstate revenues, 
which is the basis for the universal service contribution base. 
This would create a more stable, robust collection mechanism 
for universal service. This is of critical importance to the 
goal of providing more explicit support for a broadband 
deployment.
    Second is the section on intercarrier compensation reform, 
which is also critical for the transition to full deployment of 
broadband, which will accelerate the complete, underlining the 
word ``complete,'' complete elimination of access charges as a 
source of universal service funding. We can debate what the 
rate is, but a rate times zero minutes is going to generate 
zero dollars. And ultimately the question is, if that was 
supporting universal service, how does it work in a broadband 
world? We have needed intercarrier compensation reform for 
years, and the importance of this draft measures requirement 
that the Commission act within one year to complete reform 
initiatives cannot be overstated.
    Further, the bill makes access stimulation charge, some 
people call it access pumping, an unreasonable practice under 
the Communications Act and prohibits local exchange carriers 
from assessing access stimulation or traffic pumping charges.
    Third, AT&T is pleased that the bill creates a statutory 
framework that, once and for all, removes any doubt that it is 
the policy of the United States that the Federal high cost 
funding mechanism be used to promote deployment of broadband 
and expanded and improved wireless in rural areas.
    We look forward to hearing from the other panelists and 
answering your questions. Thank you.
    Mr. Boucher. Thank you very much, Mr. Lubin.
    [The prepared statement of Mr. Lubin follows:]

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    Mr. Boucher. Ms. Moyer.

                  STATEMENT OF CATHERINE MOYER

    Ms. Moyer. Chairman Boucher, Ranking Member Stearns and 
members of the subcommittee, thank you for inviting me to 
appear before you today. I am Catherine Moyer, Director of 
Legal and Regulatory Affairs for Pioneer Communications. 
Pioneer Communications is a rural telephone company 
headquartered in Ulysses, Kansas.
    Mr. Boucher. Ms. Moyer, let me get you to move that 
microphone just a little bit closer and maybe tilt it up a 
little bit so that you are speaking directly into it. Thank 
you.
    Ms. Moyer. Pioneer provides local telephone service to 
approximately 14,000 access lines within a 5,000 square mile 
service area. Of these 5,000 square miles, only about 15 square 
miles could be considered town. The remainder of our area is 
truly rural. In addition to phone service, Pioneer 
Communications provides cable television service, Internet 
access and wireless phone service.
    I testify today as first vice chairman of the Organization 
for the Promotion and Advancement of Small Telecommunications 
Companies. OPASTCO represents more than 530 independently-owned 
local exchange carriers in 47 States. The companies and 
cooperatives represented by this association provide numerous 
services to their communities, including voice, broadband 
Internet access, video and wireless.
    First of all, let me state our appreciation to Chairman 
Boucher and to Congressman Terry for the leadership that both 
have shown on the reform of the Universal Service Fund. This 
program has a successful history of assisting communications 
and network providers in their service to rural and low income 
consumers. We look forward to working with Congress and the 
Federal Communications Commission to make the USF a part of a 
forward looking solution in the ever changing communications 
arena.
    The goal of universal service policy has been to ensure 
that every American, regardless of their location, has 
affordable, high quality access to the public switch network 
and thereby benefits from a variety of telecommunications and 
information services.
    The provision of a robust telecommunications infrastructure 
in rural America would never have been possible were it not for 
the Nation's long-established policy of universal service and 
the Federal USF. To rural incumbent local exchange carriers, 
high cost universal service support is a cost recovery program 
designed to promote infrastructure investment in areas where it 
would not otherwise be feasible for carriers to provide quality 
service at rates that are affordable and reasonably comparable 
to urban areas of the country.
    I come before you today to endorse and support the draft 
legislation offered by Chairman Boucher and Congressman Terry. 
While the membership of OPASTCO has concerns about some of the 
specifics contained in the text, the draft is a forward looking 
document. We commend Congressmen Boucher and Terry for their 
understanding of the ongoing revenue stream the USF provides 
and how it benefits consumers in rural and hard to reach areas 
of our country. This ongoing revenue stream keeps rates 
affordable for rural consumers as carriers utilize it to pay 
for switching, transport and network maintenance. This draft 
transitions the plain old telephone support fund into a new and 
modern broadband support fund.
    The drafts continues the call for universal service support 
that allows consumers in rural, insular or high cost areas to 
have services and rates reasonably comparable to those provided 
in urban areas. Its contribution mechanisms will allow for the 
continued support of schools and libraries, rural health care 
and low income consumers.
    This draft expands universal service support to include 
high speed broadband service and any other service that is 
determined to be a universal service by the FCC.
    We applaud this forward-looking move to provide support for 
the broadband platform. Broadband is rapidly becoming the mode 
of delivery for practically everything consumers may need or 
want regarding communications, voice, data, education, health 
care and entertainment, just to list a few.
    Recipients of the high cost fund support would be required 
to provide high speed broadband service defined as a download 
rate of 1.5 megabytes per second. This draft mandates that the 
FCC review that speed requirement by annually and make 
necessary adjustments. OPASTCO suggests that the FCC also 
review the USF funding level and ensure that the amount allows 
for the adjusted speed requirements.
    Additionally, OPASTCO supports the eligibility criteria and 
waiver process included in the draft which takes into 
consideration the many difficulties experienced by 
communications providers in rural and hard-to-reach areas.
    Additionally, OPASTCO supports, one, broadening the base of 
contributors to the Universal Service Fund. Expanding this base 
recognizes our modern broadband world. A broadband network with 
the most possible connections, regardless of technology, is the 
most valuable network.
    Two, the cost controls included with the limitation of the 
number of competitive carriers that receive support.
    Three, the recognition of the importance of intercarrier 
compensation and its contribution to the USF with the mandate 
that the FCC act on intercarrier comp reform within one year.
    Four, the permanent exemption ever the USF from the 
Antideficiency Act.
    Five, the prohibition of the primary line rule.
    And six, the audit procedures, performance measures and 
reports to Congress.
    In closing, OPASTCO endorses and supports draft legislation 
offered by Chairman Boucher and Congressman Terry. OPASTCO and 
its members look forward to working with Congressmen Boucher 
and Terry, members of the subcommittee and Members of Congress 
to ensure that consumers in rural America are not left behind 
and that they have access to services and rates that are 
reasonably comparable to those provided in urban areas.
    I look forward to your questions.
    Mr. Boucher. Thank you very much, Ms. Moyer.
    [The prepared statement of Ms. Moyer follows:]

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    Mr. Boucher. Commissioner Baum.

                     STATEMENT OF RAY BAUM

    Mr. Baum. Chairman Boucher, Ranking Member Stearns, I 
appreciate the opportunity to testify in front of the committee 
today.
    I want to do a little side note. When Commissioner Walden 
and I were serving in the Oregon legislature, we were so young 
we were known as the ``pablum twins.''
    Mr. Walden. Thanks for sharing that, Ray.
    Mr. Baum. We have grown up, as you can tell.
    Mr. Chairman, I would like to thank you and Congressman 
Terry for your leadership on this important issue. I am here 
today in my capacity as a member of the Oregon Public Utility 
Commission and chair of the NARUC Telecommunications Committee 
and State chair of the Federal State Joint Board on Universal 
Service.
    It is my personal belief that broadband deployment is 
essential to the economic development and quality of life for 
the rural communities of America. Those rural communities who 
don't have adequate broadband will be just as disadvantaged 
economically as those rural communities in the first half the 
20th Century that didn't have access to electricity or paved 
highways. Reform of intercarrier comp and USF is essential to 
that broadband deployment.
    I begin by testifying on behalf of NARUC. NARUC 
specifically endorses the following provisions of the bill: The 
provision that protects the States' ability to assess USF 
funds. That that fund generates $1.3 billion for States in 23 
different States through that contribution base. We are 
grateful for the opportunity to continue to assess that.
    We also support the Antideficiency Act exemptions. We also 
support the continued role of the Federal State Joint Board on 
Universal Service in recommending USF reform and designating 
supportive services. We would suggest that after the initial 
18-month period that the bill requires the FCC to act, that you 
add an additional 1-year time clock on the FCC to act on any 
further joint board recommendations.
    We are very pleased with the language requiring compliance 
with applicable State and Federal consumer protections and 
service quality standards. This is key to consumer protection 
and it keeps the State consumer cops on the beat.
    We do have some concerns about the preemption language in 
interstate rate setting. We would propose that we use a more 
cooperative approach, conditioning receipt of USF funds in 
States that mirror the interstate rate, and in return for the 
foregone interstate revenues, those funds would be transferred 
to the Federal fund. In any case, we are committed to working 
with you on modifying this provision of the bill.
    The remaining issues NARUC has not taken a position on, so 
I will speak to them based on my own opinion as my experience 
as Chair of the Universal Service Joint Board and as former 
chairman of the NARUC Intercarrier Compensation Task Force. I 
note that the draft legislation echoes many of the provisions 
in the Joint Board's recommendation of 2 years ago. I applaud 
you for designating broadband as a supported service. Two years 
ago this month, the Joint Board made that same recommendation.
    I would encourage you to make sure that deployment of 
broadband should be a condition of receiving universal service 
funding. The high cost fund should be transitioned to a 
broadband fund and it should focus on unserved areas and anchor 
institutions.
    Mr. Chairman, I believe your 1.5 megabytes is a good start, 
but let me just suggest to you it might be better to realize 
what is coming in the future. I want to kind of up the ante. I 
think that 3 to 5 megabytes for residential customers and 20 to 
50 megabytes for anchor institutions has to be the minimum if 
we are going to face the new broadband world, with appropriate 
waivers for certain unserved areas. These service levels are 
already standard in most urban areas and should be 
comparatively available in check chest as required in the draft 
legislation.
    The wireless auction provisions of the bill are a positive 
step in the right direction. It is a de facto repeal of the 
identical support rule. However, there is a seismic shift in 
the wireless broadband looming on the horizon in open networks. 
It will be the communication device of choice. People want to 
be mobile and want to have broadband. This is a looming 
reality. It is coming upon us and it involves huge amounts of 
spectrum and exponential increases in backbone capacity.
    I would urge you too to encourage the FCC to transition 
intercarrier compensation rates to zero in a 5- to 7-year 
period. They are going away anyway and we might as well plan 
for it, and it won't work at all in the broadband world. We 
need to focus on the efficient use of the funds.
    I also want to add my support to the provisions on phantom 
traffic, traffic pumping, auditing, capping the fund, which the 
Joint Board originally recommended, subject to appropriate 
adjustments based on intercarrier compensation reform, and the 
repeal of the parent trap. The Universal Service Fund should be 
based as much as possible on forward-looking cost models and 
based on a wire center basis as we go forward.
    Mr. Chairman, expeditious implementations the major 
provisions of this draft legislation will greatly mitigate the 
digital divide that exists today between urban and rural 
American and will prevent that divide from becoming an 
irreversible chasm.
    I personally support the major provisions of your bill. We 
cannot address these issues soon enough. The Joint Board is 
committed to working with you and the FCC in achieving these 
goals. We thank you again for your leadership.
    Mr. Boucher. Thank you very much, Commissioner Baum.
    [The prepared statement of Mr. Baum follows:]

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    Mr. Boucher. Mr. McSlarrow.

                  STATEMENT OF KYLE McSLARROW

    Mr. McSlarrow. Mr. Chairman, Mr. Stearns, distinguished 
members of the subcommittee, thank you for having me here.
    Mr. Chairman, I fully appreciate the difficulty in 
assembling this jigsaw puzzle known as Universal Service Fund 
reform, and I congratulate you and Mr. Terry on producing a 
discussion draft which, I think, is a valuable step toward 
addressing issues like cost containment, injecting notions of 
competitive neutrality, both on the distribution side and on 
the contribution side.
    I want to just in the time I have focus on one area where I 
think the draft might be improved with a proposal that I think 
complements the direction that you and Mr. Terry are taking, 
these reforms, and it is to note, I know that members of the 
subcommittee are aware that the cable industry offers broadband 
service to 92 percent of American households.
    Less well-known, perhaps, is that we offer phone service, 
competitive phone service, to 80 percent of American 
households, and I am told it is going to actually reach 90 
percent by the end of this year. In less than a decade, we have 
gone from less than 1 million phone customers to over 20 
million, and, with very few exceptions, cable-digital phone 
service is unsubsidized by the Universal Service Fund reform.
    So our view is that that change in the competitive 
landscape as you think about the future of universal service 
ought to mean something.
    Our proposal is this: That in the rural study areas, for 
example, that receive high cost support today, we already know 
that 40 percent of those rural study areas have a wire line 
unsubsidized competitor, usually a cable company, but not 
necessarily. We don't actually know the answer in those other 
areas. Because of statewide averaging, it is harder to know for 
the non-rural local exchange carriers.
    But in those markets, in those areas where we would say 
there is a competitive unsubsidized wire line phone service to 
more than 75 percent of the households, we would say Universal 
Service Fund, high cost Universal Service Fund support, should 
cease in that marketplace.
    The alternative is in those regions or States where the 
State legislature has itself determined that the level of 
competition means that the retail rates of an incumbent carrier 
should be priced to regulated, we also say that would be 
evidence there is extant competition such that Universal 
Service Fund support should cease.
    So a proposal that we would submit respectfully for your 
consideration is that we set up a process at the FCC where 
people can make a showing with one of those two triggers, 
either evidence of significant competition, evidence of 
deregulation by the States, and set up a process where people 
can figure out how to focus on those noncompetitive areas where 
there indeed might still be requirements for high cost support.
    Every member of this subcommittee today I think has in one 
way or another suggested that they want to put more dollars on 
target in the most efficient way possible. I think injecting 
notions of the changed competitive landscape will help you 
toward that goal.
    I look forward to answering your questions on that or other 
parts of the discussion draft.
    Mr. Boucher. Thank you very much, Mr. McSlarrow.
    [The prepared statement of Mr. McSlarrow follows:]

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    Mr. Boucher. Mr. Graham.

                    STATEMENT OF ERIC GRAHAM

    Mr. Graham. Mr. Chairman, good morning, and thank you for 
the opportunity to be here today to present testimony on behalf 
of Cellular South and as a carrier member of the Rural Cellular 
Association. RCA's nearly 100 carrier members provide 
commercial wireless services covering approximately 83 percent 
of the Nation's geography. As you would expect, much of this 
territory is in rural areas, and therefore many RCA members, 
including Cellular South, are eligible to participate in the 
Federal Universal Service Program. These carriers are using 
support to build high quality networks in some of the most 
rural areas of the country.
    I cannot emphasize enough that for many rural areas, 
universal service support is the difference between high 
quality wireless service and no coverage at all. Today, 
citizens in thousands of places across the country, such as 
Floyd, Virginia, Spray, Oregon, Garnavillo, Maine, Bunker Hill, 
Illinois, and many others are receiving wireless service as a 
result of the Universal Service Fund program.
    For its part, Cellular South has a long history of serving 
rural areas and has used universal service support to provide 
service in places like Ellisville, Mississippi, that simply 
would not have coverage otherwise. This program has allowed 
Cellular South to build a network that covers over 90 percent 
of the state of Mississippi, and upon which cities, counties 
and state agencies depend for reliable wireless services.
    RCA believes in rural America and its members value the 
people who live there. In Cellular South's 20 years of serving 
rural areas, we have come to understand what rural consumers 
want in their wireless service. It is very simple. They want 
the same things that people in Washington, D.C., Boston, 
Massachusetts, Los Angeles California and New York City want: 
quality coverage, modern technology, the latest devices and the 
ability to access compatible networks wherever they go.
    While Congress works to modernize and otherwise reform the 
Universal Service Fund, it is critical to keep in mind that 
device exclusivity and data roaming issues must also be 
resolved if Congress still believes that rural Americans should 
have services that are reasonably comparable to those in urban 
areas.
    Today, consumers demand broadband and mobility. 
Policymakers and those of us in the telecom industry have seen 
this coming for years, and everyone in this room has 
acknowledged the need for more broadband services. Yet, since 
2001, the FCC has not released an order that would promote 
rural consumers access to these services.
    Between 2000 and 2008, the FCC subsidized wire line voice 
service to the tune of approximately $26.3 billion while 
funding wireless voice services at approximately $4.6 billion. 
Broadband services received zero.
    The universal service mechanism cannot continue to support 
fixed voice service, 19th century technology, at a rate of over 
$3 billion per year. As the world evolves toward broadband and 
mobile services, so too should the funds to distribution 
mechanisms.
    Accordingly, RCA supports Chairman Boucher's proposal to 
include broadband as a supported service within the Universal 
Service Fund. However, it is absolutely critical that the 
distribution of universal service support is competitively 
neutral. In other words, the distribution mechanism must not 
favor or disfavor any technology or class of carrier. More than 
that, it should not protect any technology or class of carrier. 
Support should be portable, and new entrants and incumbents 
alike should be allowed to compete for customers. This puts 
consumers in charge by increasing choices and consumer choice 
increases service quality and lowers prices.
    RCA is not convinced that reverse options for just one 
class of carrier are consistent with the principles of 
competitive neutrality. To be clear, RCA fully accepts the need 
to sustain the fund. However, we do not believe that reverse 
auctions are the solution, because they sacrifice the goals of 
universal service in the name of sustainability.
    There are a number of structural issues that must be 
overcome before competitive bidding can be a realistic option. 
First and foremost, we have not seen an auction mechanism 
proposed that eliminates the opportunity for USF opponents to 
game the system by submitting artificially low bids in order to 
drive out competition.
    Assuming you could avoid that problem, the proposed auction 
system would limit support in an area to a maximum of two 
providers for a period of up to 10 years. This ensures that no 
new providers will enter that area and it forces policymakers 
into the position of regulating an artificial marketplace, a 
monopoly or duopoly.
    Furthermore, if the goal of reverse auctions is to lessen 
support in a given area and thereby reduce the size of the 
fund, there is no certainty that it will happen under reverse 
auctions.
    Finally, as proposed, reverse auctions exempt the largest 
category of recipients from the high cost portion of the 
Universal Service Fund.
    In conclusion, RCA believes that support in high cost areas 
should be fixed at the amount needed to deliver reasonably 
comparable, high quality services to consumers, with support 
only being awarded when a carrier gets a customer and with that 
support being taken away when the carrier loses a customer. We 
believe that no one should be insulated from competition, and 
we believe that new entrants should be allowed into markets to 
maximize competition and improve choices and service for 
consumers.
    Thank you again for the opportunity to participate today, 
and I look forward to your questions.
    Mr. Boucher. Thank you very much, Mr. Graham.
    [The prepared statement of Mr. Graham follows:]

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    Mr. Boucher. We have several provisions in the draft that 
address the Rural Health Care Fund, and Dr. Rheuban and her 
comments will address those provision. Dr. Rheuban.

                STATEMENT OF KAREN RHEUBAN, M.D.

    Dr. Rheuban. Good morning, and thank you, Chairman Boucher, 
Ranking Member Stearns and other distinguished subcommittee 
members. My name is Dr. Karen Rheuban, and I am a practicing 
pediatric cardiologist and Medical Director of the Office of 
Telemedicine and the University of Virginia. I am also honored 
to serve as president of the American Telemedicine Association. 
Thank you for this opportunity to testify and support the draft 
universal service reform bill.
    The health reform debate has galvanized our Nation. The 
powerful tools of telemedicine and health information 
technologies are key to a transition from care delivered 
episodically in a balkanized model to an integrated systems 
approach. Sound policies must facilitate ubiquitous and 
affordable access to the broadband infrastructure to support 
access to health care using advanced technologies, especially 
for our rural Americans.
    The need for access to care is greater than ever before. 
Our Nation faces a critical shortage of physicians, with a 
projected deficit of 200,000 doctors by 2020. The aging of our 
population has created increasing demands for health care 
services. Access to speciality care is inadequate for many 
Americans.
    Telemedicine programs can be found in every State offering 
clinical services that span the entire spectrum of health care. 
At UVA, we have been privileged to work with Chairman Boucher 
to deploy an extensive telemedicine network connecting more 
than 30 federally-qualified health centers, clinics, hospitals, 
school and correctional facilities in his district, in addition 
to other regions of the Commonwealth.
    Medical specialty societies have endorsed tele-health as an 
effective tool for the delivery of care. As an example, during 
an acute stroke, life-saving, clot-busting therapies 
administered by stroke neurologists through telemedicine have 
been proven to reduce the morbidity, mortality, burden and cost 
of stroke.
    Telemedicine programs improve access to prenatal care. The 
University of Arkansas now reports a 26 percent reduction in 
neonatal mortality attributable to their high risk obstetrics 
telemedicine program.
    Telemedicine plays an important role in chronic disease 
management. The VA's care coordination and home tele-health 
program has resulted in a 19 percent reduction in readmission 
to the hospital and 25 percent reduction in hospital days.
    Each tele-health application relies on broadband 
communication services that meet the need of the specific 
clinical service required. Surgical mentoring requires high 
definition and higher bandwidth, as do the transfer of large 
medical imagine files and video teleconferencing. Remote 
monitoring and home tele-health require less bandwidth.
    Regardless of the clinical application, affordable, 
reliable, secure quality of service is imperative. The rural 
health care program has been critical to tele-health networks 
nationwide. However, statutory and regulatory barriers have 
severely undermined the programs' effectiveness.
    As of June 30, 2009, USAC reports a total disbursement over 
12 years, total, of only $249 million, which is only 5 percent 
of the originally authorized amount.
    For the rural health care program to succeed as intended, a 
number of areas need to be corrected that have been addressed 
in your draft bill. Statutory barriers limit the eligible 
consult origination sites, excluding such important entities as 
nursing homes, EMS providers, and even for-profit rural 
hospitals. For purposes of emergency preparedness or for access 
to emergency care there is no question that rural for-profit 
hospitals serve the public interest.
    The program is bound by definitions of ``rural'' that fail 
to take into account our serious maldistribution of specialty 
health care providers. An expansion of the ``rural'' definition 
would align universal service support with these specialty 
workforce shortages.
    Other administrative barriers, including allowing only 25 
percent support for Internet services, are counter-intuitive in 
an era where most tele-health programs deploy IT-based 
technologies. All communications providers should be eligible 
to participate in the program.
    In 2007, the FCC launched the rural health care pilot 
program, recognizing 69 entities, including UVA, as eligible to 
receive more than $400 million in funds to expand the 
communications infrastructure for health care. As of June 30th, 
beginning the third year of the program, less than $1 million 
had been disbursed.
    This program, albeit well intended, is equally fraught with 
significant barriers. Eligible providers are restricted, no 
funds are available for project management, and yet we have 
applicants who are asked to provide letters of agency from each 
remote site, secure 15 percent in cash as matching funds, 
provide detailed quarterly reporting, even in the absence of 
funding, and sign 5-year contracts for service for purposes of 
sustainability. These obstacles have hindered the program.
    Tele-health services both drive demand for broadband 
adoption and increase access to acute care and chronic disease 
management through networks that include hospitals, clinics, 
physician offices, nursing homes, ambulances, the workplace and 
the home. Broadband provided over wire line, wireless, cable, 
satellite, power lines and other emerging technologies provide 
the communications infrastructure that supports the 
transformation of health care delivery.
    As you have addressed in this bill, our universal service 
programs must be modernized with a closer alignment with our 
health care needs so that one major value proposition of our 
investment in universal service can be achieved--that is an 
improvement in the health of all Americans.
    Thank you.
    Mr. Boucher. Thank you very much, Dr. Rheuban.
    [The prepared statement of Dr. Rheuban follows:]

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    Mr. Boucher. Mr. Rosston.

                  STATEMENT OF GREGORY ROSSTON

    Mr. Rosston. Good morning. Thank you. My boss has always 
told me in order to do a good job, you should pick your 
predecessor. Unfortunately, I have failed in that today, but I 
am going to go ahead with my testimony anyway.
    I would like to thank Chairman Boucher, Ranking Member 
Stearns and members of the subcommittee, with special 
recognition for my representative, Congressman Eshoo, for the 
opportunity to appear before you here on this very important 
matter.
    Before I start, I want to recognize my colleagues, Brad 
Wimmer of the University of Nevada Las Vegas for his work on 
this testimony and our research over the past decade on 
universal service.
    I serve now as Deputy Director of the Stanford Institute 
for Economic Policy Research and have studied universal service 
for more than 10 years.
    We are pleased that you have put forth legislation to 
reform the current universal service program. As with any 
program, it is important to implement universal service in as 
efficient a manner as possible.
    The current discussion draft includes some provisions that 
likely increase the efficiency of the universal service 
program, but changes are possible that could decrease the costs 
substantially without sacrificing coverage or quality. The 
committee should implement legislation that makes revenue 
raising as efficient as possible and harnesses the power of the 
market to drive down subsidies and increase competition for 
consumers.
    First I will address the revenue side. The charges to raise 
money for universal service distort customer behavior and can 
be very costly. The best way to minimize these distortions are 
to have a low tax rate which can be achieved by keeping the 
size of the program relatively small and then deriving the 
revenues from a broad base.
    It is good that the proposed legislation broadens the 
funding base. That should reduce distortion, if the lower tax 
rates do not induce increased spending. Using general tax 
revenues would be a better way to funduniversal service. While 
such an approach may not be politically feasible at this point 
in time, it should be considered.
    The discussion draft has several provisions; declaring 
broadband to be universal service, using wire center averaging, 
the primary line rule, and eliminating the so-called parent 
trap, that have to the potential to increase the size of the 
Universal Service Fund; and some draft provisions have the 
potential to compound harm by decreasing efficiency without any 
offsetting benefits.
    So now I want to move on to service provision. The primary 
reason that a household does not connect to the communication 
network is because the household is not willing or able to pay 
as much for telecommunication services as the price charged. 
The Lifeline and Linkup programs provide subsidies to low 
income households in an attempt to increase subscriptions rates 
among poorer households.
    Representative Matsui has introduced a bill that would 
extend the Lifeline and Linkup programs to cover broadband 
service. We think such a program has the potential to increase 
broadband subscriptions rates among low-income populations, 
although more study is needed before any firm conclusions can 
be drawn.
    The results of our recent research indicate that moving 
money from the Lifeline program to the Linkup side has the 
potential to increase the penetration rate without increasing 
the program size, because Linkup is targeted to households not 
connected and because low-income households face high barriers 
in upfront costs to getting connected.
    The high cost fund subsidizes the companies that provide 
services in the high cost areas. The majority of these 
subsidies are given to the incumbent local exchange carriers, 
or ILECS, and the discussion draft includes several proposals 
that appear to insulate the ILECS from competition for 
subsidies, which, in turn, insulates them from competition.
    It would be best to distribute subsidies to rural customers 
themselves, not to the companies that serve them. Extending a 
program like Lifeline with costs in income based vouchers to 
rural customers and urban customers could accomplish this goal, 
as Mr. Doyle discussed.
    Every dollar in the USF program comes from someone else's 
pocket, so it is important to be careful on how this is spent. 
The rural high cost fund has increased substantially over the 
past several years, but one cause of this, competition, 
provides an indication that the current system is broken and 
that there is room to reduce instead of increase subsidies. 
Competition should drive down subsidies not increase them.
    The discussion draft is a plan to use subsidy auctions, but 
only in very limited circumstances and not for all providers. 
Instead, subsidy auctions should be used pervasively. There 
should be subsidy auctions when there are two or more providers 
of any type, and all providers should participate in a subsidy 
auction. Such expansion of the subsidy auction plan could help 
drive down subsidy payments substantially while at the same 
time protecting consumers.
    The most important feature of the subsidy auctions is that 
the incumbent local exchange providers would be subject to 
competitive discipline in the amount of subsidy that they 
receive for providing service.
    If it truly costs a lot of money to serve households in 
rural areas, companies serving the consumers in those high cost 
areas will end up with relatively high subsidy payments through 
the auction system. But if there are ways to serve the 
customers more efficiently, as Mr. McSlarrow has stated, the 
auction system will reveal it.
    The current system and the system in the current draft do 
not have these critical features. There is little incentive to 
reduce costs or the overall size of the Universal Service Fund. 
Obviously, the design of subsidy auctions needs to be 
considered carefully. But the experience with subsidy auctions 
in other countries and the success with spectrum auctions in 
its United States shows that we can implement such a system in 
a pro-competitive manner.
    Major concern that we have overall is that there not only 
be mechanisms to reduce the growth of the fund, but that there 
also be mechanisms to make the fund as small as possible while 
still satisfying the goal will of connectivity.
    We think that the current bill makes a very good move 
towards broadening the base of support to minimize distortion 
and arbitrage incentives. We also think that it could be 
improved substantially if it were to set up a framework to 
allow competition to reduce the size of the subsidize, because 
that would be in the interests of all consumers. More detail is 
in our written testimony.
    Thank you for having me here today. I am happy to answer 
any questions.
    Mr. Boucher. Thank you, Mr. Rosston.
    [The prepared statement of Mr. Rosston follows:]

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    Mr. Boucher. Our thanks to all of our witnesses for their 
very thoughtful comments here this morning, and particularly 
for the broad consensus in support of the draft legislation 
that you have expressed today.
    I am going to direct several questions to our rural 
representatives, Ms. Moyer and Mr. Greer, and I am going to 
begin by referencing the recommendations made by Mr. McSlarrow, 
where he says that the principles of competitive neutrality may 
be violated where you have wire line voice competition with one 
wire line carrier receiving support and competing with a wire 
line carrier that does not.
    On its face, I think his argument has merit, and I am 
wondering what your response to that is? If we were to consider 
a provision that would prohibit support being provided in those 
instances where you have actual voice competition by wire line, 
limiting the unavailability of support just to the precise 
areas where the competition actually exists, what would be your 
response to that?
    I realize it may be a question of first impression, and if 
you don't have a definitive answer today, that is certainly 
acceptable. But I wanted to pose that to you and get your 
thoughts, at least for the record, this morning.
    Mr. Greer.
    Mr. Greer. Yes, Chairman Boucher. On the surface, we do 
have some concerns with the competitive bidding between the 
two.
    Mr. Boucher. It wouldn't necessarily--let me just interrupt 
to say--be a competitive bidding. I think his proposal doesn't 
actually relate to competitive bidding. It relates to simply 
saying that support would not be available where you have a 
carrier that is offering voice service without support.
    In theory, where you have a carrier that is offering the 
service in that particular study area without support, it 
suggests that support is not necessary in order to sustain a 
service. So he is suggesting that you not have competitive 
bidding. You just deny the support under that circumstance.
    Mr. Greer.
    Mr. Greer. I would like to think on that for just a moment 
real quick.
    Mr. Boucher. That is fine.
    Ms. Moyer.
    Ms. Moyer. I guess I would like to point out that one of 
the problems with our service area with 5,000 square miles is 
that roughly only 15 of those square miles would be what I 
consider town. Within those 15 square miles, there is a cable 
company that serves. It actually belongs to us because no one 
else wanted to come in and provide cable service. But the 
problem being within that 15 square miles, the majority, over 
90 percent of our population is going to reside in those areas.
    So when we get outside of those areas, we are talking about 
very few customers and a very large service area that would 
need to be served. Thus, you are talking about dollars that are 
going to be exponentially related to those very few customers.
    Obviously, I have read NCTA's proposal here just last week, 
but we would be more than happy to submit something further to 
you on the record in writing.
    Mr. Boucher. Well, let me encourage you to think about it 
and to engage with us on that subject. I think a number of 
members are going to have those interests.
    Mr. Greer, would you like to respond further?
    Mr. Greer. Yes, sir. Thank you, Chairman Boucher.
    In those areas to where there is wireless and wire line 
competition, when we look at our USF and how we average our 
costs, we average it over our whole service area. So if you 
just eliminated a portion of that, then our costs in those 
other areas that are unaveraged will actually go up. That is 
one of the concerns we would have, is they may serve a portion 
of our service area, but it doesn't do a complete coverage, so 
it will actually drive up our costs, because we average that 
through our service territory.
    But we also want to get back to you with further comments.
    Mr. Boucher. That is fine. I thank both of you for that. 
Frankly, I would have been somewhat surprised if you had just 
immediately agreed with the entire recommendation.
    Let me pose another question to you. Some have suggested 
that the high cost fund, approximately $4.5 billion per year, 
be repurposed in whole or in part in order to provide broadband 
services. My understanding is that that $4.5 billion each year 
is spoken for. That funding is presently fully subscribed in 
order for you to offer the telephone services that you are 
offering. That money is subscribed for equipment, for 
maintenance, for your normal operations.
    My question to you is what response do you have to the idea 
that some repurposing could take place, with money devoted 
today to those needs being devoted tomorrow to broadband? What 
would happen in your exchanges if that were to occur?
    Ms. Moyer.
    Ms. Moyer. One of the issues is that 2-year lag, the 2 
years in between when we actually put money in the ground and 2 
years later we actually receive the support or the cost 
recovery for those dollars we have already spent. So part of 
that problem going forward is the issue of what happens to what 
I spent in 2009 if in 2010 the entire fund is repurposed.
    There are ongoing maintenance costs that are always going 
to be there. My company is in southwest Kansas. We are several 
hundred miles from any major metropolitan area. That transport 
to any major metropolitan area is huge, not just to mention 
just meeting up with carriers at tandems. So those costs, those 
dollars have already been spent. Then to recover those, there 
needs to be, if in fact we are going to repurpose the fund, 
there seems to be some attention paid to the fact of the 2 year 
lag.
    Mr. Boucher. Very quickly, Mr. Greer.
    Mr. Greer. We concur with those comments as well. 
Currently, the costs that we spend, we are not reimbursed until 
2 years down the road anyway.
    Mr. Boucher. So you do agree that those monies are fully 
subscribed?
    Mr. Greer. They are fully subscribed.
    Mr. Boucher. And there is nothing available really to 
support broadband deployment within the size of the existing 
fund without surrendering the low cost, the affordable 
telephone service that you presently provide?
    Mr. Greer. That is correct.
    Mr. Boucher. Thank you very much. My time has expired. The 
gentleman from Florida, Mr. Stearns, is recognized for 5 
minutes.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Lubin, Vice President of Public Policy, AT&T Services. 
You are probably a good one to answer this, and I have limited 
time so if you could just answer in a very small amount of time 
by the word ``increase'' or ``decrease'' can the key terms to 
use.
    Could you estimate whether each of the following provisions 
is more likely to increase or decrease the size of the fund. 
Or, if it is unclear to you, could you please tell us what 
additional information you would need to provide a cost 
estimate.
    The first one is moving from a geographic to wire-center 
averaging. Does it increase or decrease the fund? That is 
moving from geographic to wire center averaging. Just your 
humble opinion. Just move the mike close to you, if you could.
    Mr. Lubin. It sounds like a simple question, and I will 
give you a simple answer.
     Mr. Stearns. Just does it increase or decrease?
    Mr. Lubin. My guess it is going to increase. However, it is 
a function of what model you use, and the current language in 
the bill says 2.75.
    Mr. Stearns. Using that modeling, would it increase or 
decrease?
    Mr. Lubin. When you say ``using that modeling,'' it is not 
clear to me what model which are using in the bill.
    Mr. Stearns. That is a good point. That goes to the idea 
that you need additional information before you could say 
increase or decrease. At this point you are saying at your 
first hand blush, it increases.
    Mr. Lubin. That particular piece.
    Mr. Stearns. The next one is eliminating the parent trap 
rule. I had that explained to me. I wasn't sure what that is, 
but now I do, and I think you know what the parent trap rule 
is. So would it increase or decrease the fund, eliminating the 
parent trap rule?
    Mr. Lubin. The potential is it would increase. It is a 
function of how many exchanges and lines get sold.
    Mr. Stearns. Creating an alternative recovery mechanism for 
intercarrier compensation revenues.
    Let me repeat that. Creating an alternative recovery 
mechanism for intercarrier compensation revenues. Will that 
increase the size of the fund or decrease it in your opinion?
    Mr. Lubin. That has the potential for increasing. Again, it 
is a function of how and what the benchmarking means.
    Mr. Stearns. OK. So in this question I have given you three 
areas, and it looks like to me in all three areas you said it 
would increase.
    Mr. Lubin. I said the potential is there.
    Mr. Stearns. Potential. OK. Let me have Verizon. Do they 
have any disagreement on this?
    Mr. Greer. No disagreement on that, Representative Stearns. 
I think you are probably getting to the second half of the 
question, which is are there other aspects of the legislation 
that could potentially decrease the size of the fund as well.
    Mr. Stearns. I am happy with the decrease. I am just 
concentrating this morning on what areas that I think might 
increase, just so we have an understanding where the worst case 
scenario would be.
    Mr. Rosston, is there anything you might want to comment on 
this relative to Mr. Lubin's answers?
    Mr. Rosston. No, I agree that I think those all three 
provisions would increase, are likely to increase the size.
    Mr. Stearns. Likely increase. Mr. Lubin has indicated in 
some cases he would need additional information to provide a 
real cost estimate. Do you think you can emphatically say, more 
so than he, he sort of has some qualifying points here. Do you 
feel pretty much that all three of them will increase in your 
mind?
    Mr. Rosston. Mr. Lubin has studied this in much, much more 
detail than I have. But, for example, the parent trap would 
have almost no chance of decreasing the fund, and any sales 
would probably increase the size of the fund, as one example. 
The same would be true of intercarrier compensation.
    Mr. Stearns. Let me go to Mr. McSlarrow. You recommended 
targeting support for broadband services to areas and consumers 
that currently lack service. I guess the first question is, do 
we know those areas and consumers, where they are today? Do we 
know where they are?
    Mr. McSlarrow. I think by and large we do, so I think we do 
have the ability to target support where it is most needed.
    Mr. Stearns. Shouldn't we wait on the results of the 7.2 
billion broadband stimulus and the broadband mapping efforts 
that are currently underway before paying companies even more 
to provide broadband service in areas that may already have it?
    Mr. McSlarrow. I think the answer is yes, but I think it is 
going to happen. I mean, the timeline here, we are already in 
November of 2009. The mapping will get done next year, and any 
plausible scenario where this legislation moves, I think it 
will match up so we have that data.
    Mr. Stearns. So in your opinion, we shouldn't wait?
    Mr. McSlarrow. No, I am not suggesting we wait. What I am 
suggesting is the mapping I think will get done----
    Mr. Stearns. Before the bill passes?
    Mr. McSlarrow. Yes.
    Mr. Stearns. Dr. Rosston, isn't it true that a tax on 
broadband could decrease broadband subscription and inhibit 
adoption?
    Mr. Rosston. Yes. Increasing taxes on broadband to pay 
for--as I said earlier, every dollar you spend comes from 
someone else's pocket. So that would increase the price for 
other people, and they would possibly respond by reducing their 
subscriptions.
    Mr. Stearns. OK.
    Ms. Moyer, do you think in your heart of hearts that the 
bill, as drafted right now, would lower a consumer's bill? I 
mean, would you put your money on it?
    Ms. Moyer. My own money?
    Mr. Stearns. Your own money.
    Ms. Moyer. I truly believe that, by expanding the 
contribution base, yes, it would.
    Mr. Stearns. So in your heart of hearts, you would put your 
own money on this then?
    Ms. Moyer. I guess that is what I am saying.
    Mr. Stearns. OK. Well, you have some skin in the game, so I 
respect your opinion. Thank you.
    Ms. Moyer. Thank you.
    Mr. Boucher. Thank you very much, Mr. Stearns.
    The gentlelady from California, Ms. Eshoo, is recognized 
for 5 minutes.
    Ms. Eshoo. Thank you, Mr. Chairman.
    And thank you to all of the witnesses.
    I have made a point in other hearings and in my 
communications with the NTIA, the FCC, and RUS that high-speed 
should be a primary goal for broadband rollout. I think that 
this legislation sets the floor too low. It defines broadband 
as 1.5 megabits downstream without any upstream requirement, 
and it locks in this speed for 6 very long years. And, as I 
said in my opening statement, you know, I mean, everything has 
changed and continues to change so quickly. Six years is a very 
long time.
    People in rural America deserve, I think, high-speed 
access, as well. And I don't think we should lowball them as 
part of the overall reform efforts. I think we need to keep in 
mind that we have no idea what will be happening in 6 years. 
Telecommunications develops so quickly that this speed might be 
considered a relic by then. So why lock this in for 6 years?
    In the broadband bill that I had put forward, we set forth 
a 50 megabit down and 20 up requirement, which I believed would 
drive investment and spur adoption. But who knows? That might 
even be too slow. So I think we need to use the broadband map 
to determine which speeds are appropriate for a given market.
    So my question to you, the panelists, is, how can we use 
the broadband map to help guide our policy, especially on 
determining the appropriate speed? Do we really need one speed 
for the whole country?
    And I am also concerned about the bill essentially 
maintaining the status quo for the High-Cost Fund. Recipients 
of the fund are not required to provide broadband services, 
which I think is a huge mistake. I mean, I think that we are 
ignoring our future. I think we are ignoring the present, much 
less the future. So I think that there is a big hole in the 
bill in this area.
    And so my second question is, shouldn't the bill require 
the FCC to utilize the new broadband map to determine if an 
area is already served by a provider that may not receive any, 
you know, fund support?
    Is there any sense how much could be saved if we first 
determine which areas--and I think Mr. McSlarrow spoke to this, 
and maybe some others did, as well. Is there any sense how much 
could be saved if we first determined which areas are already 
served by a provider offering voice, video, and data today and 
not receiving any government support?
    And, lastly, if there is anyone that would like to comment 
on Ms. Matsui's bill, which will use the Lifeline Program as a 
base for broadband accessibility for the unserved and the 
underserved populations.
    So those are my three questions, and whomever would like to 
start the ball rolling.
    Good. AT&T is first.
    Mr. Lubin. To me, those are three very important----
    Ms. Eshoo. Can you get closer to the microphone so we can 
hear you? Thanks.
    Mr. Lubin. Three very important questions. The first 
question about speed, and I want to link that question----
    Ms. Eshoo. Can you be as concise as possible, since I asked 
three and I want to get as many answers in as possible? Thanks.
    Mr. Lubin. OK. The issue of speed is all about how much are 
we willing to pay into the fund; meaning, how big is the fund? 
The higher the speed, the more the size of the fund will be. So 
that is a tradeoff for the policymakers if you want it to end 
up being----
    Ms. Eshoo. But what is AT&T's position in this, though?
    Mr. Lubin. AT&T's position with regard to speed, with 
regard to USF, is, if you take USF, then you have to meet 
whatever speed requirement is in the bill, and you are going to 
ultimately be a form of making a commitment to provide all 
comers with that speed. And so our concern with going--even 1.5 
megabit is potentially too high when you start looking at what 
the size of the fund would be. So that is our concern with 
regard to the first question.
    With regard to the second question on unserved areas in 
terms of the mapping, we think that is a very important issue 
to be addressed. And AT&T, April 18, 2008, made a filing teeing 
up this point, where we should focus on unserved areas, thus 
possibly being able to control the size of the fund. So having 
focused on unserved is a very important aspect.
    But I would like to highlight to you, once you do that, in 
particular for the RLECs, if you start looking at the very 
high-cost areas, the presumption is you may reduce the size of 
the fund. I think Ms. Moyer hit right on the head, is that once 
you do that, you may, in fact, start to increase the size of 
the fund.
    With regard to Lifeline, we think as we transition from 
this POTS world to a broadband world, we think a lifeline is 
going to be absolutely critical in a broadband world. Our 
bottom line with regard to Lifeline is we think the whole 
Lifeline plan----
    Ms. Eshoo. How long do you think it is going to take to get 
us to what you are describing, though? Do you think we should 
set this down, the lowest numbers for 6 years, 6 long years? Do 
you think that is good policy for the country?
    Mr. Lubin. Again, it is a question back to how much are you 
willing to fund, how big will it cause the fund--I have already 
heard issues about what the concern of the growth of the fund 
will be. I think if you make it much greater than 1.5, that 
question is on the table.
    If you want to suggest less than 6 years, I think that is a 
valid thing to say. Let's look at it shorter than 6 years. But 
listening to this conversation, clearly, the higher it is, the 
bigger the size of the fund. That is the linkage and the issue.
    Mr. Boucher. Thank you very much, Ms. Eshoo and Mr. Lubin.
    The gentleman from Texas, Mr. Barton, is recognized for 5 
minutes.
    Mr. Barton. Thank you, Mr. Chairman.
    I was watching the hearing in my office, so I heard 
everyone's testimony, and I heard your questions and Mr. 
Stearns's question. So I haven't been present, but I have been 
observant while I have been multitasking.
    I brought my bill. I just got my Verizon bill. And for 
services I pay $26.53. For taxes--actually, it says ``taxes, 
fees, and other Verizon charges,'' whatever that is, $10.49. So 
I am paying 40 percent of my basic phone service in Virginia in 
taxes, fees, and other Verizon charges.
    It seems like--although I did find out that the universal 
service portion of this is fairly minimal because I don't make 
any long-distance charges. Although Virginia does charge me a 
Virginia Federal Universal Service Fund surcharge, Mr. Boucher, 
of 76 cents. And I hope you can do something about that.
    If I wanted to ask a trick question, I would ask Mr. 
Davidson what a sensible minute is. Verizon charges me $2 a 
month for a sensible minute. I have no clue what a sensible 
minute is.
    Mr. Davidson. We will have to get back to you on that, Mr. 
Barton, on the sensible minute. But I doubt it was our idea.
    Mr. Barton. Yes.
    My first question is a rhetorical question. Anybody on the 
panel can answer. When did we first pass universal service? 
When did it become a mandate that there be a universal service 
charge? Anybody know? I would assume in the 1930s. Does anybody 
on the dais know? And I don't----
    Mr. Boucher. Would the gentleman yield for just a moment?
    Mr. Barton. Yes.
    Mr. Boucher. Universal service has been inherent in the 
structure of the telephone network essentially since its 
inception. And it wasn't until the Telecom Act of 1996 that we 
made the universal service subsidies explicit.
    Mr. Barton. But when did we first start charging universal 
service----
    Mr. Boucher. Well, that has been inherent in the structure 
of the flow of revenues essentially ever since we began----
    Mr. Barton. But it wasn't a Federal mandate----
    Mr. Boucher. It was not a mandate. It was just done within 
the industry, where urban residents and users of long distance 
wound up paying somewhat more in order to keep telephone 
service affordable elsewhere.
    Mr. Barton. OK.
    Well, my first question, I am going to ask this to the 
gentleman from Stanford, Dr. Rosston. Is broadband today the 
equivalent of basic telephone service in the 1930s?
    Mr. Rosston. I think that is not an economics question that 
I would answer as an economist. It is probably much--if you 
look at the data, broadband is much more pervasively adopted 
today than telephone service was in the 1930s. Whether you are 
asking that as a values question, I can't answer that. But 
just, sort of, the data shows that broadband has been adopted 
much more rapidly than telephone service was and it is much 
more pervasive than it was in the 1930s.
    Mr. Barton. Well, the reason I ask that is because one of 
the apparent premises of the Boucher-Terry draft is that 
broadband should be equivalent to basic phone service, that it 
is almost an entitlement and should be treated as such. And I 
am not quite ready to go there yet.
    I think broadband is an improvement, I think it is an 
enhancement, I think it is a good thing to have. But if I 
choose to live in very rural America by choice, I like that 
lifestyle, I don't know that--one of the witnesses from one of 
the smaller phone companies basically said, ``People that live 
in rural America expect to have the same services,'' la di da 
di da, ``as people that live in urban America.''
    And I am not sure--I mean, I think you make a value 
decision, if you have a choice of where you live. If you choose 
that rural lifestyle, I don't know that you automatically are 
entitled to the enhancements that require more critical mass 
and a greater population density.
    So that is one of the things I want to work with Mr. 
Boucher and Mr. Terry on, is this broadband mandate.
    My time has expired. I am going to ask one question to Mr. 
McSlarrow. Does the cable industry currently pay a universal 
service charge?
    Mr. McSlarrow. Yes.
    Mr. Barton. You do. Do you support the concept in the 
Boucher-Terry draft that expands the base of who pays the tax?
    Mr. McSlarrow. Yes.
    Mr. Barton. You do. OK.
    Thank you, Mr. Chairman.
    That is not the answer I wanted, but thank you.
    Mr. Boucher. It is the answer that I am glad he gave. Thank 
you very much, Mr. Barton.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    Mr. Rosston, in your testimony, you said you believe that 
subsidies should follow consumers, not companies, to increase 
competition and choice. Do you think, is a reverse auction the 
only way to accomplish that, or could a voucher work? And are 
there any other ways, as well? And what are some of the pros 
and cons of those approaches?
    Mr. Rosston. So, what I said in the testimony is, if you 
had a voucher system that, in my view, would be low-income 
vouchers that were cost-adjusted--so a low-income household in 
a dense, urban area would get a smaller voucher because the 
company would be charging a lower price in that area, and a 
higher voucher in a rural area so that they could afford it in 
a rural area--you could do that. And the voucher could be 
income-tested and cost-tested, sort of like health-care 
vouchers might be adjusted for people's age and health 
conditions, that you would have a voucher for telephone service 
or broadband service.
    And that could be done without an auction, and it would 
cause the consumers to have the ability to choose their 
provider. And the providers would have to compete for the 
service. Whether they wanted 1.5-megabit service or 5-megabit 
or 10-megabit or portable service so that they could use it on 
their wireless phone as opposed to at their home, they would 
have this ability to have companies compete for their business.
    Mr. Doyle. Thank you.
    Mr. McSlarrow, what do you think about those ideas?
    Mr. McSlarrow. I didn't hear the question.
    Mr. Doyle. What do you think about the idea of a voucher 
system or----
    Mr. McSlarrow. I mean, in economic terms, I agree with 
that. And I think any system where we can put more money in the 
hands of the consumers themselves and let them make the choices 
is probably a better system.
    Mr. Doyle. And I also want to give you the opportunity--I 
know that several of the testimonies from the phone companies 
talked about some of the concerns they had with your proposal. 
And I wanted to give you an opportunity to maybe address some 
of those concerns that were brought up about your proposal.
    Mr. McSlarrow. Thank you.
    The first thing I would say is that what we are proposing 
is, in essence, a framework. There is no automatic reduction of 
high-cost support. What we are saying is that you apply two 
tests. One is a regulatory test; one is a market competition 
test. If it shows that you have that kind of competition, it 
still allows the incumbent who is receiving support to come 
forward and say, ``Here are all the reasons why, if you took 
out support in a competitive area, my revenues can't cover my 
costs.'' So they still have an opportunity to make a showing 
for some level of support.
    And Ms. Eshoo actually asked a question; I didn't get a 
chance to answer you. Our analysis is that there is about $2 
billion that we would at least, under our proposal, take a look 
at. We are not saying $2 billion goes away. People have the 
opportunity to make those showings back and forth.
    Mr. Doyle. Very good.
    That is all I have, Mr. Chairman. Thank you. I will yield 
back.
    Mr. Boucher. Thank you very much, Mr. Doyle.
    The gentleman from Nebraska, Mr. Terry, is recognized for 5 
minutes.
    Mr. Terry. Thank you, Mr. Chairman.
    And, Mr. Lubin, let's continue this exercise. Assume the 
cap is put in place. Will the fund go up or down?
    Thank you for your answer.
    And Cliff did a great job of, kind of, hitting on what the 
main issue is here. We understand that, with some of these 
reforms, that the costs will have additional pressures. The 
pressures from those items that were brought up, other than 
ICC, which I think is a different issue than what this base 
bill addresses today, would make the fund increase.
    The reason why our rural friends have had a difficult time 
embracing this bill is because of the cap. And I think that is 
an important point to make here, is with the cap, that keeps it 
status quo, albeit with an FCC traditional inflation rate.
    So, with the cap, do you think that that is an adequate 
measure to hold down the explosive costs of high-cost USF?
    Mr. Lubin. With the way in which this bill structures the 
cap and the way in which you just removed three of the items, I 
would say yes.
    Mr. Terry. OK.
    Mr. Lubin. I would also highlight that how you handled the 
wireless issue, with the competitive bidding, there you have 
the opportunity that the aggregate dollars would come down.
    Mr. Terry. And that was my next question. Thank you. You 
just eliminated that for me. I appreciate that.
    But, yes, there are actually cost-cutting measures in here. 
For example, limiting new entrants, especially on the wireless 
side. And we appreciate Verizon and the others helping 
participate in brokering that deal. Limiting new entrants, 
going to actual costs. Is that something that would relieve 
pressure on--the upward pressures on the fund?
    Mr. Lubin. That remains to be seen.
    Mr. Terry. OK.
    The gentleman from Stanford, Doctor--what was your last 
name again?
    Mr. Rosston. Rosston.
    Mr. Terry. Rosston. Economist. Based on your experience as 
an economist, let me throw this scenario out. University of 
Nebraska beats Kansas State. We go to the Holiday Bowl and play 
Stanford. Who wins?
    Mr. Rosston. I will have to get back to you on that.
    Mr. Terry. OK. Good answer.
    But getting to a more serious question, you brought up the 
distortion in the pool. And that is that, as the pool of payers 
grows smaller--and we have heard testimony here-- since those 
that pay the universal service fee into the system, they just 
get billed every, what, 6 months or something by USAC. And now 
it could go as high as 14 to 15 percent. I mean, that is 
something that was unfathomable a year or so ago.
    So, broadening the pool of payers is one of the founding 
principles of this bill. So at least that principle you think 
economically is sound?
    Mr. Rosston. Yes, I think broadening the base of the tax 
will help to reduce distortions from the tax.
    Mr. Terry. And the distortions here have been, I think, 
well set out by the ranking member, former Chairman Barton, 
when he talks about the impact on his bill. Although the USF 
impact is hidden within the charges, and it is not explicit. 
But the fact of the matter is, he is one of those left standing 
paying, and if you broaden the base, his bill could actually go 
down?
    Mr. Rosston. Well, I think that depends on how many bills 
he has and----
    Mr. Terry. And also assuming the cap is in place.
    Mr. Rosston. Well, the cap is--I think it is--it could be--
it is a question of how effective the cap is at reining in 
spending, as well, because there are provisions about whether 
the cap would be effective, I think, about it adjusts for 
working loops as well as inflation. I think those things could 
be tightened down a little bit, as well.
    Mr. Terry. Well, we can look at that. I am going to 
interrupt because I only have a few seconds left.
    And, Ms. Moyer, one of the items that I think will help 
control the costs is having professional, skilled audits done. 
Do you support that? And give us examples of how the audit 
process works today.
    Ms. Moyer. Yes, we fully support that.
    Today's audit procedure, especially at the FCC's OIG 
office, the most recent three rounds of audits have 
unfortunately been performed by auditors who don't know much 
about telecom bookkeeping and finances and, I think, led to 
some erroneous results, many of which USAC has refuted since 
then.
    But to actually do something that is based on FCC 
methodology and with some trained auditors would be welcomed.
    Mr. Boucher. Thank you very much, Mr. Terry.
    The gentlelady from California, Ms. Matsui, is recognized 
for 5 minutes.
    Ms. Matsui. Thank you, Mr. Chairman.
    As I mentioned before in my opening statement, there have 
been several recent reports that strongly suggest that adoption 
rates are largely associated with income. I would like to 
highlight one study that particularly affects my home State of 
California.
    According to the Public Policy Institute of California, 
only 58 percent of Californians earning under $40,000 a year 
subscribe to broadband at home, but, in contrast, 97 percent of 
those earning over $80,000 or more a year subscribe.
    I would like to ask a question of Mr. Rosston, the 
Californian there. It is my understanding that you have 
conducted extensive research on the USF Lifeline/Link-Up 
program. As you know, the price of broadband is not cheap these 
days, usually ranging from $40 to $60 a month. In your studies, 
is there strong evidence to suggest that the price of broadband 
is a determining subscribership factor of many low-income 
Americans in urban and rural areas?
    Mr. Rosston. So, my research is focused on Lifeline and 
Link-Up for telephone service and not necessarily for 
broadband, but it would be sacrilegious, as an economist, not 
to say that price matters.
    For low-income households, I think we should study this and 
make sure that any program we have we can figure out, what is 
the impact of price on low-income households? The evidence, in 
our research, is that--there are two programs, Lifeline and 
Link-Up. In our view, we found in our research--we didn't go 
into this thinking about it, but that Link-Up turned out to be 
much more effective because of the high cost for telephone 
service just paying the connection fee. For broadband service, 
you need to not only pay the connection fee, but you also need 
to have a computer and knowledge of how it might work and how 
it might benefit you.
    So, Link-Up targeting those who are not already online is 
probably a very effective way of doing this.
    Ms. Matsui. So you believe that if you had a program 
similar to the Link-Up program, that if it was created for the 
universal broadband, that it would be an effective vehicle to 
expand increased broadband adoption rates?
    Mr. Rosston. Yes, I think the Lifeline and Link-Up program 
would increase broadband adoption rates.
    Ms. Matsui. OK. And your analysis of the current Lifeline/
Link-Up program, would be it accurate to assume that any 
expansion of the program for broadband adoption would be just 
as beneficial for rural consumers as it would be for urban 
consumers?
    Mr. Rosston. Yes, I think so. I think that poor people live 
both in urban and rural areas, and so Lifeline and Link-Up 
would be beneficial in both areas.
    Ms. Matsui. OK. Thank you.
    I have a question for Ms. Moyer and Mr. Rhoda.
    Ms. Moyer, I would like to begin with you. It is well-noted 
that one of the barriers to further broadband deployment in 
rural areas is getting more households to subscribe to 
broadband.
    In your view, would a program for broadband adoption 
similar to the current Lifeline Program help increase adoption 
rates in the communities in which you serve and other rural 
areas across the country? And would it help further the goal of 
broadband deployment in current unserved rural areas?
    Ms. Moyer. Yes, I do agree. And I believe that your 
legislation would spur that adoption, as well as education.
    Ms. Matsui. OK. Thank you.
    And, Mr. Rhoda, could you briefly address the same 
question?
    Mr. Rhoda. We agree, as well.
    As far back as 2006, we talked to the FCC about adoption 
programs. We have been in recently to do the same. And I think 
they need to cover the cost of the device, the laptop, the 
computer. I think that they need to cover education. Some 
people just clearly don't understand the benefits that 
broadband will bring to them. And then they also, finally, need 
to cover the cost for those that can't handle the monthly 
service in some respect.
    So we are fully supportive of your efforts.
    Ms. Matsui. OK. Thank you.
    And I have a question for Mr. Baum. Deployment of broadband 
has reached 96 percent, but subscribership rates have lagged 
far behind, in both urban and rural areas.
    Do you believe Lifeline for broadband would improve 
subscribership rates? And at what price point do you believe or 
do you think would be reasonably affordable?
    Mr. Baum. First of all, the NARUC board of directors passed 
today a resolution supporting your Lifeline bill.
    Ms. Matsui. Oh, thank you.
    Mr. Baum. And we think it is difficult to put the benchmark 
out there, but I would take a wild guess, would be $25, $20, 
something in that neighborhood.
    Ms. Matsui. $25, $20.
    Mr. Baum. But I would probably defer to my colleagues in 
the industry that actually run the models and do this kind of 
thing.
    Ms. Matsui. Does somebody else have a comment on that?
    Mr. Baum. But, yes.
    Ms. Matsui. OK. Thank you.
    I was actually thinking maybe in the $30 range or so, so it 
is probably quite close to what you are thinking. And so that 
really sounds like maybe a $10 to $15 per month subsidy, which 
is in line with the reimbursement under the current Lifeline 
Program. Would you consider that to be about right?
    Mr. Baum. If we had broadband as a supported service, the 
benchmark for that service would be in the $30, heading towards 
$40 in the future, because that simply is the basic cost out 
there for that 1.5-megabit service is in that range.
    Ms. Matsui. OK.
    Thank you very much, and I yield back my time.
    Mr. Boucher. Thank you very much, Ms. Matsui.
    The gentlelady from Tennessee, Mrs. Blackburn, is 
recognized for 5 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    And I thank you all for your patience and your indulgence. 
I know you have been here for quite a while.
    I got just a couple of questions that I want to ask. And 
let me start, Mr. Davidson, with you. And let's just go down, 
if you all have something to add on this.
    If you could change one part of this bill, if you think we 
are getting it wrong in one area, if you wanted to change one 
section of this, what would you change and why?
    And quickly, we will start with you, sir.
    Mr. Davidson. Sure. I think probably the first thing that 
we would look at is--and this is actually a suggestion that is 
in the bill, but it is directed in the bill, and that would be 
going to the numbers contribution formulation. I think that is 
the most efficient way in the modern world of the various 
means----
    Mrs. Blackburn. OK, so let me interrupt you right there. 
The contribution formulation, just to give some specifics on 
that, to define it.
    Mr. Davidson. Sure. So today, as I mentioned in my 
testimony----
    Mrs. Blackburn. No, I mean, in the language. You are just 
saying----
    Mr. Davidson. Oh, well, it would just specify in the 
language that the FCC should follow a numbers-based approach 
for contributions.
    Mrs. Blackburn. Great.
    Mr. Greer.
    Mr. Greer. We have concerns with the cap. But we look 
forward to working with the FCC on the national broadband plan 
when it comes out next year.
    Mrs. Blackburn. OK, great.
    Mr. Rhoda. From Windstream's perspective, it would be 
driving efficient costs across the board. Some of the 
mechanisms in today's environment don't necessarily force 
carriers to be efficient and yet still get reimbursement. There 
is a number of measurements in this bill that do drive 
efficiency, but it is not across the board.
    Mrs. Blackburn. Thank you.
    Mr. Lubin. I would highlight the issue of speed. I am 
concerned about the level of speed, not that it is too high--I 
am sorry, that it potentially is too high. And the issue of 
concern is if you can--now, I am focused on rural area, I am 
focused on if there is an alternative technology that can get 
it out there in a cost effective way. And that is a way to 
control the size of the aggregate fund.
    Mrs. Blackburn. Excellent.
    Ms. Moyer.
    Ms. Moyer. The rural ILECs have concerns with the cap 
language.
    Mrs. Blackburn. OK.
    Mr. Baum. Well, NARUC has concerns about the preemption 
language. But, on a personal basis, I think the speed needs to 
be realistic as to what we really need in the economy.
    And we have to also acknowledge that there are a lot of 
rural constituencies that produce the food and fiber for the 
country that need access to this kind of broadband technology. 
And it is not a choice for them to live there; it is how we 
feed ourselves. And their hospitals and schools have to have 
that same access to broadband.
    Mr. McSlarrow. Since I have already talked about my 
proposal and Peter talked about numbers, I am going to cheat 
and add a third, which is ensuring that if we are going to have 
support for broadband, that it be restricted to truly unserved 
America.
    Mr. Graham. Thank you for your kind comments earlier. I 
appreciate that.
    RCA would change the reverse auction provision. It is 
simply not a silver bullet for USF reform. Reverse auctions 
encourage a race to the bottom. They do not guarantee a 
reduction in cost. And they discourage new entrants.
    However, if we move forward with reverse auctions, they 
absolutely should apply to everyone participating in the USF 
fund and not only wireless providers. If wireless providers are 
subject to it as part of a greenfield build, surely wireline 
providers who have depreciated plant in the ground over a 
number of years could compete as well.
    Dr. Rheuban. For purposes of telemedicine, we are very 
supportive of the bill in its current status.
    The one thing we might add is to ensure upstream bandwidth, 
as well, because for telemedicine we are trying to get feedback 
from the patient or from the hospital. So it should be 
bidirectional.
    Mr. Rosston. So I would change the whole system to be 
vouchers to low-income households. But, given that that is not 
going to change in this bill, I would say extend auctions, set 
a time limit for the FCC, and put them in in the next 6 to 12 
months and go ahead. They are not a silver bullet, but they are 
better than the current system.
    Mrs. Blackburn. Thank you very much.
    And I have 23 seconds left. Mr. McSlarrow, I will come back 
to you and not take the committee's time right now. But I think 
we need to look at how quickly we are moving to an IP world and 
VoIP as a primary technology. And as we looked at the 
reauthorization of the 1996 Telecom Act, one of the things we 
heard from all of you was, ``Well, the bill is arcane, the bill 
has outlived its usefulness, technology changes so fast.'' And 
I think that one of the things that we need to look at is what 
we can do to ensure that the universal service mechanisms work 
in a changing environment, in a VoIP environment, and making 
certain that this bill is going to work in an IP world.
    And I know I am out of time, but I would appreciate your 
response to that question in writing as we move forward or at a 
later date.
    And I yield back, Mr. Chairman. Thank you.
    Mr. Boucher. Thank you very much, Mrs. Blackburn.
    The gentlelady from the Virgin Islands, Mrs. Christensen, 
is recognized for 5 minutes.
    Mrs. Christensen. Thank you, Mr. Chairman.
    I will direct my first question, not surprisingly, to Dr. 
Rheuban. But I wanted to thank you for some of the 
recommendations that you have made, realizing how much we are 
relying on telemedicine and health-care reform and to improve 
outcomes and reduce costs. So I appreciate the recommendations 
that you made.
    The USF Reform Act requires that universal fund recipients 
offer high-speed broadband services with a download rate of at 
least 1.5 megabytes per second. In your testimony, you spoke to 
different broadband needs for different services. And I wanted 
to know if the speed that we are recommending of at least 1.5 
megabytes per second is adequate for what is required to 
support all of the services.
    Dr. Rheuban. I think for HD and surgical mentoring it is 
not sufficient. I think it is sufficient for a clinic operation 
or, certainly, for the home. You know, home telehealth wouldn't 
require quite as much bandwidth as some of the more 
sophisticated applications.
    And if you have multiple users providing health-care 
services in a hospital, you can imagine that the demand for the 
bandwidth would be significantly greater. So, again, 1.54 is 
good for some applications but not for others.
    Mrs. Christensen. Thank you.
    I guess I would ask this question to Mr. Baum and Mr. 
Rosston, but if anyone else wanted to jump in, it would be 
fine.
    Section 104 on eligible recipients of universal service 
support exempts existing recipients of the USF funds, primarily 
rural telecos, from the requirement to deploy and provide high-
speed broadband service for 5 years. The FCC may also grant a 
3-year waiver of this provision if the provider demonstrates 
that it is not technically feasible or would materially impair 
its ability to continue to provide local exchange service. That 
waiver is renewable for every 3 years.
    Ubiquitous broadband deployment is a primary goal of the 
administration and this Congress, this committee. Currently, 
the FCC is working on a new national broadband plan. Even the 
discussion draft requires new providers who are eligible to 
receive USF support to deploy high-speed broadband service and 
provide it.
    So why should we exempt existing recipients of USF? Do you 
agree with that exemption or waiver?
    Mr. Baum. What that refers to is the fact that some of 
these areas are so remote and so expensive to serve that we 
really probably need to have a satellite option there. There 
will be some really remote pockets of population and even 
single-family dwellings that simply are too far out in the 
rural areas of America to be receiving broadband by a fixed 
basis. So either their service is either some kind of wireless 
broadband or, in this instance, it would be satellite.
    We simply can't get everywhere in the country. We might get 
to 98 percent, we might get to 96 percent somewhere. And, also, 
remember that we never got phone service beyond about 95 
percent of the population. Some people just don't want to hook 
up, and some people are just too far out, and it would be too 
expensive to serve them. And they will have to do a satellite.
    Mrs. Christensen. Mr. Rosston, did you want to add 
anything?
    Mr. Rosston. No. Just, the satellite option is an important 
safety valve, in that it covers pretty much most everywhere and 
especially the high-cost areas. That would be a safety valve in 
this.
    Mrs. Christensen. Well, let me ask you, Mr. Rosston. One of 
your main points is that you suggested subsidies should go to 
consumers, not companies, to increase competition and choice.
    Could you elaborate on that? It sounds very attractive. It 
sounds like it may be a major upheaval, though. Could you 
elaborate on that recommendation?
    Mr. Rosston. Sure. It is generally a way of giving 
consumers choice in what they want. If you decide that the best 
service for your house is a wireless service because you work 
outside a lot of the time and need to be accessible, that you 
would have the chance to use the subsidy to provide you service 
that gets you outside.
    Or if you move around, if you are a plumber that does jobs 
and you need to look up stuff and you don't need 20 megabits a 
second to watch videos but you need to look up parts for your 
job, you would be able to do that and use the different kinds 
of services that are tailored to what you want to do.
    So I think that this would then give consumers the choice 
to pick the service that best suits their needs.
    Mrs. Christensen. Thank you.
    Mr. Davidson, you, in your testimony, said the problem is 
not spending too little but spending it in the wrong places. 
How would you redistribute the funds? And does the bill 
adequately address that change?
    Mr. Davidson. Thank you for the question.
    Yes, I think that is right. I mean, the question is of 
finding out right now where the true needs of consumers are. 
And I would also go back and focus the panel on the needs of 
the consumer, too, which I think has been a great part of this 
hearing. We have spent a lot of time talking about that.
    So the mechanisms that the Boucher-Terry bill use to figure 
out where the services are needed and where they aren't I think 
are very important. So, the competitive bidding portion. Again, 
I mentioned the numbers formulation before. And----
    Mrs. Christensen. So you think we are adequately addressing 
that issue in the bill?
    Mr. Davidson. I think they are, yes. I think the bill has 
many provisions in it that are trying to prioritize where the 
scarce resources should be directed. So there are many aspects 
of the bill that are directed towards doing that.
    And there have been some other ideas raised on the panel 
here, as well. Mr. McSlarrow's idea is interesting, and others 
as well. So I think those should be examined to make sure that 
we are prioritizing the funds.
    Mrs. Christensen. Thank you.
    Thank you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Mrs. Christensen.
    The gentleman from Oregon, Mr. Walden, is recognized for 5 
minutes.
    Mr. Walden. Thank you very much, Mr. Chairman.
    I want to thank all the witnesses for their testimony today 
on this very important piece of legislation.
    I want to go to Mr. Baum. In Oregon, where certain 
nationwide service providers are shedding their remaining rural 
lines, can you outline for us how the parent trap may impact 
other carriers' decisions to step in to provide phone service 
to the rural constituents I have?
    Mr. Baum. Well, the reality is that the Regional Bell 
Operating Companies have been unable to do an adequate job of 
deploying broadband in their high-cost rural areas. That is 
because they face competition in their urban areas, and their 
business model just simply doesn't allow them to do that.
    The RLECs, rural companies, in contrast, do receive better 
subsidies from the Universal Service Fund, which allows them to 
deploy broadband. So their broadband is out there about 92 
percent, and, depending on the company, the RBOCs are anywhere 
from the low 70s to the high 80s.
    They just don't have a business model that works. So the 
parent trap would allow some of the midsized and small 
companies to come into those areas and to refurbish them and 
get the subsidy that they would receive as RLECs to refurbish 
some of those areas and deploy broadband.
    It would be important to have that dealt with in some way 
because, really, the failure to deploy broadband in rural high-
cost areas is largely a Regional Bell Operating Company's issue 
and affects about 50 percent of the country. And we simply have 
to address that issue. And that is why it is important that we 
do something in that regard about the parent trap.
    It is also important that we focus some of this money, if 
there is some, on the unserved areas in those RBOC areas. And 
that could be done by auction; it could be done by requests for 
proposal. But we need to have infrastructure built out there so 
that those communities can have the same benefits that the 
communities have that are served by the rural local exchange 
carriers.
    Mr. Walden. Let me switch gears, since we are on the 
broadband build-out. And when the stimulus bill was debated 
before this committee, there was a significant amount of money 
put forward to engage in broadband build-out. And we had rather 
extensive discussions here about the money getting out there 
before the mapping was completed and the debate over 
underserved versus unserved.
    Now I understand they are compressing the second and third 
wave of funding. And I just wonder, from your position at NARUC 
and as a commissioner, what you are seeing in terms of where 
this money is going. Because it seems to me that, with the 
taxpayer dollars involved or the USF dollars involved, it 
should go into areas that have no service to begin with if we 
are going to knit this country together in a broadband world.
    Mr. Baum. One of the problems of the current broadband 
stimulus package is some of the bigger companies have declined 
to apply because of some issues over Net neutrality and they 
are not certain about what those strings mean to the deployment 
of dollars. So half of the country's areas, they don't have the 
major ILEC in that area even applying in the high-cost areas.
    Now, there are some other people that are applying, kind 
of, in a little bit of an over-built fashion. Some of them are 
in other areas. You know, we have a--for instance, in Oregon, 
Bend Cable is also applying to roll out broadband in an area 
that is served by Qwest. And they are trying to go outside of 
town and serve unserved areas, but unfortunately when you try 
to serve any area, you are going to serve the populated area as 
well. And so it is difficult to truly target an unserved area.
    So there will be some improvements in the broadband 
stimulus. It will deploy some things in some unserved areas. 
But we still have major players out there who aren't in the 
game.
    Mr. Walden. And, Mr. McSlarrow's, Kyle's comment, his 
suggestion about a different way to look at the whole model. 
And, Kyle, I believe you indicated that it be in an area that 
is 75 percent served? Would then be in a competitive----
    Mr. McSlarrow. Yes, we are proposing, essentially, two 
tests. One would be in a rural study area, say, where there is 
significant competition, which we are defining as 75 percent or 
more of the households can receive a competitive unsubsidized 
service, or a situation where the State has actually 
deregulated prices, on the theory that competition is present.
    Mr. Walden. So I guess my question would be--and, again, I 
have a district that is 75,000 square miles. So you could have 
the urban area, to the extent we have them, in a very large 
geographic area and probably serve 75 percent of the 
population.
    My concern is, what happens to that other 25 percent that 
is out in the area? And so, how do you define that circle, if 
you will, in which you score the 75 percent penetration?
    Mr. McSlarrow. It is a good question, I think. And, 
actually, this goes to one of the proposals in the bill. I 
think moving to wireline centers actually helps. I think the 
smaller you can make a certain area, the less you are going to 
run into that problem.
    But, remember, under our proposal, you still have the 
ability, if, in fact, there is some other area that isn't being 
covered, to make a showing that USF high-cost port is still 
appropriate----
    Mr. Walden. So if you have an area that is 100 percent and 
75 percent is the area that is served and would meet your test, 
do you have that ability, under your proposal, to go after that 
remaining 25 percent in that area and be subsidized to reach 
it?
    Mr. McSlarrow. Yes. The incumbent can come make a showing 
that there is 25 percent that is not covered by competition and 
that there is still a need for high-cost support.
    Mr. Walden. All right. My time has expired, but I 
appreciate your generosity with the time.
    And, again, thank you to the panelists.
    Mr. Boucher. Thank you very much, Mr. Walden.
    The gentleman from Michigan, Mr. Stupak, is recognized for 
7 minutes.
    Mr. Stupak. Thank you, Mr. Chairman.
    And thank you for our witnesses for being here.
    Mr. Baum, let me ask you this question, if I may. A little 
different twist here. Do you believe that, as we reform USF, 
that we should consider the telecommunication needs of public 
safety? And, if so, how would you go about doing that?
    Mr. Baum. Well, you are aware that public safety is one of 
the applications that is eligible under the broadband stimulus.
    Mr. Stupak. On the stimulus, right.
    Mr. Baum. Yes. And there is also those 700-megahertz 
applications that some of the local jurisdictions are applying 
for waivers to get from the public safety trust. So that is 
moving ahead on that front. So there is, kind of, some things 
moving ahead.
    But right now, for instance, in Oregon, we have a $440 
million bonded project to build out a microwave public safety 
network. And those are our local State efforts. So, nationally, 
there is some funding available through the Department of 
Homeland Security, there is some stimulus money there. It is, 
obviously, not going to do the trick.
    But we judge our applications for stimulus based on how 
many of these proposals they serve, whether they provide public 
safety application in their proposal, telehealth, distance 
learning. All of those things are part of the application 
process that we are encouraging companies to make under the 
broadband stimulus, to make sure they satisfy those criteria.
    Mr. Stupak. Right. But what about under USF? Should we use 
law enforcement as one of them? Especially, when we talk about 
interoperability, I mean, rural areas just cannot keep up with 
the high cost of technology.
    Mr. Baum. In my perfect world, we would focus on those 
unserved areas, and anchor institutions would include law 
enforcement, schools, libraries, medical facilities. And from 
there you could build it out and spider-web it out to the 
residences. But you need to have that for the public safety 
network, as well.
    Mr. Stupak. Correct. OK.
    Mr. Graham, do you want to jump in on that?
    Mr. Graham. Yes, thank you.
    The easiest way to deploy broadband for public service, at 
least within the State of Mississippi, is to make broadband a 
supported service immediately. We are in the process of 
preplanning some applications with the Mississippi Highway 
Patrol which would allow officers to have an E-ticket program 
with a wireless connection. It would also allow them to input 
accident data into their laptop----
    Mr. Stupak. Sure, but that is basically for State 
employees, right? How do you get your local police chiefs, the 
sheriff's departments in the same system so it is interoperable 
so you do have a seamless flow of communication? It seems like 
we are going to have a dedication of funds that is somewhere 
between $20 billion and $40 billion, and every time we try to 
do a trust fund so law enforcement will have the money we never 
seem to get anywhere.
    Mr. Graham. In one of our metro counties, we have already 
launched this with the sheriff's department, a similar program. 
They have broadband connectivity from their cars. Applications 
are easy to envision where they will have realtime video late 
at night on a county road. And you can easily extend that into 
paramedics and emergency responders like that.
    Mr. Stupak. Sure. The county may have it, but what about 
the municipalities within there? Are they part of that same 
system?
    Mr. Graham. They are not part of that same system yet. They 
could be part of that system.
    Mr. Stupak. Could be, would be, want to be. Lack of money, 
right?
    Mr. Graham. As long as the services--as long as the cloud 
is there, the broadband cloud is there, they can access it.
    Mr. Stupak. Let me ask you this, then, Mr. Graham. Based on 
your testimony, since 2000, USF has provided, like, $26 billion 
in subsidies, landline, and 4,000 for wireless. The FCC capped 
the wireless fund to control costs, but we still have an 
increased contribution rate somewhere around--it went from 
about 10 percent to 14 percent.
    So we have increased the contribution that consumers are 
paying, yet we capped the wireless. It seems like we are 
getting less for more. So Joe Barton, when we comes in with his 
telephone bill, he is paying more, but yet we have less than we 
did 2 years later for wireless communication.
    Isn't that really the way we are going?
    Mr. Graham. We completely agree with that. We are going in 
the wrong direction, capping wireless. Wireless may have seen 
growth, but it is because we have gone from zero funding to the 
funding we receive today. We continue to subsidize 1876 
technology at cost level. Whatever it costs them to build the 
network, they get the money.
    Mr. Stupak. OK. The draft bill contemplates capping USF 
support for high-cost areas. And, in your testimony, you assert 
that the bill would allow certain high-cost carriers to receive 
support indefinitely. Do we run the risk of freezing 
investment, much like what has occurred with rural wireless?
    Mr. Graham. We do run that risk and, in some areas, curtail 
investment and, in other areas, if the cap continues to run 
indefinitely----
    Mr. Stupak. What would you propose for changes, then, in 
the current legislation?
    Mr. Graham. Well, we would target the support to areas 
where it is absolutely necessary. We think a thorough review by 
the expert agency must be undertaken. That has not been done. 
No one has ever sat down and figured out exactly where the 
support really and truly needs to go.
    Mr. Stupak. OK.
    Mr. Lubin, let me ask you, because, in your testimony, you 
also urge a bit of caution about how we utilize a cap to 
contain costs. Does AT&T believe a cap may run the risk of 
freezing investment in rural areas?
    Mr. Lubin. Yes, there is that risk.
    Mr. Stupak. So, same thing, identifying, mapping?
    Mr. Lubin. For us, the bottom line is, if you have that 
cap, you have potentially constrained how much investment in 
the high-cost areas. And that is a dilemma. That links back 
into a lot of the different things we have discussed this 
morning.
    Mr. Stupak. OK.
    Mr. McSlarrow, let me ask you this one. I am looking at 
your map here that you submitted. How did you identify these 
areas, excess high-cost support funding? And what was the data 
for your economic analysis on this to come up with this map?
    Mr. McSlarrow. The data that we use is the data that is 
produced by the rural study areas within the High-Cost Program 
itself. So what we essentially did was we took all of the rural 
study areas and looked at the support that was going to each of 
them. Then we overlaid that on top of what we knew about where 
unsubsidized competition was.
    Mr. Stupak. All right. So you get that 75 percent area, 
then you get the uncompensated competition or unregulated----
    Mr. McSlarrow. Yes. And I should just point out: In our 
proposal, we actually made what we believe is the most 
conservative case. We are not even taking into account 
wireless. We are just saying if there is another unsubsidized 
wireline competitor, that that is the case for taking a fresh 
look.
    Mr. Stupak. OK.
    Let me ask you this. It is my understanding you are 
concerned with broadband network connections being assessed for 
contribution into the USF. How would you propose to ensure that 
contribution mechanisms are there long-term? Again, we capped 
off wireless, but yet we have spent--it has received more 
money. How do we do it long-term----
    Mr. McSlarrow. In terms of the contribution side?
    Mr. Stupak. Yes.
    Mr. McSlarrow. Well, like a lot of folks, we support a 
numbers approach. But that is just a proxy for saying a 
connection.
    Mr. Stupak. Correct.
    Mr. McSlarrow. Our concern about broadband revenues is 
simply this. All the other services are highly penetrated. They 
are at the 90-plus level. Broadband, as we have all been 
talking about, still has some adoption challenges. So we are a 
little leery of putting another assessment or fee on the cost 
of broadband when we are actually over here trying to drive 
more adoptions.
    But a numbers approach or some kind of connectivity 
approach that is true for everybody across the board, we think 
that is the way to go. And that does broaden the base.
    Mr. Stupak. But if you use a numbers approach, aren't you 
still with the rural areas with small population base still 
never being built with broadband? I mean, if you look at your 
map, heck, my district is not even covered, hardly.
    Mr. McSlarrow. If you take phone numbers--and I think there 
are about 650 million phone numbers in existence. If you had 
something that is something less than a dollar month, right 
there you get over $7 billion for the entire Universal Service 
Fund.
    Mr. Stupak. Thank you.
    Thank you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Mr. Stupak.
    The gentleman from Indiana, Mr. Buyer, is recognized for 5 
minutes.
    Mr. Buyer. Thank you.
    Mr. McSlarrow, I wanted to give you an opportunity to 
clarify. When you were answering questions of Mr. Barton 
relative to the expansion, I got this sense--did you really 
mean that we should be taxing broadband by implication here? I 
just want you to clarify what you meant by, yes, more people 
should be paying in.
    Mr. McSlarrow. Well, I may have misunderstood his question, 
because, as I just said to Mr. Stupak, we are against taxing 
broadband. I thought what he asked was whether or not we were 
for broadening the base. And we are, through a numbers 
assessment.
    Mr. Buyer. OK. All right.
    Mr. McSlarrow. So thank you, if I misunderstood that.
    Mr. Buyer. All right. Thank you.
    Mr. Davidson, the cap on the High-Cost Fund in the Boucher-
Terry bill, due to exceptions, is being referred to as a soft 
cap. If we don't put a firm cap on the High-Cost Fund, what 
would be the impact on consumers?
    Mr. Davidson. Well, as I said in my testimony, you know, 
with the contribution factor going to be reaching 14 percent 
next year and no end in sight unless we fix the system, I think 
everyone agrees that there needs to be some kind of cap on the 
process here or it will simply become unsustainable.
    So what does ``unsustainable'' mean? Unsustainable means 
that people like Mr. Barton and other folks who are looking at 
the bottom of their telephone bill are going to say, ``I am not 
going to pay 25 percent of my bill to subsidize this system 
anymore.'' So it has to be fixed.
    I think what Representatives Boucher and Terry have done 
have introduced a cap concept. And, as you hear throughout this 
panel, there are a lot of different positions on how exactly to 
do that. I would just urge this committee and all of those that 
are going to be participating in the legislative process to 
preserve the discipline, as much discipline as possible, in 
keeping that cap as concrete as it can be, as it moves through 
the process. Because that is what is going to keep the system 
sustainable going into the future.
    So I think there has been an honest attempt to create a 
cap. And talking with the various parties, they have reached 
the cap they have. I just urge everyone to keep it as tight as 
possible.
    Mr. Buyer. In response to Mrs. Blackburn, Mr. Davidson, you 
said you are an advocate for universal service fees to be based 
on a numbers-based system versus revenue. That is correct?
    Mr. Davidson. Yes.
    Mr. Buyer. All right. I would like to get a sense, and go 
right down the line, of whom would advocate a numbers-based 
system versus a revenue-based system?
    So, Mr. Greer.
    Mr. Greer. We would advocate a revenues-based system.
    Mr. Buyer. Revenue-based.
    Mr. Rhoda. Connections-based.
    Mr. Buyer. Connections-based?
    Mr. Rhoda. Connections, numbers, yes.
    Mr. Buyer. Numbers. All right.
    Mr. Lubin. Telephone numbers.
    Ms. Moyer. Connections.
    Mr. Baum. NARUC doesn't have a position, but I would 
support numbers and connections.
    Mr. Buyer. Great.
    Mr. McSlarrow. Telephone numbers.
    Mr. Graham. RCA doesn't have a position on that yet, but 
some hybrid numbers-and-contributions-based.
    Dr. Rheuban. ATA doesn't have a position on that.
    Mr. Buyer. OK.
    Mr. Rosston. I haven't studied it much, but it seems to me 
that numbers or connections would be a better way than 
revenues.
    Mr. Buyer. And if we go to numbers, it is better with 
predictability, would you not agree?
    Mr. Rosston, since the goal of the High-Cost Fund is to 
make service more affordable for consumers in high-cost areas, 
shouldn't the focus be on consumers and not necessarily the 
carriers? Meaning, shouldn't the subsidy follow the consumer so 
that, if the carrier loses a subscriber, they also lose the 
subsidy?
    Mr. Rosston. Absolutely.
    Mr. Buyer. Very good.
    I yield back.
    Mr. Boucher. Thank you very much. We appreciate those 
questions.
    The gentleman from Vermont, Mr. Welch.
    Mr. Welch. Thank you very much, Mr. Chairman. I appreciate 
your work here.
    I want to ask Commissioner Baum, if I could, the discussion 
draft allows eligible providers basically to avoid the 
requirement of offering broadband service where it is deemed 
too costly for them to do that. And I gather that is about 
three times the national average.
    Do you see this as a clause, almost an escape clause, that 
could let providers that still receive support not make 
significant expansions where they are needed?
    Mr. Baum. I am not sure about the impact of that 2.75 
ratio.
    First of all, before I say that, I want to thank you for 
speaking at NARUC yesterday. We appreciate you coming out.
    Now, back to your question----
    Mr. Welch. Thank you.
    Mr. Baum. At some point, we have to have some way by which 
we are going to determine how far we are going to penetrate 
into those high-cost rural areas, particularly the unserved 
portions. And I am not sure if the 2.75 ratio is accurate. We 
may be able to go further than that.
    But, at some point, we are probably not going to be able to 
afford to provide high-speed broadband to every person or 
residence in America regardless of where they are located.
    Mr. Welch. But I am, kind of, wondering if we have it 
structured right. Because, obviously, there may be a point 
where the cost is beyond what is affordable. But, on the other 
hand, there are a lot of rural areas where we need that 
service, Vermont among them.
    And the specific question I have is whether you are going 
to have, under the draft language, some possibility of 
companies on the one hand receiving support but on the other 
hand actually not doing build-out in some of these areas.
    Mr. Baum. I just can't tell you based on--I wasn't briefed 
on how that actually worked or was I part of that process. But 
there has to be some way by which we can figure out how far we 
are going to go, and the percentage should be in the high 90s. 
And I am just not sure, between 95 and 100 percent, how far we 
can go on an affordability basis.
    Mr. Welch. OK. Thank you.
    Mr. Rosston, how about you? I know you have studied the 
economics of this pretty extensively.
    Mr. Rosston. So, my view is, if you went to a system of 
vouchers to consumers, you would not have to worry about this 
because they would be cost-based and you would get them able to 
pay in other areas. I think it is important to also consider 
the satellite alternatives in very, very high-cost areas.
    Mr. Welch. Right. And what is the cost of a satellite 
connection?
    Mr. Rosston. My impression, I haven't subscribed, but I 
thought it was between $70 and $90 a month for broadband 
access.
    Mr. Welch. In contrast, if there was a buildout, what would 
be the average costs there?
    Mr. Rosston. If you think that people sort of pay in the 
$40 to $50 in urban areas, and you are talking three times for 
this bill, that would be getting it well more than this $70 to 
$90 for a retail subscription to satellite.
    Mr. Weller. Thank you. Mr. McSlarrow, your view on this? I 
am interested in obviously a rural buildout, representing a 
rural State. And the point has been made by you as well by 
folks on this table that that buildout is really a lifeline for 
the economic activity of those rural residents and they are 
there for a variety of reasons.
    I don't think it is quite an individual choice to be a 
hermit. I come from a town of 1,800 people. That is my base. We 
like broadband.
    Go ahead, Mr. McSlarrow.
    Mr. McSlarrow. I think our view is that there clearly are 
areas that deserve high cost targeted support, and it is about 
taking scarce dollars and putting them where they are needed. I 
will say at least in our own industry's experience, whether it 
is broadband or phone, we don't actually differentiate in terms 
of the pricing in an urban area to a rural area.
    Mr. Weller. You do not. Right. And you support maintaining 
that nondiscrimination in pricing.
    Mr. McSlarrow. We tend to just roll out across our entire 
national footprint.
    Mr. Weller. Thank you.
    Mr. Davidson. Congressman, could I expand on that for a 
minute? I think one of the things to recognize as well is the 
expense in the areas you represent aren't necessarily last mile 
expenses as well. We have a proposal that deals with the so-
called middle mile, which is terms of the amount of transport 
that broadband needs to go over long areas to get to remote 
areas and then serve those remote areas. So I would be happy to 
explain and come talk to you a little more about what our 
proposal is.
    But basically we think if you provide some support to build 
those middle mile facilities and then that subsidy goes to the 
end broadband provider, it doesn't go to the middle mile 
facility, but it makes it possible for that middle mile 
provider to build the transport, that is enough of an incentive 
perhaps to tip the balances in terms of bringing broadband to 
more remote areas. So we would encourage you to look at that 
proposal as well.
    Mr. Weller. I look forward to seeing that. While you are 
here, Verizon, I know it has left or you are in the process of 
leaving 17 rural States with your wire land network. Vermont, 
of course, is one where you did recently leave. And what I 
understand is you are also going to discontinue providing what 
is relatively high cost support for the wireless network.
    I am wondering whether Verizon is willing to commit to 
serve every customer and be the carrier of last resort 
throughout all of your rural areas without any universal 
service support?
    Mr. Davidson. Well, first of all, I wanted to respond to 
this question earlier that came up as well. Commissioner Baum 
had mentioned the development of this new rural LEC company. We 
have Windstream here, we have Century Link, we have others that 
do an excellent job with the business model in terms of serving 
rural areas. So issues like the parent trap and others are very 
important and kind of get to your question as well.
    In terms of the Verizon territories, we currently 
participate in the universal service program in certain areas. 
We are by far a payor into the system by a large amount and we 
take a small amount out. And that amount is decreasing over 
time due to merger conditions and other reasons, so we actually 
participate on the payee side to a very small percent right 
now. But, again, we support the bill and we support moving 
through the process in terms of serving our existing customers.
    Mr. Welch. Let me stop you there. Thank you for that. I 
only have a few seconds left.
    Mr. Lubin, in reviewing the draft legislation, what would 
you see as the three most important components of it?
    Mr. Lubin. The three most important components of this; 
contribution reform, fixing it; intercarrier comp, fixing it; 
and recognizing USF for broadband. The 21st century is all 
about broadband. POTS is going away. You have to figure out how 
to get broadband. I am sympathetic to your point of how do you 
get it into the rural area.
    Mr. Welch. Does Mr. Lubin spell for the rest of you? 
Commissioner Baum.
    Mr. Baum. Just one question. I have now figured out your 
first question, I am sorry. But, yes, there would be a great--
that three factor that they have in there would effectively 
take communities in some areas of Oregon that are under like 
500 population and under who are remote, wouldn't be serviced 
by this broadband effort.
    Mr. Welch. Thank you.
    I think Mr. Graham wants to speak, but I know my time is 
up, Mr. Chairman, so I yield back.
    Mr. Boucher. Mr. Graham, go ahead.
    Mr. Graham. Very briefly. One other piece of discussion 
draft would be true competitive neutrality. When wireless goes 
into an area, we don't get support until we get a customer. 
When we lose a customer, we lose that support. It seems 
incredibly reasonable for us for everyone to get support when 
they get customers, and lose support when they lose customers.
    Mr. Boucher. Thank you very much, Mr. Welch. And the 
committee's thanks to all of our witnesses today. We have had a 
thorough ranging and informative conversation about universal 
service. I appreciate the broad consensus of support for the 
discussion draft that has been expressed by the witnesses here 
today and the many recommendations that we have received for 
possible additional changes that we could make which would 
expand that consensus even further. We intend to focus on those 
recommendations and have subsequent conversations with many of 
you as we do so over the coming weeks.
    Our goal will be to fashion a reform that with broad 
bipartisan support, we can pass through this committee and the 
House and have enacted into law during the course of this 
Congress. Each of you here has contributed to that process here 
today. We thank you for it.
    This hearing stands adjourned.
    [Whereupon, at 1:41 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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