[Senate Hearing 111-1021]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1021
UNIVERSAL SERVICE: TRANSFORMING THE
HIGH-COST FUND FOR THE BROADBAND ERA
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JUNE 24, 2010
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas,
JOHN F. KERRY, Massachusetts Ranking
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California JOHN ENSIGN, Nevada
BILL NELSON, Florida JIM DeMINT, South Carolina
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas GEORGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri JOHNNY ISAKSON, Georgia
AMY KLOBUCHAR, Minnesota DAVID VITTER, Louisiana
TOM UDALL, New Mexico SAM BROWNBACK, Kansas
MARK WARNER, Virginia MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
Bruce H. Andrews, General Counsel
Ann Begeman, Republican Staff Director
Brian M. Hendricks, Republican General Counsel
Nick Rossi, Republican Chief Counsel
C O N T E N T S
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Page
Hearing held on June 24, 2010.................................... 1
Statement of Senator Dorgan...................................... 1
Statement of Senator Vitter...................................... 3
Statement of Senator Begich...................................... 3
Statement of Senator Ensign...................................... 14
Statement of Senator Johanns..................................... 20
Statement of Senator Thune....................................... 24
Statement of Senator Udall....................................... 26
Statement of Senator Pryor....................................... 27
Statement of Senator Klobuchar................................... 29
Witnesses
Hon. Michael J. Copps, Ph.D., Commissioner, Federal
Communications Commission...................................... 4
Prepared statement........................................... 6
Hon. Mignon L. Clyburn, Commissioner, Federal Communications
Commission..................................................... 9
Prepared statement........................................... 10
Hon. Meredith A. Baker, Commissioner, Federal Communications
Commission..................................................... 11
Prepared statement........................................... 13
Jeff Gardner, President and Chief Executive Officer, Windstream
Corporation.................................................... 32
Prepared statement........................................... 34
Delbert Wilson, General Manager, Hill Country Telephone
Cooperative, Ingram, Texas on Behalf of National
Telecommunications Cooperative Association (NTCA), Organization
for the Promotion and Advancement of Small Telecommunications
Companies (OPASTCO) and Western Telecommunications Alliance
(WTA).......................................................... 36
Prepared statement........................................... 37
John Gockley, Vice President, Legal and Regulatory Affairs,
United States Cellular Corporation............................. 43
Prepared statement........................................... 44
Kyle McSlarrow, President and CEO, National Cable &
Telecommunications Association................................. 50
Prepared statement........................................... 51
R. Paul Waits, President, Ritter Communications.................. 55
Prepared statement........................................... 56
Appendix
Hon. John F. Kerry, U.S. Senator from Massachusetts, prepared
statement...................................................... 77
Response to written questions submitted to Hon. Michael J. Copps
by:
Hon. Maria Cantwell.......................................... 78
Hon. Frank R. Lautenberg..................................... 78
Hon. Claire McCaskill........................................ 79
Hon. Mark Warner............................................. 80
Hon. John Thune.............................................. 81
Response to written questions submitted to Hon. Mignon L. Clyburn
by:
Hon. Maria Cantwell.......................................... 83
Hon. Frank R. Lautenberg..................................... 84
Hon. Claire McCaskill........................................ 84
Hon. Mark Warner............................................. 85
Hon. John Thune.............................................. 86
Response to written questions submitted to Hon. Meredith A. Baker
by:
Hon. Maria Cantwell.......................................... 88
Hon. Frank R. Lautenberg..................................... 89
Hon. Claire McCaskill........................................ 90
Hon. Mark Warner............................................. 91
Hon. John Thune.............................................. 93
Response to written questions submitted by Hon. Mark Warner to:
Jeff Gardner................................................. 95
Delbert Wilson............................................... 98
Kyle McSlarrow............................................... 100
Written questions submitted by Hon. Mark Warner to:
John Gockley................................................. 101
R. Paul Waits................................................ 102
UNIVERSAL SERVICE: TRANSFORMING THE HIGH-COST FUND FOR THE BROADBAND
ERA
----------
THURSDAY, JUNE 24, 2010
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m. in room
SR-253, Russell Senate Office Building, Hon. Byron L. Dorgan,
presiding.
OPENING STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. We're going to call the hearing to order.
Senator Rockefeller is unable to be with us, and he has
asked me to chair the hearing.
I'm Senator Dorgan, and I'm pleased that all of you are
here, and my colleagues, as well.
We thank the witnesses for coming this morning. This is a
hearing on the issue of ``Universal Service: Transforming the
High-Cost Fund to the Broadband Era.'' This is a very, very
important issue, and obviously has been one of my top
priorities. And I recall we've been talking about this issue
for a long, long time. Senator Ted Stevens, formerly Chair of
this Committee, had bills. I had bills. We had some bills
together. This is one of those issues that goes on and on and
on.
But, broadband is an infrastructure challenge for our
country, and I want to just to put it in the perspective, as I
see it. Things like, oh, highways, that we decided ought to be
reasonably universal, we built out a network of highways in the
country. The building out of electricity infrastructure--very
important--and the buildout of broadband--in my judgment, just
as important.
The other day, at a hearing, I pointed out that, in North
Dakota, there's a little town called Sentinel Butte--80 people.
And about 30 miles away is Beach, North Dakota--about 1,200
people. Those two communities are connected by a four-lane
interstate highway, Interstate 94. Now, if someone were to look
at that and said, ``Well, how dare you spend the money
connecting the 30 miles between a town of 80 people and a town
of 1,200 people.'' Of course, that's not what the interstate
was about; it was connecting New York to Seattle. So, you can
pull out a segment, and say, ``How do you justify that cost?''
But, that's not the way you would review it.
Same is true with respect to the electrical grid. Can you
imagine our country, in which, in the major cities, we have an
advanced electrical grid, and in the country, we'd have rolling
brownouts, just because it was more expensive to build it out,
so we didn't build it out. We built it out where all the people
were and built part of it out in other areas. But, we didn't do
that, not with electricity. The build-out is universal.
The question is, should the same hold true for broadband?
The answer clearly is yes.
The Telecommunications Act of 1996 is one that I helped
write, on this committee. It defines ``universal service'' as,
``an evolving level of telecommunications service.'' With
``broadband'' then defined as an ``information service,''
later, by the FCC, in my judgment the legal foundation for
universal service is unnecessarily and probably dangerously
undermined. And that's one of the reasons I support the notice
of inquiry that the FCC voted out last week. The need for
universal service to support the advanced communications
networks in this country is why I believe the FCC should move
forward with this reclassification. I know that's very
controversial, but I want to make the point that I think it is
essential.
We have to ensure that rural and high-cost areas of our
country have the opportunity to be on par with every other
corner of the country, and universal service will help achieve
that. Otherwise, we clearly will have a digital divide.
I'll be in my hometown this weekend, which is its 100th
anniversary. It's a town of 280 people. That city has very
high-cost service per unit of telephone. But we have a
different approach on how we assess costs for telephone, and so
we have universal telephone service in the smallest towns, just
as you do in New York City. The same needs to be true with
respect to broadband and with respect to the opportunity for
people in small towns.
As you know, high-speed broadband is, in my judgment, not a
luxury, but a necessity for participating in this 21st-century
economy. Access to comparable service at comparable rates has
always been a cornerstone of our communications policies. We
included those very words in the 1996 Act. It's always been a
cornerstone, and is today, in my judgment.
The question is, what kind of concerted Federal policy can
exist, what kind of Federal strategy can exist, to meet the
challenge of ensuring that high-speed broadband is available to
every corner of this country?
I and 21 other Senators have written to the FCC expressing
concern about two different broadband speed goals, with respect
to urban and rural America, in the National Broadband Plan. The
plan creates a goal of broadband at 4 megabits per second for
rural areas, while suggesting that 100 million urban Americans
should have access to 100 megabits per second. We need to be,
in my judgment, breaking down our digital divides, not
perpetuating or creating a new one. So, that's a concern of
mine, as well.
But, this is a very important issue. It's gone on for a
long while. I think the FCC is finally deciding we've got to
bite into this--so should Congress--and figure out how we
address it so that we develop a communications system that has
universal capability, as we've done with roads and electricity
and other issues. If we do not do that, the question of what
areas of the country develop, economically, in the future will
largely be determined by what kind of capability exists in
those communities for high-speed broadband. I mean, that's just
a fact of life.
So, I appreciate the witnesses being here. The Ranking
Member is not here, but if members wish, we'll call on very
brief opening statements, before we hear the witnesses, of a
minute or two.
Senator Johanns, you were here first. Do you wish to make a
statement?
Senator Johanns. Mr. Chairman, I thank you for the
opportunity, but my time is a little bit limited to be at the
hearing today, I'd be happy to proceed to the witnesses.
Senator Dorgan. Thank you very much.
Senator Vitter.
STATEMENT OF HON. DAVID VITTER,
U.S. SENATOR FROM LOUISIANA
Senator Vitter. Thank you, Mr. Chairman. Thank you for
holding this hearing. It's very, very important.
Universal service is an important issue everywhere. It's
certainly important in Louisiana, which is relatively rural. We
have many underserved areas. And obviously the concept and the
policy of universal service has to be updated for the Internet
Age. Having access to an antiquated voice-only line certainly
no longer qualifies as being truly connected.
As we work on these important issues, I think we need to
focus on where the need is, focus on underserved rural areas,
and connecting those areas to broadband. I think, at the same
time, we need to try to ensure that, in doing that, we don't
put new regulations in other areas that will stifle growth,
investment, and innovation. And certainly I look forward to
working on policy that accomplishes all of that.
Thank you, Mr. Chairman.
Senator Dorgan. Thank you very much.
Senator Begich.
STATEMENT OF HON. MARK BEGICH,
U.S. SENATOR FROM ALASKA
Senator Begich. Mr. Chairman, I'll just be very brief. I'm
looking forward to the testimony.
And, as you know, in Alaska--a very remote area, and
universal service is critical, in the sense of the fund and how
it's utilized, to making sure there's access to some of the
very remote of the remote places of this country.
And so, I'm anxious to hear the testimony and then engage
in some questions and answers, Senator.
Thank you.
Senator Dorgan. We will hear first today from The Honorable
Michael J. Copps, who's a Commissioner of the Federal
Communications Commission. And then we will turn to The
Honorable Mignon Clyburn, another Commissioner of the FCC; and
finally, The Honorable Meredith Attwell Baker, Commissioner of
the FCC.
Let's begin with you, Commissioner Copps. Welcome.
STATEMENT OF HON. MICHAEL J. COPPS, Ph.D.,
COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION
Mr. Copps. Thank you.
Senator Dorgan. The entire statements of all three will be
part of the permanent record. And we would ask the three to
summarize.
Mr. Copps. Thank you, Mr. Chairman, members of the
Committee.
I appreciate your visiting with us about the important
challenge of shaping universal service for the Digital Age.
Getting this right is really ``make-or-break'' for the success
of the National Broadband Plan.
High-value broadband intersects with just about every great
challenge confronting our Nation today. There are no solutions
to job creation, international competitiveness, education,
energy, healthcare, the environment, overcoming disabilities,
opening doors of equal opportunity, even our civic dialogue,
that do not have a broadband component as part of its solution.
Chairman Genachowski's broadband team has produced a plan
to bring robust broadband to every corner of America. While no
plan is perfect, and I suspect each Commissioner would have had
his or her own variations on what was proposed, now it comes
down to a whole lot of followthrough. And I'm sure, when it
comes to the Universal Service Fund, we are all in agreement
that reform is in order.
Of the four programs under the Universal Service Fund, the
high-cost program provides direct support to ensure that
consumers across the country have access to what the law
requires: services and rates that are reasonable and comparable
in rural areas to those in urban areas. This has been, in most
ways, a success, with telephone penetration at about 98.2
percent.
But now we're in the Digital Age, and the advanced
telecommunications are high-speed connections to the Internet.
It is long past time to bring broadband fully into universal
service. This requires more than just tinkering with the
current program; it's going to take some fundamental changes.
We should keep in mind the good things that have come from
the existing high-cost program:
Infrastructure for voice service has been built out in
rural areas, where bigger companies often didn't want to go,
built by smaller telephone companies that would have had no
ability to fund such deployment without high-cost USF support.
With network upgrades for voice services, some providers
have also been able to provide broadband services. The high-
cost fund has led to more wireline and wireless voice services,
more competition, less industry consolidation, more jobs, and
more broadband.
Recognizing its successes, we all know the program is far
from perfect. It is an incredibly complicated system, providing
support in different ways for rural and nonrural carriers,
rate-of-return and price-cap carriers, as well as incumbent and
competitive carriers.
The various categories and subcategories of high-cost
support can be mindboggling in their intricacies, applications,
and exemptions. In addition, any program that distributes money
faces attempts by some to engage in arbitrage schemes and,
sometimes, outright fraud and abuse. Keen oversight and
effective auditing of such a program are necessary.
Plus, with its technology-neutral and pro-competitive aims,
the program has been criticized for funding multiple providers
in one area.
There are also serious questions concerning basic equity
when it comes to the distribution of USF support. At the end of
the day, of course, it is consumer equity that must drive the
train.
The National Broadband Plan starts us down a right path. It
includes recommendations to phaseout the existing high-cost
program for voice services while ramping up a Connect America
Fund for broadband services and a Mobility Fund for wireless
services, over a transition period of 10 years. The goal of
this reform is to make sure that broadband and 3G and,
hopefully, more wireless services are available throughout the
country while we continue to ensure the almost ubiquitous voice
service made possible through the legacy High-Cost Program. A
big goal, but the devil will be in the details of what we do
next.
What the Commission really needs to do now is bring it
home. We need to launch a multiplicity of proceedings and
expeditiously make the difficult decisions to get this done.
This process has started, but it will be no easy task to get us
where we need to go, and it will require shared sacrifice among
all participants as we build our broadband future.
I know there are naysayers out there who think the FCC
should stay out of the business of broadband, that everything
is working fine, and there's no need or place for government.
As my written testimony explains, that's not how we built this
country's infrastructure, going back to our earliest days. And
in giving us our universal-service mandate, Congress recognized
that, without sound public policy and appropriate funding
mechanisms, private business would not, could not, provide all
Americans with state-of-the-art telecommunications
infrastructure.
I believe that Congress already gave the FCC the statutory
mandate to advance the cause of bringing access to advanced
telecommunications to each and every American.
Finally, Internet access does more than just create
technology and economic opportunity. As we begin to migrate so
much of our national conversation--our democratic dialogue--to
the Internet, we must understand the profound civic
implications of what we do.
America's future town square will be paved with broadband
bricks. Sustaining ``small-d'' democracy by effectively
informing and engaging all of our citizens in the Digital Age
should be at the heart of our broadband vision. It may be less
tangible in some ways, but it is no less real, important, or
urgent because of that. As members of this committee know, I
will be more than happy to elaborate on this.
It's a pleasure for me to be here with my two colleagues
this morning, Mignon Clyburn, who is the Federal Chair of the
Joint Board on Universal Service, and Meredith Baker, like me,
a Member of the Joint Board, both of whom are very
knowledgeable about, and committed to, a universal service
system that really works, as are, I might add, our State
commission members.
With that, Mr. Chairman, I look forward to the Committee's
comments and guidance as, together, we work to bring high-value
broadband to the four corners of America.
I thank you for your attention, and thank you for holding
this hearing this morning.
[The prepared statement of Mr. Copps follows:]
Prepared Statement of Hon. Michael J. Copps, Ph.D., Commissioner,
Federal Communications Commission
Chairman Rockefeller, Ranking Member Hutchison, members of the
Committee, I am pleased to have this opportunity to visit with you
today to discuss one of the most important challenges confronting this
committee, our Commission and the country. This is the challenge of
bringing broadband to all our citizens. And I thank you for focusing on
one of the central action items coming out of Chairman Genachowski's
National Broadband Plan to get this job done. That's reforming,
revising and reinventing the Universal Service Fund--particularly the
high cost program--for broadband.
Since my confirmation as a newly-minted Commissioner in 2001, I
have been calling for a national broadband strategy to ensure this
Nation's going-forward global competitiveness. It is my belief that
high-value broadband is the Great Enabler of our time. This technology
infrastructure intersects with just about every great challenge
confronting our Nation today--jobs, business growth, education, energy,
climate change and the environment, international competitiveness,
health care, overcoming disabilities, opening doors of equal
opportunity, news and information, our democratic dialogue. There is no
solution for any of these challenges that does not have some broadband
component to it.
This Nation has a long history of successful infrastructure-
building upon which to draw. Earlier generations met and mastered their
own great infrastructure imperatives--things that had to be built if
the country was to continue its forward march. So those generations
built roads and bridges, turnpikes and canals, regional and then
transcontinental railroads, an interstate highway system, nationwide
electricity grids and nearly universal plain old telephone service.
They did this, more often than not, by working together--private
enterprise in the lead, to be sure, but encouraged by visionary public
policy. That was this country's framework--our ``how-to'' manual--for
building up and moving forward. It's how we built the place! But
somehow, when it came to the roads and bridges and highways of the
Twenty-first century--broadband--we forgot those lessons and fell
victim to a strange and totally unhistorical assumption that broadband
would somehow get built without any special effort, absent any
enlightened public policy encouragement, and that business would build
it out even in places where business had no incentive to go. That has
cost us a lot. We have lost precious time, jobs, opportunities and
competitiveness. And we have fallen behind other countries.
So, it was music to my ears when Congress called for the
development of a National Broadband Plan. Just 3 months ago, Chairman
Genachowski, with the hard work of an impressive team of FCC staff,
presented a National Broadband Plan with clear objectives and a
considered strategy aimed at ensuring that everyone in this country has
equal opportunity in this new Digital Age, no matter who they are,
where they live, or the particular circumstances of their individual
lives.
The goal of the broadband plan, in my opinion, should be to ensure
that a robust broadband ecosystem serves the American people. And I
believe that the Chairman's Plan can, with a whole lot of follow-
through, achieve this--with recommendations to reform the Universal
Service Fund, identify additional licensed and unlicensed spectrum for
wireless service, encourage ICT research and development, to name but a
few. Each FCC Commissioner would have, I am sure, some variations on
the Chairman's Plan. But, I suspect that when it comes to the Universal
Service Fund, we are all in agreement that reform is in order.
The existing Universal Service Fund is comprised of four programs,
created by the FCC pursuant to section 254 of the 1996 Act. The high-
cost program--our focus today--provides direct support to ensure that
consumers across the country have access to and pay rates for
telecommunications services that are reasonably comparable to those in
urban areas. This has been largely a success, with telephone
penetration at about 98.2 percent--although it should be noted that
there are areas like Indian Country that remain embarrassingly behind
in even the most basic connectivity. But, unlike the E-rate and Rural
Health Care programs, which provide support directly for broadband
access pursuant to statute, the high cost program, as well as the low
income program, is not designed to support broadband directly. I
strongly believe that if we are going to ensure that no community, no
citizen, is left behind by lack of access to basic or advanced
telecommunications in this new digital age, we must bring broadband
fully into the Universal Service system. No doubt this is a tall order.
The Fund includes many moving parts, and we must consider them all when
bringing our Universal Service system into the broadband age. This will
require something more than merely an adaptation of current USF
programs--we must consider the broadband ecosystem and make fundamental
changes, and this applies particularly to the high cost program.
As I mentioned, good things have come from the existing high cost
program. We have almost ubiquitous telephone service. Infrastructure
for voice service has been built out in rural areas by small incumbent
telephone companies who would have had no ability to fund such
deployment without high cost Universal Service support. With network
upgrades for voice services, some providers have also been able to reap
the incidental benefit of providing broadband services. Through its
support, the high cost fund has led to more wireline and wireless voice
services, more competition, more jobs and more broadband. Thanks to the
efforts of many rural companies, we have service in places where we
would have had no service. And we have, I suspect, less industry
consolidation than we would otherwise have in an already overly-
consolidated sector.
While we recognize these successes, the program has been far from
perfect. The current high cost program is an incredibly complicated
system providing support in different ways for rural carriers and non-
rural carriers, rate-of-return and price cap carriers, as well as
incumbent and competitive carriers. The various categories and
subcategories of high-cost support can be mind-boggling in their
intricacies, applications and exemptions. In addition, any program that
distributes money faces attempts by some to engage in arbitrage schemes
and, sometimes, in waste, fraud and abuse. The high cost program has
been no exception. Keen oversight and effective auditing of such a
program are necessary to make certain that funds are distributed
efficiently and used as intended. There are also serious questions
concerning basic equity when it comes to the distribution of USF
support. At the end of the day, of course, it is consumer equity that
must take precedence if we are to ensure consumers have access to
reasonably comparable services at reasonably comparable rates--the
dictate of the law. Additionally, with its technology-neutral and pro-
competitive aims, the program has been criticized for funding multiple
providers in an area, thereby increasing the overall Universal Service
Fund, which some argue makes the Fund unsustainable. The Commission has
been grappling with these concerns for several years, but now I think
we are all prepared to roll up our sleeves and address them as we
consider the critical matter of transitioning to a new program that
addresses both voice and broadband needs across the country.
Chairman Genachowski's National Broadband Plan starts us on that
path. The Plan includes laudable recommendations for phasing out the
existing high cost program for voice services while ramping up a
Connect America Fund for broadband service and a Mobility Fund for
wireless service over a 10-year transition period. The goal of this
reform is to make sure that broadband and 3G wireless services are
available throughout the country while we continue to ensure the almost
ubiquitous voice service made possible through the legacy high cost
program. And, because we are dealing with a broadband ecosystem where
many parts come together to form a complex, synergistic and
interdependent whole, the proposed changes to the Universal Service
system in the Plan also include recommendations to revise the
contribution methodology for the new program, to update and fix the
intercarrier compensation mechanism, and to consider the extent to
which broadband deployment (i.e., Broadband speeds) should be supported
by the Connect America Fund. While the Plan is thorough in its
recommendations for comprehensive Universal Service reform and its
transition to broadband, the devil will be in the details as the
Commission works on implementation.
We have a moment in time now--and these moments don't come around
often enough--to do something both bold and badly-needed. What the
Commission really needs to do now is ``bring it home.'' We need to
launch a multiplicity of proceedings and expeditiously make the hard
decisions that will get this done. The future of this country's
communications network depends on it. And it will be no easy task to
get to where we need to go--for anyone. There will have to be shared
sacrifice among all participants as we pursue the goal of eliminating
inefficiencies in the legacy high cost program and phasing it out. At
the same time, we must develop broadband and mobility funds that focus
carefully on providing support at efficient levels in geographic areas
where there is no private sector business case for broadband and high-
quality voice service, all the while making sure to be company- and
technology-agnostic. This comprehensive reform must be at the top of
our agenda as we work to make sure that every American has access to
21st century communications services.
I know there are nay-sayers out there who think the FCC should stay
out of the business of broadband--that all is working fine and there is
no need or place for government. But in giving us our original
Universal Service mandate, Congress recognized that, without sound
public policy and appropriate funding mechanisms, private business
would not--could not--provide all Americans with state-of-the-art
telecommunications infrastructure. That same fact holds true for
broadband--the advanced telecommunications infrastructure of today. We
already know that one-third of Americans do not have broadband--because
it is not available, because they can't afford it, or because they
otherwise have not adopted it. This country's global competitiveness
will depend on the extent to which all Americans have the opportunities
to be productive members of our modern world through access to, and use
of, the enabling power of broadband. You know better than I the many
serious challenges our country confronts. Manufacturing jobs have been
lost, other countries are putting more into basic research and
development than we are, and the list goes on. Can we really afford not
to be Number One in the all-important communications revolution of the
Digital Age? Or, are we going to sacrifice that, too?
And, I would like to make one thing very clear, given some of the
criticism I have heard. Nothing--absolutely nothing--that the FCC is
considering, from the National Broadband Plan or otherwise, has
anything to do with regulating the information or applications that
ride over the Internet. If anything, any action proposed by this
Commission is intended to make sure that end-users--you and I--have
freedom of access to the Internet, so that consumers rather than a few
entrenched interests have the major say in deciding how we are going to
access the wonders of the Digital Age.
Internet access does more than just create technology and economic
opportunity. As we begin to migrate so much of our national
conversation to the Internet, we must understand the profound civic
implications of what we do. America's future town square will be paved
with broadband bricks. Sustaining small ``d'' democracy by effectively
informing all of our citizens in the Digital Age goes to the core of
what we are trying to achieve in the National Broadband Plan. Our
democracy must always be vigilant to ensure we have the best
information infrastructure possible. Increasingly this era's
information infrastructure will be broadband. So the Internet must be
accessible to all the diverse voices of our diverse land. These
somewhat more intangible implications of broadband are, in reality, the
most important of all.
I believe that Congress already gave the FCC the statutory mandate
to advance the cause of bringing access to advanced telecommunications
to each and every citizen of our country. I am hopeful that the
Commission will use all tools necessary to move forward with
implementing the National Broadband Plan. Robust discussion and
difficult decisionmaking await us. Of course, time is not the friend of
a nation that has so much broadband work that has gone unattended, but
I am encouraged by the Chairman's agenda and determination to move
quickly to put this Plan to work for the American people.
One final note, I understand that this panel represents not only
three of the Commissioners of the FCC, but also the three Federal
Commissioners on the Joint Board on Universal Service. At this time,
the Joint Board has before it only one referral, and that is to address
questions on eligibility, verification and outreach for the existing
low-income program, and, should we move forward, consider how those
questions would be addressed if broadband is supported by the program.
The process for this review has just begun, and I look forward to
working with my Federal and state colleagues to come up with a sound
recommendation for the Commission. I know Commissioner Clyburn, as
Federal Chair of the Joint Board, continues to urge our colleagues to
act quickly and deliberately to address this matter. And I am pleased
that Commissioner Baker brings her vast experience and expertise to the
table, too. I know that all of us on the Joint Board are looking
forward to more referrals from the Commission so that Federal and state
Commissioners and staff may work together to transform our Universal
Service Fund programs for a broadband world. This kind of Federal-state
cooperation was, I believe, very much the intent of the Congress when
it wrote the Telecommunications Act of 1996.
I look forward to our conversation today, and to your comments and
guidance, to identify ways to move forward in bringing broadband to the
four corners of this great nation and everywhere in between. We must
have a Universal Service program that is robust, effective, and
forward-looking, true to its essential mission and true to the needs of
our country.
Thank you for your attention and for holding this hearing today.
Senator Dorgan. Commissioner Copps, thank you very much.
Next, we'll hear from Commissioner Clyburn.
STATEMENT OF HON. MIGNON L. CLYBURN, COMMISSIONER,
FEDERAL COMMUNICATIONS COMMISSION
Ms. Clyburn. Chairman Dorgan, Senator Ensign, members of
the Committee, thank you for the opportunity to testify on the
National Broadband Plan's recommendation to overhaul the
Universal Service Fund. I cannot think of a more timely and
challenging issue. It is essential that we work together to
ensure that all Americans have meaningful access to voice and
broadband services and that we make the most out of every
dollar contributed.
If there's one thing I have heard repeatedly since
Commissioner Baker and I first appeared before you last July,
it is that, as a whole, the Universal Service Fund is in dire
need of repair. It has not served all the people it should. It
is antiquated. And it is subject to waste, fraud, and abuse.
As a Commissioner who has lived and worked literally all of
her life in a rural state, I am intimately familiar with the
challenges faced by those communities. The current fund has not
worked well for all rural areas. Without modern communications
systems, the economic viability of rural areas is in doubt.
To fully participate in our 21st-century economy, all
consumers, no matter where they live in our great Nation, must
have access to broadband technology. Yet, 14 to 24 million
Americans do not have access to broadband at home. Without
broadband at home, families are placed at a significant
disadvantage. Children cannot use high-speed Internet to
complete their homework or apply for college online. For those
families, it matters little whether broadband is available to
95 percent of all Americans, what matters to them is that
broadband is not available at their home.
By overhauling the Universal Service Fund, the National
Broadband Plan proposes to connect 99 percent of American homes
within 10 years without increasing the overall size of the
fund. The plan proposes to phase in the new rules so that
service providers and investors will have time to adjust and
providers that currently rely on funding can make the migration
successfully.
In April, the Commission began a proceeding to consider the
plan's recommendations, and this proceeding is just one of many
to come this year to address reform. In my view, everything is
on the table. Universal service reform is often discussed but
rarely tackled. It will take enormous personal and political
will. But, we simply cannot afford to wait any longer.
Reform will require difficult choices. Outside of any
significant increases in the fund, we will have to find ways to
make more out of what we already have.
We are also going to need input from all stakeholders. I am
eager to work with the Committee, both individually and as a
whole, in order to achieve a more robust and efficient
universal service regime.
Thank you very much for inviting me and my colleagues to
appear before you this morning. I look forward to answering any
questions you may have.
[The prepared statement of Ms. Clyburn follows:]
Prepared Statement of Hon. Mignon L. Clyburn, Commissioner,
Federal Communications Commission
Chairman Rockefeller, Ranking Member Hutchison, members of the
Committee, thank you for the opportunity to testify today on the
National Broadband Plan's recommendations to overhaul the Universal
Service Fund to support broadband. I cannot think of a more timely and
challenging issue, and I am pleased that the Committee has turned its
attention in this direction. It is essential that we both ensure that
all Americans have meaningful access to broadband and employ a
mechanism that makes the most out of every dollar contributed to the
Fund.
In the Recovery Act, Congress required that the Commission develop
a National Broadband Plan that ensures ``all people in the United
States have access to broadband capability.'' Congress also sought a
detailed strategy for achieving broadband affordability and maximum
utilization of broadband infrastructure; an evaluation of the status of
broadband deployment; and the advancement of public purposes such as
community development, health care delivery, energy independence,
education, and job creation.
The Commission staff worked tirelessly over an 8-month period to
put together a comprehensive plan that addressed Congress's aims.
Although the Commissioners did not vote on whether to approve the Plan
itself, at our March meeting we unanimously agreed on six broadband
principles to guide our work. Three of those principles are most
applicable for this hearing today, and I believe these are central in
our quest to reform universal service.
First, every American should have a meaningful opportunity to
benefit from the broadband communications era--regardless of geography,
race, economic status, disability, residence on tribal land, or degree
of digital literacy.
Second, the nearly $9 billion Universal Service Fund and the
intercarrier compensation system should be comprehensively reformed to
increase accountability and efficiency, encourage targeted investment
in broadband infrastructure, and emphasize the importance of broadband
to the future of these programs.
Third, ubiquitous and affordable broadband can unlock vast new
opportunities for Americans, in communities large and small, with
respect to consumer welfare, civic participation, public safety and
homeland security, community development, health care delivery, energy
independence and efficiency, education, worker training, private sector
investment, entrepreneurial activity, job creation and economic growth,
and other national purposes.
If there is one thing that I have heard repeatedly since
Commissioner Baker and I first appeared before you last July, it is
that, as a whole, the Universal Service Fund is broken and in dire need
of repair. It has not served all of the people it was designed to
serve, it has become antiquated, and it has been subject to waste,
fraud, and abuse.
As a Commissioner who has lived and worked nearly her entire life
in a rural state, I am intimately familiar with the challenges faced by
those communities. The current universal service fund has worked for
some rural areas, but not all. Mr. Chairman, as you know all too well,
we need look no further than West Virginia as an area that is in need
of improvement. West Virginia ranks 48th for the number of households
that subscribe to broadband, with only 47 percent subscribing as of
December 2008, yet it is 20th for receipt of net USF funds and 31st in
high-cost support.
Without modern communications systems, the economic viability of
rural areas is in doubt. To fully participate in our 21st Century
economy, all consumers--no matter where they live in our great nation--
must have access to broadband technology. Yet, 14-24 million Americans
do not even have access to broadband at home.
Without broadband at home, families are placed at a significant
disadvantage. Children cannot use high-speed Internet to complete their
homework, enhance their educational opportunities through distance
learning, or apply for college online. Parents cannot apply for jobs
that require online applications, and they cannot access many other
services and critical information that is only available online. For
those families, it matters little whether broadband is available to 95
percent of Americans. What matters to them is that broadband is not
available at their home.
By overhauling the Universal Service Fund to explicitly support
broadband, the National Broadband Plan proposes to connect 99 percent
of American homes within 10 years and without increasing the overall
size of the fund. The Plan proposes to phase in the new rules so that
service providers and investors will have time to adjust to the new
regime and providers that currently rely on universal service funding
can make the migration successfully.
We are at the outset of that process. In April, the Commission
released a Notice of Inquiry and Notice of Proposed Rulemaking to begin
its consideration of the Plan's recommendations. In these notices, the
Commission is considering a wide range of issues, including, but not
limited to, the broader use of economic models, employing a competitive
procurement auction, and evaluating various proposals to shift legacy
high-cost support to a broadband fund.
This proceeding is just one of many to come. The Chairman has
proposed an ambitious schedule for us to consider a number of the USF
reform proposals in the National Broadband Plan. For example, we will
be considering the creation of a Connect America Fund, a Mobility Fund,
contributions, and intercarrier compensation reform. We will also be
addressing the extension of Lifeline and Linkup to broadband. Our work
is certainly cut out for us.
In my view, everything should be on the table. Universal service
reform is often discussed but rarely tackled. It will take enormous
personal and political will. But we simply cannot afford to wait any
longer.
There is no doubt that this process will require us to make
difficult choices. Outside of any significant increases in the Fund, we
are going to have to find ways to make more out of what we already
have. Inevitably, some companies that receive a certain level of
support may no longer retain that level of support. Others who have not
had support, may now receive it. Our aim should not be to please any
one company; but rather, to ensure that the American people--all of the
American people--have meaningful access to essential service.
In order to arrive at the best possible result, we are going to
need input from all stakeholders--providers, legislators, State
regulators, RUS, and consumers. I am eager to work with the Committee
both individually and as a whole in order to achieve a more robust and
efficient universal service regime. We must proceed in a thoughtful way
to ensure that we are preserving the current availability of voice and
broadband services to consumers, while expanding the availability of
those services to unserved areas.
Thank you very much for inviting me and my colleagues to appear
before you today. I look forward to answering any questions you may
have.
Senator Dorgan. Commissioner Clyburn, thank you very much.
Commissioner Baker, You may proceed.
STATEMENT OF HON. MEREDITH A. BAKER, COMMISSIONER,
FEDERAL COMMUNICATIONS COMMISSION
Ms. Baker. Thank you, Senator Dorgan. Thank you so much for
stepping in to chair this important hearing on this important
topic.
When asked to shorten our remarks, I thought, ``Well, maybe
I can just say what they said,'' because we agree on this
topic. It's ripe for reform. And it's important to the people
of America. But it's too important for me just to do that, so
I'm going to proceed with a few remarks.
The National Broadband Plan really has created a base of
knowledge and recommendations on which the Commission can build
on to make critical reforms to achieve Congress' goal of
ensuring that all people of the United States have access to
broadband capability.
Significant parts of the plan deserve careful
consideration, and this is particularly true on the analysis
and the proposed reforms of the High-Cost Fund. When the plan
was presented, the Commission, on a unanimous and bipartisan
basis, laid out the goals for the Commission's work ahead, and
comprehensive universal service reform is central to that
consensus.
Historically, universal service has been a success story.
With a combination of private investment and targeted support,
nearly all Americans have telephone service today. And we are
well on our way for that success for broadband.
Broadband is available to 95 percent of Americans, the vast
majority of which have choice among competing providers. But
there is much more to be done to reach the remaining 7 million
unserved households that the plan has identified. We must
strive to get more broadband, with faster speeds, deployed to
more Americans and more places.
I support the plan's emphasis on comprehensive USF reform
targeted to broadband investment. A reformed and modernized
High-Cost Fund is the key. At the same time, intercarrier
compensation and middle-mile connections must be part of the
regulatory reform if broadband is going to be a solid platform
for economic development and job creation. It is widely
recognized that our current system of implicit and explicit
subsidies is inefficient, outdated, and poorly suited to a
world increasingly dependent on broadband connections to the
Internet.
I support the four guiding principles of comprehensive
reform that were laid out in the plan: supporting broadband
deployment directly, maximizing broadband availability,
avoiding flash cuts to existing support, and coordinating
reform between Federal and State levels.
Of course, the details will be challenging. It is critical
that we transition in a careful way to an explicit support
mechanism that will ensure accountability, efficiency, and
adequate funding in areas where market forces are not
sufficient to drive broadband services to Americans.
Many carriers are justifiably concerned about how this
could affect network investment, services to consumers, and
even financial viability. I have heard the deep concerns from
rural carriers, in particular, including Delbert Wilson, of the
Hill Country Telephone Cooperative in Texas, who will be on
your next panel. The proposal in the plan does not answer all
the questions. Many of the fine points will have to be fleshed
out in the Commission's proceedings. We must move forward on
universal service and moving it into the broadband era. But we
do not do that on a blank slate. We must transition in a way
that avoids shock to consumers or providers that could endanger
broadband or traditional voice services on which users depend.
As we make decisions about how the new Universal Service
Fund will work, we will not lose sight of the special
circumstances facing rural America. We also recognize that
certain areas of the Nation, such as Alaska and tribal areas,
face unique challenges.
But we must also be mindful that the Universal Service Fund
is not without limits. The fund has grown from $2.3 billion in
1998 to nearly $9 billion this year. The universal service
contribution obligation has consequences for consumers, as
well. The universal service contribution factor has been as
high as 15.3 percent. A 15-percent contribution factor is
effectively an extra $7 tax on a $50 bill, a bill that many
consumers in these hard times cannot pay. Our efforts to
modernize the fund should not lead to further growth of it. It
is our obligation to ensure that money is spent wisely and
achieve a goal set out by Congress but without distorting the
market or breaking the bank.
As I have said many times, comprehensive universal service
reform is long overdue. Untangling these issues has been
perplexing to the Commission for decades. I am optimistic that,
following the National Broadband Plan, we have an opportunity
for real reform to finally address these thorny issues. Hard
choices will have to be made, and not all vested interests will
be satisfied, but I believe we must repurpose the nearly $9
billion Universal Service Fund for the broadband era. And that
must include reform of the High-Cost Fund.
Chairman Genachowski has announced that we will launch
several related notices of proposed rulemaking in the fourth
quarter of this year. And I hope we'll be able to achieve this
ambitious schedule for reform laid out in the plan. And I'm
eager to work with my colleagues to achieve our consensus goals
on universal service reform.
Thanks again for the opportunity to be here today, and we
look forward to answering your questions.
[The prepared statement of Ms. Baker follows:]
Prepared Statement of Hon. Meredith A. Baker, Commissioner,
Federal Communications Commission
Chairman Rockefeller, Ranking Member Hutchison, members of the
Committee, it is a privilege to appear before you today. I look forward
to working with you as you consider the many important issues involved
with reform of the Universal Service Fund (USF) broadly and the High-
Cost component of the Fund more specifically. I would like to share a
few remarks with you here this morning.
The National Broadband Plan was a monumental effort that has
created a base of knowledge and recommendations on which the Commission
can build critical reforms to achieve Congress' goal of ``ensur[ing]
that all people of the United States have access to broadband
capability.'' Throughout the Plan, there are places where I would have
made different recommendations and suggestions, but I am grateful to
the Commission's Broadband Team for its hard work and find that
significant parts of the Plan deserve careful consideration. In no part
of the Plan is that more true than in the analysis of and proposed
reforms for the High-Cost Fund. When the Plan was presented, the
Commission--on a unanimous, bipartisan basis--laid out goals for the
Commission's work ahead. Comprehensive universal service reform is
central to that consensus.
Historically, universal service has been a success story. With a
combination of private investment and targeted support, nearly all
Americans have telephone service today. We are well on our way to that
success for broadband. Under a light-touch regulatory approach, we have
gone from a narrowband dial-up world to a multi-platform broadband
world by crafting a regulatory framework that promotes facilities-based
competition. Private industry from every communication platform has
responded, making broadband available to 95 percent of Americans, the
vast majority of which have a choice among competing providers.
But there is absolutely more to be done to reach the remaining
seven million unserved households that the Plan has identified. We must
strive to get more broadband--with faster speeds--deployed to more
Americans in more places. Broadly speaking, I support the Plan's
emphasis on comprehensive USF reform, targeted to broadband investment.
A reformed and modernized High-Cost Fund is the keystone. At the same
time, intercarrier compensation and middle-mile connections must be
part of regulatory reform if broadband is going to be a solid platform
for economic development and job creation.
It is widely recognized that our current system of explicit and
implicit subsidies is inefficient, outdated and poorly suited to a
world increasingly dependent on broadband connections to the Internet.
I support the guiding principles of comprehensive reform laid out in
the plan:
Support broadband deployment directly.
Maximize broadband availability.
Avoid flash cuts to existing support.
Coordinate reform between Federal and state levels.
Of course, the details here will be challenging. It is critical
that we transition in a careful way to an explicit support mechanism
that will ensure accountability, efficiency, and adequate funding in
areas where market forces are not sufficient to drive broadband
services to America's consumers.
Many carriers are justifiably concerned about how this could affect
their network investments, services to their customers, and even their
financial viability. I have heard the deep concerns from rural carriers
in particular. The proposal in the Plan does not answer all questions.
Many of the fine points will have to be fleshed out in full Commission
proceedings. We must move universal service forward into the broadband
era--but we do not do that on a blank slate. We must transition in a
way that avoids shock to consumers or providers that could endanger
connections to the network--broadband or traditional voice services on
which users depend. As we make decisions about how the new Universal
Service Fund will work, we will not lose sight of the special
circumstances facing rural America. We also recognize that certain
areas of the nation, such as Alaska and tribal areas, face unique
challenges.
But we must also be mindful that the Universal Service Fund is not
without limits. The Fund has grown from $2.3 billion in 1998 to nearly
$9 billion this year. Consumers pay for this. The universal service
contribution factor has been as high as 15.3 percent. This is real
money from real people. Our efforts to modernize should not lead to
further growth of the overall size of the Fund. It is our obligation to
ensure that money is spent wisely to achieve the goals set out by
Congress--but without distorting the market or breaking the bank.
As I have said many times, comprehensive universal service reform
is long overdue. Untangling these issues has been perplexing the
Commission for decades. I am optimistic that following the National
Broadband Plan, we now have an open window of opportunity for real
reform to finally address these thorny issues. Hard choices will have
to be made and not all vested interests can be satisfied. But I believe
we must repurpose the nearly $9 billion Universal Service Fund for the
broadband era--and that must include reform of the High-Cost Fund.
Chairman Genachowski has announced that we will launch several
related notices of proposed rulemaking in the fourth quarter of this
year. I hope we will be able to achieve the ambitious schedule for
reform laid out in the Plan and I am eager to work with my colleagues
to achieve our consensus goals for USF reform.
Thank you again for the opportunity to be here today. I would be
happy to answer any questions you may have.
Senator Dorgan. Commissioner Baker, thank you very much.
We've been joined by the Ranking Member, Senator Ensign. I
want to call on Senator Ensign for a statement that he was not
able to make at the front end of this. And then we'll begin a
series of questions.
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman.
Universal service reform is an incredibly complex issue,
yet it is a very important one for policymakers to understand.
I applaud the Chairman for starting a dialogue here in the
Committee over how to best fix an out-of-date and sometimes
broken program.
This conversation is even more important in light of the
FCC's National Broadband Plan, which proposed a very ambitious
overhaul of the Universal Service Fund.
The FCC's plan advances some interesting ideas that should
be explored, like limiting subsidies to one provider in a
geographic area and moving the USF toward a more technology-
neutral system. But, such options start with the assumption
that simply turning the USF into a broadband plan is the best
way to go. As the Committee considers universal service reform,
I suggest we also consider alternative ways to support
broadband deployment in high- cost and rural areas.
Before we start directly subsidizing broadband build-out
with taxpayer dollars, it may make more sense to consider
options like broadband infrastructure tax incentives and
reducing other government barriers to deployment. Indeed, both
Chairman Rockefeller and Ranking Member Hutchison have offered
legislation that would encourage increased broadband investment
through tax incentives.
But, we cannot have a discussion about how best to get
broadband to high-cost areas, without considering the bigger
issue of Title II reclassification. We have heard, time and
again, from broadband providers and industry analysts that the
FCC's plan to regulate the Internet as a common carrier will
jeopardize investment. If the FCC reclassifies, and if
broadband investment really does shrink, what parts of the
country do you think will suffer the most from this lost
investment? We all know it is not going to be Los Angeles or
New York. It is going to be places where it is already hard to
deploy broadband networks, places like Pahrump, Nevada, or
rural West Virginia, or rural North Dakota. I find it ironic
that the FCC chairman is pursuing reclassification that will
reduce broadband investment because he says he wants to update
the USF so that there will be more broadband investment. Those
two goals don't seem to line up very well.
Also, there are a lot of smart people who believe that the
FCC can achieve the USF reform without reversing a decade of
successful light-touch Internet policy.
Simply put, dramatically increasing regulation on Internet
providers isn't the best way to get them to build broadband
networks in high-cost, rural, or unserved areas.
So, thank you, Mr. Chairman. I look forward to the round of
questions.
Senator Dorgan. Senator Ensign, thank you very much.
Commissioner Copps, I come from a state in which farmers
waited for a long while to get electricity, and then it was
pretty clear it was never going to come to them unless there
was a Federal initiative called the REA, and we lit up
America's farms and unleashed an unbelievable amount of
productivity. And I suppose we still have a few people out
there someplace muttering about how the Federal Government
interfered with bringing electricity to farms. But the
utilities weren't going to do it, and so the REA program did.
What if, in this case, with respect to the build-out of
infrastructure of the Internet, we say, ``Whatever happens,
happens. Let the marketplace decide who gets what, and when.''
What will the result of that be?
Mr. Copps. Well, I think the results are several. Number
one, you're never going to get the infrastructure built. And,
number two, I think it's a total denial of how this country of
ours was built.
You can go back to our very earliest days and see that the
private sector has always led the way in building
infrastructure, but it has always been guided by visionary
public policy. Whether it was building the roads and harbors
and rivers and canals of the post-Colonial age, or the regional
and transcontinental railroads that came after that, or the
highway system, or rural electricity, or plain old telephone
service, that's how we built the place. And it strikes me as an
aberration that, over the last 8 or 10 years, we've suddenly
decided, well, this new infrastructure challenge, the essential
infrastructure challenge of the 21st century--getting broadband
to all of our citizens--somehow fits in different category, and
we don't have to treat that in the all-American way that we
built the country.
So, I think it's just not going to happen by itself. There
is no--and this is not to blame business. There's no business
case for business to go into a lot of these areas to build this
infrastructure, which people need to be fully productive
citizens in the 21st century, to get a job, to educate
themselves, to care for their health, and everything else.
Senator Dorgan. I think that's a very important point, the
business case. Investment flows out where the investment can
produce a return. And I, just this morning, heard an ad. It was
a company. ``We cover 95 percent of the people in the
country.'' Yes, that's true, probably. But, if you put up a map
and figure out the geography of where they don't cover,
significant parts, perhaps of South Dakota or North Dakota,
where very few people live, the business case for getting out
to covering that might exist sometime much, much later, but it
might never exist. And that's the point. So, that's why I think
there needs to be some national policy here to stimulate this,
representing what we put in the 1996 Act--comparable service at
affordable price for advanced services.
We didn't know much about that in 1996. I was sitting
around this table with a bunch of folks. But, we did know
enough to talk about the need for comparable service at
affordable price for advanced telecommunications services.
Which, it seems to me, in retrospect, is still clear enough for
us to have some guidance from it.
Commissioner Baker and Clyburn, tell me about this 4
megabits versus 100 megabits. We're going to jack up the speed
in rural America to 4 and have 100 million people have
opportunities for 100. So, tell me about whether, if I were
living in a rural area this morning, in South Dakota or North
Dakota, whether I'd think that was a fair approach.
Ms. Clyburn. Well, I, like you, am from a predominantly
rural State and am excited about some of the prospects and
recommendations put forth in the National Broadband Plan, which
includes a recommendation, under the current economic
framework, under the Universal Service Fund, to ensure that
every American citizen has the opportunity to access and take
advantage of 4 megabits per speed of broadband service. And the
reason why that figure is so significant is that is where the
majority of Americans are subscribing to their current uses and
their current services. So, that's why that figure is so
significant and is ripe for conversation today. It is a
proposal, a speed, a level that, under the current economic
framework, as was affirmed under--for $8-$9 billion, is, again,
attainable under the current framework.
Senator Dorgan. What is the current definition of
``broadband'' in the Commission?
Ms. Clyburn. High-speed----
Senator Dorgan. High-speed.
Ms. Clyburn.--Internet access.
Senator Dorgan. But--no, but is it----
Ms. Clyburn. In terms of the speed?
Senator Dorgan. What do we consider high-speed broadband?
Is it 760 or----
Ms. Clyburn. Or about----
Senator Dorgan.--seven-hundred and----
Ms. Clyburn. Sixty.
Senator Dorgan.--sixty kilobits? Is that----
Ms. Clyburn. That's a baseline.
Senator Dorgan. OK.
Ms. Baker. I think----
Senator Dorgan. Commissioner Baker.
Ms. Baker. Senator, I think you raise some really important
points. First of all, the 4 megabits down, 1 up, is a
recommendation by the plan, and we have not adopted that yet,
as a Commission. So, we're happy to work with you on what you
think the right number should be. Currently, the average rate
of speed in America is 4. And that's why the plan addressed
that.
But, to your point as to, ``What are currently calling
`broadband'?'' we haven't revisited the definition. We were
calling it 200 kilobits, forever. And while that might have
made sense 14 years ago, it doesn't make sense now. So, I think
whatever speed we land on, we need to make sure that we revisit
it.
Mr. Copps. Can I just add one comment?
Senator Dorgan. Yes.
Mr. Copps. Forty years ago this month, I went to work two
floors up here for your friend and mine, Senator Fritz Hollings
from South Carolina, and he was always advising us, ``On the
way through life, make this your goal, keep your eye on the
doughnut and not the hole.'' You probably heard him say that
many times.
Senator Dorgan. A hundred times.
Mr. Copps. The doughnut here is getting the basic
broadband, reasonably comparable services at reasonably
comparable prices, out to everyone. And, indeed, under the
Telecommunications Act, our focus is supposed to be on getting
broadband to those--to folks at a level that other subscribers
are already subscribing to. Nobody's subscribing to 100
megabits right now.
So, that's an aspirational goal. It's something we're
looking for the private sector to do. There are things that we
can do to help both of those, like dig-first policies and
easing rights-of-way and things like that. But, I think the
basic goal is broadband for each and every American.
Ms. Clyburn. And only 6----
Senator Dorgan. Can I call on----
Ms. Clyburn.--I'm sorry--and only 6 percent of Americans
subscribe 10 megabits per second at this point.
Senator Dorgan. Part of that is pricing, I assume. But,
part of it is also opportunity. Some people don't have that
opportunity.
Let me call on my colleagues in a moment.
But, let me just say, I think that while there may be
disagreement around this table about reclassification or this
or that. I think there's no disagreement here that all of us
aspire to the same result. I think all of us aspire to have a
robust build-out, all across this country, of advanced
telecommunications services, comparable speed at affordable
prices.
Senator Ensign.
Senator Ensign. Thank you.
Section 254 of the Communications Act specifically requires
the FCC to use the Universal Service Fund to promote access to,
and I quote, ``advanced telecommunications and information
services to all regions of the Nation,'' unquote, in
particular, to support low-income consumers and those in rural
or high-cost areas. In other words, universal support for
broadband. Nonetheless, the FCC chairman has stated that he
needs to reregulate the Internet, under Title II of the Act, in
order to implement his proposed USF reforms.
Commissioner Clyburn, as Chair of the Joint Board on
Universal Service, do you believe that the FCC needs to reverse
a decade of light-touch regulatory policy in order to expand
the Universal Service Fund to explicitly support broadband
services? And, if so, can you please tell me specifically which
universal service fund provisions of the National Broadband
Plan cannot be implemented without reclassification?
Ms. Clyburn. First, I cannot say to you that is an
impossible goal under the current framework, but I will say to
you that, under current Title I framework, it is less likely
for us to realize certain successes and work on certain
important issues, such as cybersecurity, privacy, and, yes,
universal service reform.
One of the things that--again, the Comcast decision made
clear that this--the current framework will be more difficult
for us. And so, the reason why we are engaging in these series
of conversations----
Senator Ensign. Why is it more----
Ms. Clyburn.--the reason why the NOI----
Senator Ensign. Why is it more difficult?
Ms. Clyburn. It is more difficult because, under the
current framework, we do not believe--the legal minds in our
office do not believe that achieving and being able to work in
this space would be straightforward and legally sustainable.
There are too many--it's not a predictable and a sustainable
and straightforward approach.
Senator Ensign. Commissioner Baker, you like to comment on
that?
Ms. Baker. Thank you, I would, Senator. I respectfully
disagree with my colleague. I think that we do have the
authority to reform universal service under the current
structure of Title I.
While section 254 is only 5 pages and is ambiguous to the
specific question that you ask, I believe we have authority,
because the statute talks in terms of how universal service
will evolve, and the need for access to advanced services, as
you mentioned, and also, it directly references information
services like broadband.
So, I think we--I think the statute's clear. I think that
people are making the--they are interpreting the Comcast
decision too broadly. It is far more discrete than people are
making it out to be. What the Comcast decision said was that we
have to tie our actions to a specific statute--authority in the
statute. Here I think we can do it.
In addition, speaking of the Joint Board, the Joint Board
actually passed a resolution, in 2007, which said that
broadband should be supported under the Universal Service Fund,
of which I agree.
So, I think we have the authority, and I think we can do it
under Title I.
Senator Ensign. Commissioners Copps or Clyburn, going back
to the point that I made in my opening statement--we hear from
industry experts out there--not only the people who actually
work in the industry, but people who analyze the industry--that
reclassification will lead to less investment of
infrastructure. In other words, there's going to be less money
put out there, there's going to be fewer pipes; it's going to
be more difficult to get more broadband to more people if
there's less money in the private sector. That seems to be
counter to what we're trying to do with Universal Service Fund,
of getting broadband out there.
And so, can you just address what you think those,
basically, countering proposals do to each other?
Ms. Clyburn. Well----
Mr. Copps. I don't----
Ms. Clyburn. I'm sorry.
Mr. Copps. I don't really buy into those claims that some
of the companies are making. It seems to me, this is the
greatest infrastructure challenge of our time. This is the
investment opportunity of our time--all of the technology, all
of the innovation that's going to continue to come. I can't see
any company saying, ``Well, we're not going to be a part of
that.'' So, I think there's going to be plenty of
opportunities.
And frankly, I think that business operates better when it
doesn't have a question mark facing it. And we've had 8 or 10
years now of one darn question mark after another coming from
some of the actions of the FCC. I'm not saying they're going to
applaud this, but I am saying that business adjusts when they
know the rules and they favor having some stability, some
predictability, so they can go to the investment community and
say, ``Here are the rules.'' Actually, we did operate under
these Commission rules before. We can operate under them again.
And I think they'll be trying to encourage the investment
community to help support this build-out.
Ms. Clyburn. I have read the comments of some top analysts,
from UBS, Bank of America, Merrill Lynch, and Goldman Sachs,
who disagree that this will thwart investment.
And I also use history as a guide. I'm a daughter of a
history teacher and a librarian, and I use history as a guide.
And I look at the wireless industry, and how it has thrived
under Titles II and Title III regulation. More than $240
billion between 1998 and 2008 has been invested in this
wireless space--$20 billion in 2008 alone, in terms of
wireless--under a similar framework. So, I'm not convinced that
investment will be thwarted by this direction.
Senator Ensign. I realize my time is up. If we could just
have Commissioner Baker just finish.
Ms. Baker. Thank you. I actually met with a group full of--
a roomful of investors yesterday. And they, again, said, ``This
is really--it's already causing stocks to decline. We have seen
it. We don't support this reclassification. Why would we, you
know, when the Euro is falling and there are so many
questionable outcomes, why would we go toward telecom
investment?'' And I said, ``I hear that all the time. But,
apparently some people hear opposite things. What's the
difference?'' And they said, ``Well, we're basically telecom
infrastructure investment folks, and what they're probably
hearing from are edge investment people.''
So, I think at a time when, really, our telecom
infrastructure still needs to be built out, we don't need to
endanger the investment in that sector. And I also see that all
of these industries are moving together. So, you know, by the
time we figure it out, the edge providers and the telecom
providers are all going to be the same. So, I think we should
continue classification the way it is right now.
Senator Ensign. Thank you, Mr. Chairman.
Senator Dorgan. Senator Johanns.
STATEMENT OF HON. MIKE JOHANNS,
U.S. SENATOR FROM NEBRASKA
Senator Johanns. Thank you, Mr. Chairman.
Thank you for being here. I find the discussion to be
fascinating. I can see that the Commission has a difference of
opinion. That's probably healthy.
Let me, if I might, take a step back, here, because I think
this is really important. Having served roughly in a position
like yours, as a Cabinet member, and now being on this side of
the table, I think it's always important to ask the basic,
fundamental question when you're in your chair. And that
fundamental question is, Do I have the power? Because, you see,
if you don't, then we are thwarting our governmental system.
Now, nobody made me the Czar of Agriculture, when I became
the Secretary of Agriculture. In fact, Congress would remind
me, on many occasions, ``You've gone too far,'' or, ``You need
to interface with us,'' or, ``You can't do a farm bill without
us doing the farm bill.''
So, I want to get back to this really fundamental question
about what your power is. And I kind of disagree with all of
you, to be honest with you.
Commissioner Baker, I read that Comcast decision to be a
striking blow to what the Commission thought it could do. And I
think it jeopardizes a whole bunch of things under the
Broadband Plan.
The other thing I will tell you, Commissioner Copps, is
that when I hear you talk about, ``Well, Congress has given us
the power to bring broadband to every American,'' then I have
to ask the next question. What kind of broadband are you
talking about? Does that mean everybody gets the same speed? Do
you have the power to decide what the differences will be,
versus a rural area, versus in Los Angeles or New York City?
And see, now when we start really digging into the extent of
the power you claim to have, I think it begins to fray at the
edges.
Now, there's a simple solution to this: come to Congress.
We are the ones that did pay the filing fee. We are the ones
that ran for office. And, versus trying to shoehorn into a
1930s view of the world, why wouldn't you come back here and
say, ``Look, we've got questions. Our own Commission, only five
members, can't even agree on this. Help us sort this out
through the policy debate that should happen on the floor of
the Senate, on the floor of the House.''
So, Commissioner Copps, why wouldn't that be a more
reasoned approach, and why wouldn't that give more security to
the marketplace, that we're going to follow the Federal system
in coming to conclusions on this?
Mr. Copps. Well, Senator, I appreciate your question. I
know of your longstanding interest in broadband. I remember
when you were Governor, we had a nice dinner out in----
Senator Johanns. We did.
Mr. Copps.--Creighton University one night, and you were
very active in the Governor's Association to try to move this
along.
I agree with you that the Comcast decision jeopardizes much
of the Broadband Plan. And it seems to me the best way to deal
with it is to base our case on the strongest part of the law. I
don't think anybody says that the Commission has no power to do
this. I think it's a question of: What are we basing our
argument on? And do we reclassify? And there will be a court
case, because whatever we do, there's a court case. And do we
go to court and run it up to the Supreme Court and get a
decision on that reclassification, or do we go through death by
a thousand cuts, and, every time we want to do something, try
to find some new permutation of Title I, and take it to the
courts? I just don't think we're going to get broadband that
way.
As to your question--I don't say the FCC has the power to
bring broadband to every American, I say we have the obligation
to develop policies that will be favorable so that the private
sector and government can work together to accomplish the aims
of visionary public policy.
And what speeds? I mean, I think we have plenty of guidance
in the law--reasonable and comparable service. We all know
broadband is an evolving technology. We're under instructions
to look at it periodically. The Joint Board on Universal
Service, on which the three of us and a lot of State
Commissioners serve--like Ann Boyle, from your State--is under
obligation to look at this. So, I think it's just kind of
working together in partnership, and trying to anchor this on
the strongest argument we can make.
I know we disagree on this. But, I just think, from my
standpoint, I would rather rest my case on what I deem to be
the most persuasive and the most solid foundation of the
statute.
Senator Johanns. I'm out of time, but I'll wrap up with
this.
How you could come to the conclusion that shoehorning into
a 1930s regimen for the system we have today is the most solid
foundation just perplexes me. The most solid foundation is to
come back to Congress and get the words to give you the
authority to do specifically what you want to do. That's the
most solid foundation.
Mr. Copps. Well, I certainly always welcome any
clarification that Congress cares to make, or elaboration that
it cares to make. But, I think that the statute, as written in
1996, was pretty flexible. And while, as Senator Dorgan said,
it didn't envision every possible development, I think it
realized that technology was evolving. I think it realized that
it was moving at a very fast pace. And I think it conferred
sufficient flexibility upon us to do our job.
Senator Dorgan. If I might just give you a couple more
seconds and point out that the decision to change the Internet
from a telecommunications service to an information service was
not a Congressional decision. That was a decision taken by
Chairman Powell at the FCC. Many of us fully disagreed with
that at the time. But that was a decision they made. And so,
the issue of shoehorning back simply would restore that which
existed prior to Chairman Powell's original judgment to take it
out of Title II.
So, I just want to make that point, because this isn't a
case, in my judgment, of the FCC deciding, ``We're going to do
something that has never been done.'' It was always under Title
II, until Chairman Powell took it out, by himself, and decided,
it will be classified as an information service. I fully
disagreed with that, so that's why we have a disagreement now
about whether it should be restored, I suspect. But, I just
wanted to make that point, it related to your discussion.
Senator Johanns. And Mr. Chairman, I respectfully
acknowledge that point. But, the point is, the Commission has
decided that. And now to go back to Title II--to go back to a
piece of legislation that really wasn't designed for what
you're trying to do here, is where I think we're missing the
policy point. But, again, there is a very simple solution to
this: come to Congress and ask Congress to clarify what the
extent of your power is, what we want the FCC to have power to
do, and not to do. That's why we're here. That's our role in
this debate, whether it's universal service or broadband.
Senator Dorgan. Senator Begich.
Senator Begich. Thank you very much, Mr. Chairman.
I appreciate this broader policy discussion, but you all
agree on that. That needs to be reformed. Right? Isn't that why
we're here today? OK. So, all that other stuff, we can debate
at another time, to be very frank with you. I'm going to be
very parochial. I've got a State that has desperate need of
connectivity, and the use of the Universal Fund is critical.
I wish it was as simple, as my colleague from Nebraska
says, to do stuff in this body. But we can't even extend
unemployment benefits. So, I appreciate your comment that, ``If
we think there's a problem, we'll come to you.'' But, keep
moving forward. I know there's disagreement. I think we have a
good group, on the Commission, that will do their job and
figure out the right approach.
But, you all agree that Universal Fund needs to be
reformed. Right? No disagreement there.
Ms. Clyburn. No disagreement.
Senator Begich. OK. Thank God that there's something that
you all agree on.
[Laughter.]
Senator Begich. So, let's walk down this path, if we can.
You know, I know there's, you know, the effort, in the long
term, on the Connect American Fund and the 10-year transition
period. I guess my concern is, after some review of the plan,
how that really will make that transition in a State--and,
again, being very parochial, in Alaska--where we have some at
256 bytes, I mean, just to give you a sense. It's dial-up,
basically. That's our high speed in some of our areas. So, as
you define it, I'll be very anxious to get 4 megabits. That
would be just awesome. But, at 256, we're struggling just to,
you know, send a form to somebody in a timely manner in the
system we have.
To be honest with you, after reading the plan, I don't have
a lot of faith yet that the transition from the Fund to the new
Connect America Fund will ensure that places, like mine and
others here, who have very, very rural communities, are going
to get that investment, that connection. I have a community of
46 people that have telephone service. I guarantee you, the big
guys aren't coming to that community unless there's a high
incentive of making sure they can afford the infrastructure
investment.
So, I'll just kind of go down this side, down, if you want
to comment on that. And I'm not interested in the
reclassification of 1 to 2, so don't get into that.
[Laughter.]
Senator Begich. I just want to focus on what I thought the
meeting was about. So----
Ms. Baker. OK, I won't rebut.
Senator Begich.--I'm bringing everyone back home here to
one area.
Ms. Baker. No, I agree with you, Alaska is unique and very
special. And we absolutely need to focus on that. The good news
is, I actually do think that the National Broadband Plan shared
your goals, shares our goals, to get broadband to unserved
rural areas--or unserved areas, period. So, I think if we move
forward with many of the recommendations in the National
Broadband Plan, then we'll be doing just what you want us to be
doing.
Senator Begich. Yes. If I can just add one thing so
everyone's kind of prepared on the same level here, and that
is, I know, under the proposal, it eliminates the support for
multiple providers in an area. So, how do you address that? And
again, I recognize the broad statement you just made. We're all
in agreement on that. But, as you all have said, the trouble
will be in the details of how you do this. And I just am very,
very nervous. I know the fund is not perfect; I agree with
that, but we've come so far in delivering. How do we make sure,
especially when you're shrinking on the capacity in some cases
and utilizing the reverse auctions and other new mechanisms?
Help me understand that.
Ms. Baker. Well, I think that one of the recognitions is
that--is, Alaska is unique. So, when we capped, for instance,
CETC fund, we did not cap it in Alaska.
Senator Begich. Right.
Ms. Baker. And so, I think that, again, you have a unique
situation in Alaska, that we will look forward to working with
you and continuing to address.
I think, as we work forward, we need comprehensive reform.
And so, as we look forward to that, all parts of the program
need to be considered, and--you know, including CETC. And the
ultimate decisions that we make are going to have to be guided
by technology neutrality. But, I think, in the end of the day,
one provider is going to serve consumers better.
Senator Begich. OK. Thank you.
Ms. Clyburn. Some of the features, Senator, that are of
interest to me in the plan, that would be in sync with your
question, is one in which my colleague teed up, in terms of
ensuring that we look at certain efficiencies, that we target
the money where it's needed.
Right now, universal funding is following companies based
on the--their--certain sizes, you know, and scopes, not
necessarily where the money is needed. So, exactly where it's
needed, that could--it--where it could do the most good--that
is not necessarily happening in key areas, like your State.
So, a technology neutral approach that will take cost into
considerations, targeting those dollars where they're most
needed, and encouraging pilot programs that could look at
particular states like yours--tribal and insular states that
have unique characteristics that no one else has. And so, if we
do that in an efficient and targeted fashion, I think that will
be an incredible blueprint for the rest of the country to
follow.
Senator Begich. Let me go--my time is----
Mr. Copps. I don't want to repeat what they said, because I
agree with a lot of that--but, I think what we really need is a
careful balance, here, of assurances to the companies that are
there, and the customers in those areas, that there is going to
be a long and considered and good transition, so that we don't
become disruptive. But, we also have to make that commitment
that we're actually moving to something, so there's motivation
for people to sit down at the table and really work together,
because that's the only way we're going to get this done--with
all the participants. Everybody is going to have to sacrifice,
everybody is going to profit, at the end of the day, but--and I
do agree, there are unique places, and there are always
unintended consequences to anything that you do. And if we
don't have a process that is alive to that, and flexible enough
to respond to it, then we'll be shooting ourselves in the foot.
Senator Begich. Thank you very much. My time is up.
And, Commissioner Clyburn, I'll look forward to seeing you
in Alaska, I think, about 2 weeks or so.
Ms. Clyburn. Absolutely. Looking forward to it.
Senator Dorgan. Senator Thune.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman.
And I thank you for your input and testimony today.
And I don't think anybody has sufficiently yet answered the
Senator from Nebraska's question about why you wouldn't do this
by looking to Congress for some direction. And I don't think
that--I would take a different view than my colleague from
Alaska--I don't know how you deal with the USF issue, which, by
the way, is an issue I care deeply about, as does the Chairman,
absent dealing with the reclassification issue. It seems, to me
at least, that what we're talking about here is whether or not
we're going to depart from the light-touch Title I information
services approach to this, which I think has led to an
explosion, in the last decade, in broadband services around
this country, and whether we're going to figure out a way to
sort of adapt the USF fund, which is a $7 to $9 billion
investment, around the $50 to $60 billion that's occurring
every year in private-sector investment. Why would we rather
take the $50 to $60 billion in private investment, put that in
jeopardy, and try and shoehorn that around this issue, so we
can fix the $7 to $9 billion investment, which does fill the
gap, when there isn't a business case to be made?
So, it strikes me that this really is a contortion, to try
and get a statutory portal to allow for this reclassification
to occur, which, my understanding is, is going to lead to lots
of litigation, and probably tortuous litigation.
And so, I guess the question I would have is--everything I
hear suggests that this third way, this reclassification, is
going to result in lengthy litigation, likely all the way to
the Supreme Court--how does that provide the broadband industry
with the investment certainty to continue investing $50 to $60
billion annually in this industry?
Ms. Baker. I happen to agree that then only certainty would
be if Congress acts. Everything else is ambiguous. The statute
is ambiguous. I personally come down on the fact that we could
reform universal service under a Title I classification. But, I
think it would result in, you know, more litigation. Title I,
Title II--it's all going to be litigated. If it's turned around
under a Title II classification, then it really does undermine
a legal--the legal foundation of all the work that we're laying
here in universal service. So, I think it--then we'd have to
revisit all the policy decisions that we would have made under
faulty legal authority.
So, I--certainly, the best path forward would be for
Congress to act. I think we can move forward on universal
service reform under Title I classification. I do not think we
can move forward on net neutrality rules under Title I
classification.
Ms. Clyburn. Senator, on what we do agree is, we all
welcome Congressional action. The Act needs updating. It has
been a lot of years. There has been a lot of evolution over the
past several years. And so--but, we have a certain level of
responsibilities that will be--that are ongoing in the
meantime. So, I see us as partners in this process, working on
parallel tracks.
As it relates to the Chairman's, quote/unquote, ``third-way
proposal,'' we don't see this--I don't view this as old-style
regulation at all. He--the proposal forbears from the majority
of the Title II, you know, regulatory framework. There are only
six provisions that are in question, as it relates to the
notice of proposed rulemaking.
And we have--we are not unmindful of history. I mentioned
the wireless industry under Titles II and III regulation, and a
light-touch regulation, as an example of how this agency has
worked cooperatively in an ever-evolving space. And the results
are mind-boggling; $240 billion in a 10-year period, in terms
of investment in the wireless space, is incredible. And we've
all been a beneficiary. And it's under Titles II and III.
Senator Thune. Can the USF proposals in the National
Broadband Plan be carried out without reclassifying broadband
under Title II? I mean, do you believe that we can deal with
the USF reform issue without having to go through this--what I
say is a contortion--to reclassify broadband under Title II?
Mr. Copps. I think it's a questionable proposition whether
we can do that. There will be, as you pointed out, litigation.
I think trying to go through one argument after another, and
trying to do something under Title I authority, is just going
to guarantee a lot more of those court cases than just having
one case that goes all the way up, if we do the
reclassification.
All I can do, when I take my oath of office, is implement
the law as I see the law. And I see it as giving us that
authority. I see 800 companies right now--over 800 companies
that are offering broadband as a tariffed Title II proposition.
And I think they're doing basically OK. And I agree with my
colleague here that what Chairman Genachowski is talking about
is a relatively light-touch or a modest-touch approach. I think
he's fully cognizant, and I think we are all fully cognizant,
that telecommunications technologies have changed. They're
still telecommunications technologies, but how you treat them
in an evolving atmosphere is what the law instructs us to be
doing at the FCC, I think.
Senator Thune. Commissioner Baker.
Ms. Baker. As I mentioned before, I think that the specific
terms of the statute do allow us to reform universal service
under Title I. I also think that overturning, you know, 40
years of Commission precedent--precedent that has been affirmed
by the Supreme Court is very questionable, as far as regulatory
certainty. And I think the light touch is also going to be
litigated, and who knows what the courts are going to say about
our forbearance.
Senator Thune. I see my time has expired, Mr. Chairman.
Thank you.
Senator Dorgan. Thank you very much.
Senator Udall.
STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM NEW MEXICO
Senator Udall. Thank you, Chairman Dorgan.
And I very much appreciate the testimony up until now. And
I, like my colleague Senator Begich, are going to return to the
Universal Service Fund, which I think we're trying to address
here. And I hope that you move forward in that other area as
aggressively as you can, because I don't really see much hope
that Congress is going to act aggressively on this.
The Universal Service eligibility requirements penalize
rural areas that are served by nonrural telephone companies
like Windstream. This is a problem in New Mexico--I look at the
list here of other States; it's a problem in Alaska--it's a
problem in a number of States, where companies ineligible for
high-cost rural support, such as Windstream and Qwest, have
service territories that encompass many rural areas. Other
States that are comparable in size and much less rural than New
Mexico receive far more in USF high-cost support. And this is
due to the fact that they have more eligible rural telephone
companies and cooperatives.
How could the Universal Service Fund eligibility
requirements be reformed in the near term to better serve
deserving rural areas without creating flash cuts to those
small companies that rely on USF support?
And why don't we just start, Commissioner Copps, with you
and work down the line here.
Mr. Copps. Well, I think the idea of moving to a different
system and transitioning away from that is ultimately the
response we're looking for. I understand there are inequities,
as among States and providers, in the receipt of these funds,
and we need to do something about that. And I think going to a
system that targets geographic areas, that puts consumer equity
first, is the way to go.
Over and above that, I think we have just recently put out
a notice of inquiry to try to see what short-term fixes, if
any, you could get folks to agree on to do away with some of
those inequities, on a short-term--shorter-term basis.
Senator Udall. Thank you.
Ms. Clyburn. Senator, the scenario, in which you pointed
out, reaffirms the need for us to tackle this most difficult
issue. The current framework is unsustainable. You mentioned
competition--growing competition in rural areas, where, a few
years ago, no one was headed. That, consequently, has meant a
shrinking contribution base, as it relates to the funding base.
It has meant a decrease minutes of use, which has wreaked havoc
on the intercarrier compensation system. All of those
particulars that you point out just affirm the need for a total
overhaul of the current system and the challenges in which we--
the problems will not go away, but the challenges are more
acute, based on the market realities that you point out.
Senator Udall. Right.
Commissioner Baker.
Ms. Baker. Senator, part of the problem, of course, as you
know, is that, when implemented the 1996 Act, we used the
definitions ``rural'' and ``nonrural,'' and they're actually
not based on rural or nonrural, they're based on the size of
the company. So, you have these inequities like Qwest serving
rural areas, when it's not a--when it's a nonrural company.
I think what the plan suggests is to move to incentive-
based--incentive regulation. And the reason they do that is, of
course, then they'll operate in an efficiency of operations,
and that will improve the efficiency of the USF fund. And
that's something we want to do. But, of course, any of those
changes in that transition have to--you know, we have to avoid
disruptions. I think that's why there's a 10-year transition
plan. We don't want to negatively affect any of the good work
that Universal Service Fund has already done. We don't want to
negatively affect the network investments that are out there
that are serving consumers well.
Senator Udall. Great. Thank you very much.
Thank you, Mr. Chairman.
Senator Dorgan. Senator Pryor.
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Thank you, Mr. Chairman. And thank you,
again, for your leadership on this issue.
I think it's very important that the FCC, and maybe even
the Congress, get this right. I think broadband and the
Universal Service Fund are two things that we really need to
get the right policy on in this country. In fact, I'd say that,
you know, back in the old days, if a community wanted to be
connected to the world, they needed to be on a river. And then
after that, they had to be on a railroad, and after that, maybe
on the interstate. But, now, for a community to be connected to
the world, it has to have broadband. And, really, if we want
our country to reach its potential, we need to connect as much
of this country to the world and to each other as possible. So,
I appreciate you all struggling with this and working with this
and trying to get this policy right. And I appreciate you all
being here today.
I really only have, you know, a couple of questions about
the High-Cost Fund system. Commissioner Copps, in your
statement, you said that the High-Cost Fund system is
incredibly complicated and that the various categories can be
mindboggling in their intricacies, applications, and
exemptions. Do you believe that we need to simplify the
Universal Service Fund as part of a comprehensive reform to
USF?
Mr. Copps. I think we have to both simplify and reform. I
think there are some other things that we need to be doing. One
of those is to tackle the intercarrier compensation question,
where, if we're talking about intricacies and arbitrage
opportunities and doing things the wrong way, there's a real
contribution we can make right now. And, in further answer to
Senator Udall's question, ``What can you be doing right now?''
I think the Commission can be hard at work on trying to bring
some rationality into intercarrier compensation. That's
something I've been pushing for since 2001. I think, now, the
Commission is showing a willingness to begin stepping up and
doing this. And it's something we urgently need to be doing.
Senator Pryor. Do you know how to do that, or is there a
consensus on the FCC on how to do that, or is that something
that you all just need to go through a process to get that
figured out?
Mr. Copps. Well, I think each of us has ideas on
intercarrier compensation, on how you begin to unify the rates,
and try to get rid of some of the arbitrage opportunities that
exist, and move away from permanent rates, and move toward
interstate and away from intrastate. It's a very complicated
thing. But, I think most of us know probably the half-dozen or
so biggest things that really need to be tackled and decided by
the Commission. But, it's not--you know, it's not easy slogging
because each of those can mean a lot of money to a lot of
different carriers. But, it's something that has just been
sitting there for too long. And I don't think we can get the
universal service system itself modernized for the 21st century
unless we tackle and resolve intercarrier compensation.
Senator Pryor. Yes, I actually agree with that.
Commissioners Baker and Clyburn, do you all think that the
USF is incredibly complicated and that it needs to be
simplified and reformed?
Ms. Baker. It's bone-crunchingly complicated. I think the
goals that Congress has set out are pretty simple: rural health
care, schools and libraries, High-Cost Fund, low-income
support. It is just very complex. And certainly the goal would
be to simplify it.
Senator Pryor. OK.
Ms. Clyburn. And I don't disagree. The current framework is
a patchwork of some very noble ideas and concepts. But now is
the time for us to take a hard, very difficult look at current
realities and current challenges inside of a current framework,
a $9-billion budget----
I think that's my sign to yield.
[Laughter.]
Senator Pryor. No, that's something going on, on the floor.
[Laughter.]
Senator Pryor. But, thank you for your answer.
Ms. Clyburn. Thank you.
Senator Pryor. And I appreciate that.
And thank you, Mr. Chairman.
Senator Dorgan. Senator Pryor, thank you very much.
I have to be at the Energy Committee that's holding a
hearing. And so, Senator Begich is going to preside.
And let us call on Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Chairman Dorgan.
Thank you, to all of you, for being here.
I know that, Commissioner Clyburn, you were in Minnesota--
--
Ms. Clyburn. Yes. Yes.
Senator Klobuchar.--I think, a few weeks ago.
Ms. Clyburn. Missed you.
Senator Klobuchar. I know. I spoke the next day. Well, we
had a few things like votes here.
[Laughter.]
Ms. Clyburn. Oh. Oh. That's all? Yes, that was it.
Senator Klobuchar. But, anyway, thank you for visiting our
state.
And I'm very excited about all the work the FCC is doing,
and we're finally moving ahead. I'm from a State that has a
significant rural population, not as extreme rural as Senator
Begich describes his State, but we've had many issues, as I've
expressed before, with broadband, and I truly believe kids that
grow up in the rural part of our country should be able to stay
there, and a lot of the key to that is Internet access.
And we have a lot of exciting things this weekend. I'm
visiting a number of our communities that are in rural areas
that are working on broadband and have received some of the
grants, and we're moving ahead. So, I appreciate that.
And I also understand, to meet the goals of the broadband
plan, to connect 99 percent of American homes within 10 years
is going to be critical to do some reform with the Universal
Service Fund. And so, I actually appreciated the answers to the
questions on simplification.
But, also, how are you going to look at the contributors
paying into this fund? Do you think that's going to be
something you're going to look at? And I know one of the things
that was noted in the testimony is the broader use of economic
models, employing a competitive procurement auction. And I just
wondered if you could put some meat on the bones with some of
these ideas that are out there.
You want to start, Commissioner Copps?
Mr. Copps. Well, I think we're looking for market
mechanisms, when you talk about procurement approaches, or
reverse auctions, or things like that, to the maximum extent
that we can use them. We had four commissioners who were ready,
a year or so ago, to go ahead and run a pilot project on
reverse auctions to see how that would work. Frankly, I'm a
little bit of a skeptic on some of the difficulties that would
ensue from a reverse auction. When a provider goes in, What if
the provider goes bust? Who picks up the pieces? What happens
to the carrier-of-last-resort obligations that attend going in
there? And what's the possibility of competition when you've
already picked a winner? But, that doesn't preclude us from
looking. And I think we really need to be looking at those
kinds of systems.
And remind me, again--the first part?
Senator Klobuchar. Well, also about the USF contributors--
--
Mr. Copps. Yes. I think----
Senator Klobuchar.--I'm deliberately not weighing in on
these.
Mr. Copps. We do----
Senator Klobuchar. I'm just noticing some of the testimony
and ideas----
Mr. Copps. Yes.
Senator Klobuchar.--that are out there.
Mr. Copps. We do need to look at that, because broadband,
in addition to being a recipient of funding, needs to be a
contributor to the fund, too, in my belief. I know there are
some folks who disagree with that. But, I think we have to look
at that and figure out what's fair. The world has changed, so
some providers are actually gaining more revenues from triple
play, when they offer it, so we have to figure out how that
stacks up compared to the days when they were only getting
money for a subscriber line. So, yes, the contribution
methodologies are highly important, just as important as the
distribution methodologies.
Senator Klobuchar. And what do you think the timetable will
be on this to try to make the changes?
Mr. Copps. Well, I hope the sooner the better. I've been
calling for a National Broadband Plan for 9 years now, so it
was music to my ears when we finally got one. But, I'm a
believer that the world is not going to wait for us. Urban
America doesn't wait for rural America, and the rest of the
world doesn't wait for America, generally. And we're not in
good shape right now. We're 15th or 16th----
Senator Klobuchar. Are there analogies, speaking of that,
that we can get from other countries, in terms of how they have
done their Universal Service Funds, and what they've done to
expand more quickly than----
Mr. Copps. I think absolutely, absolutely. And I've been
talking about that, too. And we did launch, under Chairman
Genachowski's broadband team, some comparisons. And I don't
think we've drawn the full lessons from that. But, there are
different ways to do it. There are different models of
competition, that have deployed elsewhere, that we have shied
away from here.
But, we need to learn. We're a different country, a
different culture, a different economy. So, it's not that we go
in and pick some plan somebody else is doing, but let's learn
from their successes and their failures, and our own, too. So,
it's highly important to learn from those who have succeeded,
even more than we have succeeded, in getting broadband out to
all of their citizens.
Senator Klobuchar. One of the things you mentioned,
Commissioner Baker, was just the complexity of this. And when
you have such a complex system, sometimes it can lead to waste
and fraud, and keen oversight and auditing is necessary to make
sure the funds are distributed efficiently. What's being done
now? And are there some ways that we can save money by
eliminating waste and fraud from the program?
Ms. Baker. That's a great question, Senator. Yes--yes and
yes. I think since--there have been more reforms and more
audits of universal service in the past year than there have
been previously. As the Broadband Plan lays out, accountability
and efficiency are going to help us reach the adequate fund
that we need for broadband without actually raising the fund.
I think we will expand the contribution base--back to your
question on timing--you know, in a phase-in way. We are looking
to put out an NPRM, I think, third quarter on the Mobility
Fund, and fourth quarter on the contribution base itself, on
the Connect America Fund, and also on intercarrier
compensation. So, I'm hopeful it won't take 9 years. I think we
may actually----
Senator Klobuchar. He was just looking backward, not
forward.
Ms. Baker. We may actually put it out in December. And I
think the goal is to actually enact meaningful reform next
year, at some point.
Senator Klobuchar. All right. Well----
Ms. Clyburn. And to augment that----
Senator Klobuchar. Commissioner?
Ms. Clyburn.--as it relates to the concentration on the
waste, fraud, and abuse, and the auditing part of the equation,
that it's important that we will gain so much, by way of
efficiencies and increased resources, from getting that
straight. Their--our office of--our managing director's office
is overseeing the audit function. So, you've got more
oversight; you've got more attention on that. And we're proud
of that. So, all of these hopefully will gain efficiencies and
give us--stretch those dollars further with more keen
oversight.
Senator Klobuchar. All right. Very good.
Well, we look forward to working with you. This is the
first of these hearings, but I know that there will be a lot of
input from many people on how this should work. But, it's
clearly important to do it.
Thank you.
Senator Begich [presiding]. Thank you very much, to the
panel. We appreciate your time here, and your willingness to
come in front of us and talk about this very important issue.
You're free now----
[Laughter.]
Mr. Copps. Thank you.
Senator Begich.--which is probably a relief.
[Laughter.]
Senator Begich. So, thank you very much.
We'll introduce the next panel, which, as they come up,
I'll just go ahead and introduce them, because we are limited
on time, so I don't want to burn up too much time here.
We have several people on the next panel. Jeff Gardner, CEO
of Windstream Communication, from Arkansas; Mr. Delbert Wilson,
General Manager of the Hill Country Telephone Cooperative, from
Texas.
As people leave, if you could hold your conversations, as
we move into the next panel.
John Glockley, Vice President, Legal and Regulatory
Affairs, U.S. Cellular Corporation.
Paul Waits, President of Ritter Communication; and Kyle
McSlarrow, President/CEO, National Cable and Telecommunications
Association.
I've heard you say ``Kyle,'' if that's OK.
Mr. McSlarrow. Kyle will do.
Senator Begich. I know. That's how I know you. So--
pronounce your last name, so I hear it.
Mr. McSlarrow. McSlarrow.
Senator Begich. McSlarrow. I did not do good in pronouncing
my Rs in school.
We thank you all for being here. We----
Voice. We have one more coming.
Senator Begich. Are we missing one?
It's a cozy environment at the table.
Voice. Yes.
[Laughter.]
Senator Begich. Are we missing one person?
I think the name tags maybe need to be swapped around,
here.
If you know who you are, grab your name tags.
[Laughter.]
Senator Begich. There we go.
If we can go right into it, I'd like to go ahead and start
with your testimony. We'll go from this side over.
Mr. Gardner, if you don't mind, go ahead with your
testimony.
And I apologize, the first panel took a little longer.
STATEMENT OF JEFF GARDNER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WINDSTREAM CORPORATION
Mr. Gardner. No problem.
Mr. Chairman, members of the Committee, thank you for
soliciting our thoughts on the effort to transform universal
service.
I am Jeff Gardner, president and CEO of Windstream, one of
the Nation's largest providers of broadband service to rural
America, operating in 23 states.
Windstream has aggressively deployed broadband, despite our
rural profile and modest per-unit support from the Federal
Universal Service Program.
We share your goal of universal broadband availability, and
have invested accordingly, deploying broadband everywhere in
our service area where we can recover our investment.
Windstream supports the National Broadband Plan's proposed
framework and process for executing high-cost universal service
reform. The plan provides a good framework for action. We have
deployed broadband to 90 percent of our current voice customer
base.
In addition, we have applied to RUS for Round 2 stimulus
funding, which would expand our availability to 94 percent.
We lead the industry in consumer take-rates. We offer
residential speeds from 3 to 12 megabits, and our entry price
for 3-meg service is around $30. Within our voice customer
base, more than 50 percent subscribe to broadband.
Our unserved areas are not places inside the town limits or
near anchor institutions like schools or libraries. We already
offer broadband to virtually every community in our footprint.
This includes places like Mentone, Texas, which the New York
Times said sits in America's emptiest county. In Mentone, more
than 50 of our 61 voice customers have broadband access. To
find our unserved 10 percent, you have to drive several miles
or more outside of towns like Mentone, to ranches and remote
homes that sit miles from their nearest neighbors.
Reaching the unserved 10 percent of our customer base is
not economically feasible without additional support. This is
typical for the whole industry.
Nationally, the Broadband Plan recognized that deployment
to most unserved areas are money-losing projects. It would be
disastrous for the government to mandate broadband deployment
without also providing adequate funding.
For our company alone, the cost of deploying broadband to
the last 10 percent, at the speeds recommended in the Broadband
Plan, would be about $2 billion. The investment would provide
for broadband service, but would not support video offerings,
thus the potential revenues come almost entirely from the
monthly broadband subscriptions of around $30.
A reformed Universal Service Program could overcome these
financial barriers. The Broadband Plan concludes that a major
program overhaul is necessary to sustain voice service, while
also fostering broadband deployment and adoption. The existing
universal service system has promoted broadband deployment in
pockets of the country, but it's reached its limit. Millions of
rural Americans have no access to broadband today, and they
lack any realistic prospect of receiving it in the future,
absent reform.
It is true that Universal Service has funded deployment of
state-of-the-art fiber networks for some. But, that level of
funding is available to only about 800 small companies and co-
ops. Other companies receiving minimal per-line Universal
Service funding actually serve the bulk of the rural customers
in this country. The Broadband Plan has highlighted this, one
of the most striking digital divides in the United States
today, the disparity among rural areas.
Allow me to mention briefly a few ingredients necessary for
successful reform. Reform should be technology-neutral, should
match support levels to mandates, should not place regulatory
burdens on recipients that exceed standards for the rest of the
industry, and should involve some reallocation of existing
Universal Service dollars, so that all rural areas are treated
the same. If the fund remains substantially the same size as
today, it will require reallocation.
As senior members of this committee know well, proposals to
change Universal Service have often failed. Today, however,
significant change is the only way to fulfill the mission
called for in the Broadband Plan.
Thank you.
[The prepared statement of Mr. Gardner follows:]
Prepared Statement of Jeff Gardner, President and Chief Executive
Officer, Windstream Corporation
Chairman Rockefeller, Ranking Member Hutchison, members of the
Committee: Thank you for soliciting our thoughts on the effort to
transform universal service to directly support both broadband and
voice.
I am Jeff Gardner, President and CEO of Windstream, one of the
Nation's largest providers of broadband service to rural America,
operating in 23 states. Windstream has aggressively deployed broadband
service across our footprint, despite our rural profile and modest per
unit support from the Federal universal service program. Windstream
shares your goal of universal broadband availability, and we have
invested accordingly, deploying broadband everywhere in our service
area where we can recover our investment.
Windstream has deployed broadband Internet access to 90 percent of
our current voice customer base. In addition, to reach 94 percent
broadband availability, we have applied to the Rural Utilities Service
for $238 million in Round 2 stimulus funding, which would be matched
with $80 million of our own capital.
Due to aggressive deployment and favorable pricing, Windstream is
an industry leader in take-rate by consumers. We offer speeds of 3 to
12 megabits per second (Mbps), and our entry price for 3 Mbps broadband
service is $30 a month. Among our residential voice customers, 53
percent subscribe to Windstream broadband.
No Rational Economic Case Exists for Extending Broadband to Most
Unserved Areas
As I noted earlier, Windstream's broadband deployment goal is
aligned with this committee's goal. We want to reach the remaining 10
percent of our voice customers that do not have access to broadband
service. However, the economics of achieving our shared goal are
challenging. We estimate the cost of deploying broadband to the last 10
percent, at the 4 Mbps speed threshold recommended in the National
Broadband Plan, to be in the range of $1.5 billion to $2 billion just
for Windstream. Simply stated, we cannot earn an adequate return on our
investment in these areas without an effective government program to
bridge this gap. This is a microcosm of the problem confronted in the
National Broadband Plan. Indeed, the Plan concludes that most unserved
areas in the country would be money-losing projects.
When Windstream talks about its unserved 10 percent, we are not
talking about places inside the town limits or near an ``anchor
institution'' like a school or a library. Windstream already offers
broadband in virtually every community in our footprint. This includes
places like Mentone, Texas, which the New York Times said sits in
``America's Emptiest County.'' In Mentone, more than 50 of our 61 voice
customers have broadband available to them. Windstream even offers
broadband in Orla, Texas, which is known as a ``ghost town.'' To find
our unserved 10 percent, you must drive several miles or more outside
of places like Mentone or Orla--to ranches or remote homes that sit
miles from the nearest neighbor.
Even for Windstream, one of the most efficient carriers in the
industry, the cost of deploying to these areas dwarfs the potential
revenues. We must account for the cost of new electronics, property
easements, necessary line upgrades, and labor. These costs are often
higher in rural, sparsely populated areas with fewer potential
customers from which to recover investment. Our standard prices,
however, are consistent throughout our entire national footprint--
whether you live in the least populous county in the United States or
markets such as Lincoln, Nebraska. It does not take a spreadsheet to do
the math on the projects in our last 10 percent--it is not even close
to being economically feasible without additional government support.
There is much casual chatter about skipping over wireline networks
and instead deploying some type of ``low-cost'' wireless service. But
with current technology, this is a fantasy. Simply put, there is no
such wireless technology available in Windstream's service territory
that has the range and cost characteristics to outshine our upgrades to
the existing landline telephone network. Moreover, wireless networks
interconnect with and use second-mile fiber networks--the very
facilities that Windstream and other wireline providers lack an
economic case to deploy in rural, sparsely populated areas.
The Potential Role of Universal Service in Reaching the Unserved
A reformed universal service program could overcome financial
barriers to deployment. In particular, Windstream supports the National
Broadband Plan's proposed framework and process for executing high-cost
universal service reform. Although many critical details are left to
decide later, the Plan concludes that a major program overhaul is
necessary to pursue a more complex set of policy objectives: sustaining
voice service, while also fostering broadband deployment and adoption
throughout the Nation.
Most policymakers, including those at the FCC, appear to agree that
all Americans should have access to high quality voice and broadband
services. But the existing universal service system cannot meet that
goal. Due to existing program rules, millions of rural Americans have
no broadband today, and they lack any realistic prospect of receiving
it in the future.
It is true that universal service has funded deployment of state-
of-the-art fiber networks--some of the finest in the world. But that
level of funding is available only to about 800 small companies and co-
ops that together serve a fraction of all consumers in rural America.
Other companies, receiving minimal per line universal service funding,
actually serve the bulk of rural consumers. The National Broadband Plan
quantifies the impact of this disparity: About two-thirds of all
housing units without broadband are located in the service territory of
larger companies like Windstream, Frontier, CenturyLink, Qwest, and
AT&T. If Windstream had access to the same per line support levels as
the 800 small companies and co-ops, we too would be able to deliver
higher speeds and serve more of our customers with broadband.
We have heard about the fear that reform might create a rural-urban
divide, but the National Broadband Plan has recognized that the current
rules have already created a rural-rural divide. It would be
unconscionable to spend millions more on upgrades to the best networks
in the Nation before millions of others in rural America have access to
any broadband at all. Universal service reform to bring at least 4 Mbps
to all unserved rural areas, as the National Broadband Plan envisions,
would make substantial progress in closing the ``digital divide.''
Windstream and others stand ready to contribute significant capital
to such an endeavor and believe tangible results could be produced in a
relatively short time. In December, Windstream and other rural
broadband providers, serving a total of 12 million customers, proposed
that the FCC create a broadband investment fund within universal
service, targeting the highest-cost wire centers in the Nation. The
companies offered to contribute the first $800 per household in
deployment costs if universal service would assist with the balance
above that level. Those five companies projected that such a program
would generate 95 percent broadband availability, at speeds of 6 Mbps,
within 5 years.
Given wireless providers often use wired networks to transmit
traffic beyond the cell tower, such an extension of wireline facilities
also would create vital backhaul fiber facilities to support 4G service
in the same rural areas. In other words, driving fiber deeper into the
wired network would help enable 4G wireless service in those same
remote areas.
Key Ingredients of Universal Service Reform
To the extent that this committee is engaged in the reform process,
I would urge attention to several aspects that will be critical to its
success:
Ensure that funding is technology neutral. Although these
words are often repeated, the problem persists. For instance,
in the stimulus program, a wireline provider had to construct a
system 10 times as fast to be awarded the same number of points
as an otherwise identical wireless provider with a system
delivering a total of 2 Mbps upstream and downstream.
Match support levels to mandates. The FCC has recognized
that it will be expensive to deploy even a base level of
broadband at 4 Mbps to the remaining unserved areas. Mandates
and requirements raise costs. Providers cannot be expected to
invest in money losing propositions. Policymakers must ensure
that support amounts make it economically feasible for a
company to incur the costs of complying with the requirements
that accompany the support.
Do not place special, undue burdens on entities deploying
broadband in high-cost areas. Throughout the stimulus process,
grant applicants have been asked to accept a different, tougher
net neutrality standard than what is under consideration for
the rest of the industry at the FCC. Windstream cannot adopt
traffic management rules selectively on its network, so this
has the potential to put us at a competitive disadvantage, for
instance, to cable companies that are not interested in serving
the highest-cost areas. In the many towns where we compete, the
result would be that we would have requirements and costs that
our competition would not.
Be willing to accept some redistribution of universal
service support. Absent direct Congressional authorization, the
FCC seems likely to keep the Fund at approximately its current
size. This approach has the virtue of keeping prices affordable
for consumers, who pay fees that support the program, but it
also means universal service funds are limited and must be
allocated with care. To generate additional program outcomes,
i.e., universal broadband deployment, the program will need to
be reshaped, and resources will need to be preserved and
redirected. For instance, the National Broadband Plan notes
that rate-of-return regulation does not create incentives for
recipients to become more efficient or pursue streamlining
initiatives. It is likely that such entities, if pressed, can
deliver the same or better service at lower costs, as larger
carriers have already had to do. Ensuring all carriers are
delivering voice and broadband services in the most efficient
manner could alleviate pressures on the fund and allow
redistribution where support is needed most.
Fund broadband adoption initiatives. Rural customers tend to
have lower incomes and include a higher proportion of older
individuals than the Nation as a whole. In examining why
consumers choose not to take broadband, the GAO has identified
three key determinants, all of which are particularly
challenging in rural markets: income level, education, and
computer ownership. Windstream is an industry-leader in
broadband adoption, yet only about half of our residential
voice customers subscribe to our broadband service. Ultimately,
the success of a broadband initiative depends not only on
whether broadband facilities are built, but also on whether
people use them.
In closing, the National Broadband Plan has helped describe and
quantify one of the most striking digital divides in the United States
today--the gap in broadband capabilities between one rural area and
another. As the Plan says, ``[w]hile the High-Cost program has made a
material difference in enabling households in many high-cost areas of
America to have access to affordable voice service, it will not do the
same for broadband without reform of the current system.'' Rather than
preserve a flawed program, universal service must be reformed to direct
funds more equitably and rationally across all of rural America. As
senior members of this committee know well, changing universal service
is difficult. Yet, today we have reached the point where significant
change is the only way to fulfill the mission called for in the
National Broadband Plan. Thank you.
Senator Begich. Thank you very much.
Mr. Wilson.
STATEMENT OF DELBERT WILSON, GENERAL MANAGER, HILL
COUNTRY TELEPHONE COOPERATIVE, INGRAM, TEXAS ON
BEHALF OF NATIONAL TELECOMMUNICATIONS COOPERATIVE
ASSOCIATION (NTCA), ORGANIZATION FOR THE PROMOTION
AND ADVANCEMENT OF SMALL TELECOMMUNICATIONS
COMPANIES (OPASTCO) AND WESTERN
TELECOMMUNICATIONS ALLIANCE (WTA)
Mr. Wilson. Thank you, Mr. Chairman and members of the
Committee.
Am I--can you hear me? Can you hear me? Can you hear me
now? OK. All right.
Thank you, Mr. Chairman and members of the Committee.
In addition to Hill Country, my remarks this morning are on
behalf of NTCA, OPASTCO, and WTA. Together, we represent more
than 1,100 rural rate-of-return regulated community-based
providers from around the Nation. Collectively, their service
territories cover more than one-third of the Nation's landmass,
yet their total subscriber base accounts for about 5 percent of
the national total.
Today, American consumers are dramatically altering their
communications expectations, both at work and at home. Rural
telecommunications providers are responding aggressively to
this challenge. We are rapidly transforming our traditional
switched voice systems into powerful, dynamic, Internet
protocol broadband networks. This is a natural response to us,
because as rural community-based providers, we have a long
history of taking our service responsibility seriously. The
successful fulfillment of this mission is not without
significant cost. However, we have fortunate--we are fortunate
to have a set of time-tested tools in place that ensure these
costs are recoverable.
Now, I'm cutting through my testimony, down.
So, imagine our hope, when Congress and the President
mandated a National Broadband Plan. Imagine our optimism when,
little more than a year later, the FCC actually issued such a
report. Yet, imagine our disappointment when the misaligned
premise, assumptions, and objectives of this plan began to
emerge and foreshadow a less-than-positive future for rural
America.
Specifically, we are concerned that the Broadband Plan:
one, fails to establish an environment that will yield job
creation and subsequent economic development; two, fails to
quickly act on expanding the contribution base of the Universal
Service Program, which could ease the pressure on the
contribution factor; three, discriminates against rural
consumers by proposing to fund rural networks at speed
standards that will render them obsolete almost as soon as they
are built; four, discards proven funding mechanisms that can
easily be adapted to support broadband, and proposes replacing
it with inherently unpredictable and unworkable economic models
and reverse auctions; five, provides inadequate funding to
support build-out and maintenance of broadband services in
rural provider service areas; six, severely underestimates the
vital role rural carriers of last resort play in the provision
of broadband services to rural Americans; and last, fails to
recognize the critical nature of rate-of-return regulation, and
how it yields rural infrastructure development.
We have been urging policymakers to refrain from further
consideration of these unworkable approaches that will do
little more than slow, or even eliminate, future broadband
deployment and adoption. We are urging you and the FCC to
redirect the Broadband Plan in a way that will ensure it yields
meaningful job creation and economic development for all
Americans. We had great hopes for the Broadband Plan and what
it could mean for all Americans, yet here we are again,
scrambling to fix an emerging Federal policy that fails to
comprehend the rural circumstances.
In closing, I again implore you to give serious
consideration to the stark realities the Broadband Plan
represents for rural America, and to ask yourselves, ``Is this
how we should be ensuring that America reclaims its global
broadband preeminence?'' I cannot imagine how your answer could
be anything but a resounding ``no.''
Thank you, Mr. Chairman. I look forward to answering any
questions.
[The prepared statement of Mr. Wilson follows:]
Prepared Statement of Delbert Wilson, General Manager, Hill Country
Telephone Cooperative, Ingram, Texas on Behalf of National
Telecommunications Cooperative Association (NTCA), Organization for the
Promotion and Advancement of Small Telecommunications Companies
(OPASTCO) and Western Telecommunications Alliance (WTA)
Executive Summary
Today, in tandem with unprecedented technological advances,
American consumers are dramatically altering their communications
expectations both at work and at home. Now, more than ever, we all rely
upon dynamic communications products and services to meet our national,
economic, and personal security needs.
Rural communications providers throughout the country continue to
respond aggressively to the challenge of meeting these communications
demands by rapidly transforming their traditional switched voice
systems into powerful and dynamic Internet protocol (IP) broadband
networks. This is a natural response for rural community-based
providers that have a long history of taking their service
responsibilities seriously. While the successful fulfillment of this
mission is not without tremendous cost, today we are fortunate to have
a set of time-tested tools in place that can and will ensure these
costs are recoverable.
Regrettably, many Americans today are either unfamiliar with, or
have forgotten, the value of these critical cost recovery mechanisms,
not the least of which is universal service. Indeed, the very agency
charged with carrying out our national universal service policy and
managing its related program appears to be among these. While the
Federal Communications Commission's (FCC's) recently released
Connecting America: The National Broadband Plan (NBP) rightly aspires
to ``bringing the power and promise of broadband to us all'' it
unfortunately fails to comprehend the value of and manner in which
existing cost recovery tools, such as the universal service fund (USF),
could help ensure such vision becomes reality.
Clearly, we believe our highest priority must center on not chasing
after untested alternatives, concepts and theories but rather on
focusing directly on not just preserving, but strengthening the tools,
such as universal service, that we already know are working. This is
the manner in which we as a country will be able to proudly meet the
broadband challenges of this era, and to do so in a way that restores
America's communications preeminence in deed--not simply word.
Introduction
Chairman Rockefeller, Ranking Member Hutchison and members of the
Committee, thank you for the invitation to participate in today's
hearing on ``Universal Service: Transforming the High Cost Fund for the
Broadband Era.'' My name is Delbert Wilson, and I am the General
Manager of Hill Country Telephone Cooperative in Ingram, Texas. I
welcome the opportunity to engage in this discussion regarding the
critical importance of our Nation's universal service policy and
program and how best to strengthen them for our broadband future.
My remarks today are being made on behalf of Hill Country Telephone
Cooperative as well as the National Telecommunications Cooperative
Association (NTCA), the Organization for the Promotion and Advancement
of Small Rural Telecommunications Companies (OPASTCO), and the Western
Telecommunications Alliance (WTA) which collectively represent more
than 1,100 rural rate-of-return (RoR) regulated community-based
providers from around the Nation. Collectively, the service territories
of these companies cover more than one-third (37 percent) of the
Nation's land mass yet their total subscriber base accounts for about 5
percent of the national total.
Rural Company Dynamics
Hill Country provides advanced telecommunications services to more
than 11,000 customer members in 15 exchanges located in 14 counties.
Our service area is immense; spread over 2,900 square miles of rugged
terrain throughout south central Texas--equivalent to an area twice the
size of Rhode Island. Our customer density is only 4.68 subscribers per
square mile. We have 109 employees and our company's annual revenues
are in the range of $19 million.
By way of comparison, Windstream, who is also appearing here today,
is a mid-sized carrier that operates in 23 states with a workforce of
approximately 9,500 and annual revenues of about $4 billion. U.S.
Cellular, who is also testifying today, is the fifth-largest wireless
service provider in the country, serving six million consumers in 26
states with a workforce of approximately 8,700 and annual revenues of
about $3.7 billion.
While Hill Country is very small in comparison to these two
entities, it is important to note that even among small rural
companies, it is on the higher end of the average rural company in
terms of customer, employee, and revenue figures, which is due largely
to its extreme geographic footprint as well as the diverse product line
it offers. I point this out simply to underscore exactly what sort of
cost dynamics are involved in providing state-of-the-art communications
services in rural America today.
The Promise of Broadband
We believe that broadband offers the promise of a better tomorrow
for all Americans, but especially for those living in rural America.
Broadband is the great equalizer between rural, suburban, and urban
regions, because distance and location disappear. Truly, broadband
capability yields the ability for rural communities and their citizens
to effectively compete in the global economy. Indeed, there is simply
no question that rural economic development depends on access to
broadband. Last year, the United States Department of Agriculture
(USDA) released a study entitled ``Broadband Internet's Value for Rural
America.'' It found that ``employment growth was higher and nonfarm
private earnings greater in counties with a longer history of broadband
availability.''
Rural local exchange carriers (RLECs) have long understood the
power and the promise of broadband and advanced communications
services. Today Hill Country is working hard at deploying state-of-the-
art soft switches, digital loop carriers to shorten local loops for
greater bandwidths, and miles of fiber optic cables. RLECs across the
Nation are doing the same thing with the objective of providing an
array of reliable high-quality voice, data, and video services. The
future of rural communities and America as a whole increasingly rests
upon the deployment of robust broadband oriented infrastructure that
can simultaneously provide for the critical needs of consumers and
businesses, and the myriad health, safety, civic and educational
entities on which every American depends.
Considering the diverse and extreme nature of the areas Hill
Country and its fellow RLECs serve, we long ago recognized the need for
a coordinated comprehensive national broadband strategy that would
adequately consider and respond to such dynamic changes in the
communications environment.
Imagine our hope when Congress and the President developed and
enacted the provisions of the America Recovery and Reinvestment Act
(ARRA) that mandated a national broadband plan. Imagine our optimism
when little more than a year later, after months of outreach and hard
work the Federal Communications Commission (FCC) actually issued such a
report. Yet, imagine our extreme disappointment as we began to read and
comprehended the misaligned premise, assumptions, and objectives of
this plan and what it likely means for the future of rural America.
The Grand Experiment
The Communications Act contains very specific clauses that mandate
with certainty the statutory right of every American to communications
services of a comparable nature in terms of price and scope. That means
that rural Americans residing in the far corners of Hill Country's vast
and sparsely populated service area are entitled to communications
services that are comparable to those available to people, for example,
living in the DC Metropolitan area.
Naturally there is a cost factor associated with that policy and
through the years, legislative and Executive Branch policymakers have
taken great care through a series of appropriate steps to foster
building a multi-use network that enables broadband deployment through
a successful cost recovery structure that ensures this long-time
national statutory policy is effectively met. It is a cost recovery
strategy comprised of many pieces--cost-based universal service
support, RoR regulation, intercarrier compensation, and National
Exchange Carrier Association (NECA) pooling. It is an approach that was
developed in order to ensure that all Americans share in the benefits
as well as the responsibilities associated with such a commitment.
Yet now, after years of effort, dedication, comprehension, and
success, the FCC has put forth a kind of grand experiment that all
signs suggest will lead to the demise of this successful structure.
Specifically, we are concerned because the NPB appears to:
Discriminate against rural consumers, by proposing to fund
rural networks at speed standards that will render them
obsolete almost as soon as they are built;
Discard proven funding mechanisms that can easily be adapted
to support broadband, and proposes replacing them with
inherently unpredictable and unworkable economic models and
reverse auctions;
Provide inadequate funding to support build-out and
maintenance of broadband services in rural provider service
areas;
Severely underestimate the vital role rural providers play,
and must continue to play, in the provision of broadband
services to Americans in rural areas including their role as
``carriers of last resort''; and,
Fail to consider reasonable alternatives that could
accomplish the FCC's broadband goals without harming rural
consumers.
Discrimination Against Rural Consumers
On the surface, the NBP seems to say all the right things from
``Broadband is the great infrastructure challenge of the early 21st
century'' to ``The plan is in beta, and always will be.'' Its
underlying reality, however, lies deeper in its resounding theme that
dwells on the provision of 100 megabit per second (Mbps) speeds to 100
million Americans while pursuing a minimal speed objective for non-
competitive regions that is 25 times less than that. Due to the extreme
costs associated with providing broadband in rural America, there is
little doubt as to which end of this spectrum rural communities will
slide. This particular issue has caused a great deal of concern among
legislators to the degree that at least 22 Senators, some on this very
panel, and more than 45 Representatives have signed onto letters to FCC
Chairman Genachowski expressing their disapproval with these standards
that will cause a digital divide between rural and urban Americans.
Disregarding Proven Funding Methods
In addition to the potential to create a permanent digital divide,
the NBP contains another major flaw in its proposal to move away from
the time-tested method by which rural networks are supported. It is
important to point out again that the individual companies that make up
the rural provider industry I am representing today are a diverse
group, with occasional differences of opinion on legislative and
regulatory policy matters. However, let there be no question regarding
our unified opposition to the overall approach envisioned by the NBP in
terms of funding rural broadband networks in the future. We are
specifically alarmed at how the plan proposes to alter the universal
service program and other key tools such as RoR regulation and
intercarrier compensation that are so crucial to effective rural
deployment.
Rural providers have already made significant progress toward
accomplishing many of the NBP's goals. They have made broadband service
of varying speeds available to over 95 percent of their customers.
Substantial portions of their networks have already been converted to
state-of-the-art, Internet protocol-based (IP-based) technologies,
designed to handle traditional voice services as well as data, video,
and other broadband services and applications described in the NBP.
Clearly they are providing the infrastructure and services that
policymakers and the public alike are demanding and they have been able
to do this largely due to the regulatory structure that is in place for
the rural sector of the industry today.
The FCC should abandon the NBP's attempt to force rural providers
to shift away from the RoR form of regulation to a price cap-like
incentive based approach. Even assuming the FCC has the legal authority
to do so, which we argue is unlikely, existing RoR methods have played
a key role in efficiently achieving today's levels of broadband
deployment in rural provider serving areas. RoR regulation has been one
the government's most successful regulatory systems because it
encourages companies to actually make investments in infrastructure
that connect insular and sparsely populated areas, while allowing
companies to recoup some of those costs. This system has provided for
over 96 percent voice penetration and approximately 90 percent
broadband availability using the FCC's current broadband definition.
Alternative incentive regulation methods such as those proposed in
the NBP, in contrast, are demonstrably ineffective in encouraging
carriers to extend service to areas where a profitable business case
cannot be made for such deployments. And contrary to claims by some,
RoR regulatory methods remain fully viable in the broadband
environment.
The NBP also suggests moving away from cost-based approaches in
favor of cost modeling to determine cost recovery needs. It is
difficult to evaluate details of the NBP Model envisioned by the NBP
because the Model itself, and the associated data used to create it,
have not been made available to the public for testing, and indeed may
never be testable by outside parties. And while the FCC has made
perfectly clear its intent to cap and phase-out existing funding
mechanisms, the NBP is remarkably vague as to exactly how new support
mechanisms based on the Model will function. For example, the NBP
proposes eventually to create a new Connect America Fund (CAF), but
this mechanism, like the NBP Model itself, is mostly an unknown at this
point. Without a clear description of how the pieces will all fit
together (along with specific proposed rule language), interested
parties cannot reasonably be expected to offer informed comment on
individual portions of the NBP.
However, preliminary results of analyses of the NBP Model by our
organizations make clear that funding available under the Model will
not be sufficient to accomplish the NBPs objectives. If, for example,
the Model used to determine ``gap'' funding were to be used to entirely
replace existing funding mechanisms, and funding is limited to the
$23.5 billion over 20 years the Model estimates as necessary to fill
the gap, rural provider funding would be slashed by as much as 90
percent compared to current levels, even though approximately 70
percent of rural provider service territories are currently
``unserved'' based on proposed speed standards. While it does not
appear likely the FCC plans to use ``gap'' funding calculated by the
Model to determine all broadband universal service support, under any
scenario it appears funding cuts for rural study areas contemplated by
the Model would make it impossible for RLECs to sustain existing
broadband service levels. If implemented, these funding cuts would
likely cause rates for both voice and broadband services to rise
significantly in rural provider serving areas. Such price escalations
would, of course, dramatically reduce existing ``take'' rates for
broadband services in rural provider serving areas if indeed such
service remains available at all.
Both prior to and following the release of the NBP, many parties
have put forth so-called universal service reform proposals. The
reality is that most have been little more than efforts to drive
support away from carriers that are committed to market-wide service in
order to create an environment more beneficial to their less inclusive
business plans. For example, at least one of the witnesses here today
has put forth such a plan that is designed to move support out of
markets that are perceived to be competitive. This type of proposal
highlights a basic misunderstanding of how a ubiquitous broadband
network is deployed and maintained. Limiting or eliminating support in
areas where there may be competition overlooks how costs are spread
over an entire network. This approach also overlooks how diminishing
support in one part of the provider's market will lead to escalating
costs throughout the remainder of its service area. If the support is
allowed to truly follow the costs, perhaps there would not be a
problem. If, on the other hand, such a proposal attempts to preclude
support from following the costs, we could very well see situations
where carrier-of-last-resort (COLR) and public safety responsibilities
are abandoned as more remote regions of a rural market are no longer
able to sustain themselves. Clearly such outcomes are neither
consistent with current public policy nor that which is evoked
throughout the NBP.
More Workable Alternatives
We accordingly urge policymakers to refrain from further
consideration of these unworkable approaches that will do little more
than slow or even eliminate future deployment and adoption. Instead,
the NBP should be redirected to consider and emphasize the specific
alternatives that were suggested in the NBP development proceedings,
including various ``benchmark'' approaches to funding end-to-end
broadband services in rural areas. If adopted, these approaches could
be used to encourage rural providers and others to meet FCC-established
broadband deployment and adoption targets on a timely basis. Moreover,
our organizations believe these alternative mechanisms could be
implemented well in advance of the 10-year transition approach embraced
by the NBP and in a legally-sustainable manner, which is more than
could be said of many of the NBP's parameters.
A key feature of these alternative approaches is that they would
build on the success of proven support mechanisms to target broadband
deployment and adoption. While the NBP dismisses such programs as
outmoded ``legacy'' plans, today's time-tested cost-recovery structure,
including RoR regulation, NECA pooling, intercarrier compensation, and
cost-based universal service support, have permitted rural providers to
deploy and operate multi-use, broadband capable networks over vast
portions of the Nation's geography. The FCC should be looking to
continue and improve this success story, not undermine it.
The NBP correctly notes existing universal service and intercarrier
compensation cost recovery programs were created in an earlier, pre-
broadband era, and must be adapted to focus on broadband service of
today's era. We agree completely and have been among the first to argue
that it is long past time for reorienting these programs for the needs
of tomorrow. Indeed, in recent years, our organizations have testified
on this matter before this panel and its House counterpart on several
occasions and laid out specific recommendations and approaches in this
regard.
If adopted as described, the NBP's funding proposals will destroy
the prospects of improving broadband service in rural provider serving
areas, cause dramatic reductions in existing broadband service levels,
and may indeed make it impossible for rural providers to continue
providing even basic voice services in many rural areas of the country.
Inadequate Cost Recovery
Just as we have been opposed to the existing regulatory cap as well
as proposed statutory caps on the high-cost fund (HCF) of the universal
service program, so too are we deeply troubled by the NBP's concept of
imposing an overall cap on high-cost funding as we reorient the
universal service program from voice to broadband. We cannot comprehend
how policymakers that propose to reestablish the United States as the
undisputed globally preeminent broadband force can simultaneously give
consideration to a cap on high-cost funding or new caps or freezes on
other critical cost recovery streams such as Interstate Common Line
Support (ICLS). Such approaches show a lack of understanding about what
these mechanisms represent and how they fit together. If implemented,
these concepts would immediately dampen, if not eliminate, all short-
term prospects for improved broadband deployment and adoption in rural
provider markets. As COLRs, Hill Country and my rural colleagues bear
unique and significant cost burdens that fully justify maintaining
funding mechanisms without caps or freezes both for today's, as well as
tomorrow's, communications infrastructure. Again, there are significant
costs associated with building a multi-use broadband capable network in
rural areas. Capping or freezing funding mechanisms will make it
extremely difficult, if not nearly impossible, to meet our national
policy and economic broadband goals in the future.
Extending and Repaying Credit
Refocusing USF for the broadband future must be done with extreme
care and vigilance because there is great potential for shockwaves to
be sent throughout the RLEC ecosystem. For instance, in part and parcel
with placing caps on funding and moving away from RoR regulation, the
NPB as written would quickly lead to the inability of rural providers
to repay billions of dollars in loans extended by the USDA's Rural
Utilities Service (RUS) as well as the rural sector's primary
financiers CoBank and RTFC. Committee members should know that in a
December 22, 2008 filing with the FCC, the RUS specifically laid out
just how important universal service support is to the agency's massive
telecommunications lending portfolio. In that document, the RUS
outlined how its nearly $4 billion tax-payer financed loan portfolio
could be put at risk by proposals that would curtail universal service
flows in one way or another. Then RUS Administrator Jim Andrew stated
that a recent analysis of borrowers at the time showed that 53 percent
of the loans outstanding at that time would not be feasible were
universal service funding to be frozen. He went on to say that if toll
revenues (interstate and intrastate access revenues, interstate and any
intrastate universal service funding, and end-user subscriber line
charges) were frozen, two-thirds of the loans would not be feasible.
This stark reality was underscored again just last week when current
RUS Administrator Jonathan Adelstein alluded to the importance RUS
lending, universal service funding, and the need to avoid creating a
digital divide between rural and urban Americans.
Of course, the importance of all these mechanisms is no secret to
those of us that are involved in the industry. We are extremely
concerned by the NBP proposals as we go about our efforts to try to
meet our consumers' needs and otherwise plan for the future. The
inability to secure financing at reasonable rates threatens our ability
to continue to make upgrades to the underlying infrastructure as well
as build out to the unserved areas of our service territories.
Ultimately, this hurts rural consumers and those that rely on the
underlying network to deliver broadband-reliant services.
Listening to the needs of rural consumers and understanding the
ever growing importance of broadband in everyday life, Hill Country is
actively engaged in a major outside plant modernization project. This
$57 million initiative involves the deployment of 560 miles of fiber
optic cable, 280 digital loop carriers and state-of-the-art soft
switches throughout a substantial portion of our market area. Why are
we doing this? Quite simply because our subscribers are demanding it
and we recognize that to be a part of the national and global
economies, they need it.
Let me give you some examples: Strategic Oil Field Services, which
does business globally, moved their office location 12 miles in order
to receive Hill Country's broadband service. This connection to the
world was imperative to its ongoing successful operations and ensured
that much needed jobs stayed in rural America. Another business, NIA,
which is an insurance fraud investigation company, recently contracted
for a 100 Mbps symmetrical service link which is helping them operate
more efficiently as well as increasing their employment rolls. There is
also an automobile chassis parts distributor/warehouse located in Hill
Country's Center Point Exchange due exclusively to the fact that we
were able to offer high bandwidth for this company's catalogue mail
order business. In our Leaky Exchange, we have a day-trader who was
able to set up his business because of broadband connectivity. In
addition, Hill Country proudly has fiber to all of its schools,
enabling fast connections for all types and levels of educational
learning opportunities. Clearly broadband is essential to the economic
well being of rural America today.
Along with alternative approaches to broadband funding mechanisms,
the FCC should consider ways to improve broadband adoption rates in
rural provider areas. These tend to be low among customers in such
areas due in part to the cost of obtaining middle mile transport to the
Internet backbone, and the extraordinary high cost of obtaining video
content, which makes it difficult for rural providers to offer
attractive bundled service packages.
We have also recommended that policymakers turn their immediate
attention to the urgent need to adopt universal service fund (USF)
contribution reform measures, as well as address outstanding
intercarrier compensation (ICC) issues including confirming application
of existing access charge mechanisms to Voice over Internet Protocol
(VoIP) services. The failure to address these issues will further
undermine prospects for accomplishing the goals of the NBP.
Conclusion
We had great hopes for the NBP and what it could mean for all
Americans, yet here we are again scrambling to fix and otherwise
redirect an emerging Federal policy that fails to adequately comprehend
the rural circumstance as it appears crafted mostly with urban factors
in mind. Here we have a plan that is almost entirely about arriving at
a point in time where, largely through competition, deregulation, and
private investment, some 100 million households will have affordable
access to actual broadband speeds of 100 Mbps down and 50 Mbps up.
Simultaneously, it appears to have an unstated yet all too clear
flawed objective of destroying a working regulatory system for
economically difficult-to-service markets with the mistaken belief that
competition, deregulation and unsupported private investment might
somehow yield at least a minimum actual broadband speeds of 4 Mbps down
and 1 Mbps up.
It is obvious this goal, which is 25 times slower than the vision
for competitive areas, is the fate that awaits rural America. We have
communicated these concerns to executive and legislative branch
policymakers alike. Our organizations have implored these parties to
reassess and redirect the NBPs overall approach to funding broadband
services in rural provider serving areas before undertaking any further
steps to implement the plan.
We strongly urge the FCC to not implement the specific proposals
set forth in the NOI and NPRM ahead of the opportunity for the public
to thoroughly evaluate, discuss, and comment on other related elements
of the NBP that may not be directly addressed in these proceedings yet
are crucial to their direction nonetheless.
Today, I again implore you to give serious consideration to the
stark realities the NBP represents for rural America and to ask
yourselves if this is how we should be going about ensuring that
America as a whole reclaims its global broadband preeminence. I cannot
imagine how your answer could be anything but a resounding ``no.''
Thank you.
Senator Begich. Thank you, Mr. Wilson. It sounds like you
have some issues with the plan.
[Laughter.]
Senator Begich. Thank you very much.
Mr. Gockley.
STATEMENT OF JOHN GOCKLEY, VICE PRESIDENT, LEGAL AND REGULATORY
AFFAIRS, UNITED STATES CELLULAR CORPORATION
Mr. Gockley. I believe this hearing comes at a critical
juncture for our Nation's communications infrastructure.
Mobility and broadband are the two must-have applications that
consumers demand. And how those services will be provided to
rural America hinge on the outcome of this debate.
U.S. Cellular sees an interesting challenge for
policymakers. Consumer demand for mobile communications is
exploding, yet the networks they need to operate on are
incomplete. This is especially true in rural areas.
There are three key issues I want to highlight for your
consideration. You can address the need for broadband and
mobility in a reformed program. Reform should ensure that
support is targeted to areas and consumers in the greatest
need, and these funds must be utilized as effectively and
efficiently as possible, with appropriate levels of oversight
to avoid the potential for waste, fraud, and abuse.
First, and most important, now is the time to permit
carriers to directly invest Universal Service funds in both
broadband and mobility. Even before the exact long-term
mechanics of the National Broadband Plan are completed,
wireless carriers could be deploying broadband with support
they already receive, if the FCC would only give us the green
light to go forward.
Second, incentives must be properly structured so as to
drive investment to the highest-cost areas that need it most.
The process for targeting support is underway through the
National Broadband Plan, and we support the Commission's
efforts to better target support.
Third, accountability and efficient distribution of the
funds are key drivers to controlling fund growth, and ensuring
that rural citizens see the benefit of the support received. We
acknowledge that the current mechanism needs reform, and
changes must be made to ensure that all carriers receive a
sufficient level of support, but no more.
A market-based support mechanism is superior to one where
the government selects a single marketplace winner. Rural
consumers do not need a government-chosen monopoly carrier.
They need the ability to choose a carrier that best suits their
needs, with support only going to the carrier that wins the
customer, and only for so long as the carrier retains the
customer. If the support follows the consumer rather than going
to a single carrier, the overall costs of the program can be
controlled, while consumers can be free to determine which
provider is offering the best service, terms, or coverage, just
as it happens today in urban markets.
In my written testimony, you'll find maps of five States
represented on this committee. While these maps show the great
strides we have made over the past several years, using
Universal Service support, there remain large unserved and
underserved areas yet to cover, and this program is the key to
achieving that goal.
How do we know that? Because we have third-party drive-test
data showing that consumers using our competitors' networks
that are unsupported by USF experience dropped-call rates that
are as much as eight times higher than ours. So, clearly, USF
is essential to achieving ubiquitous coverage in rural markets.
We also submit that the transition to new mechanisms must
be equitable. The National Broadband Plan's proposal of a 5-
year phase-down of support to wireless carriers but a 10-year
phase-down for wireline carriers is arbitrary, at best, and
discriminatory, at worst, and should be replaced with a plan to
phase down both technologies over the same period. If it's 10
years for wireline, it should be 10 years for wireless.
In closing, it is now beyond dispute, citizens living in
many rural high-cost areas are not going to have access to
modern devices and the applications enabled by them unless
there are high-quality advanced networks in place. The
Universal Service Program is a key driver of high- quality
networks.
Thank you for permitting me the opportunity to present here
today, and I'd be pleased to answer any questions you might
have.
[The prepared statement of Mr. Gockley follows:]
Prepared Statement of John Gockley, Vice President, Legal and
Regulatory Affairs, United States Cellular Corporation
Chairman Rockefeller, Ranking Member Hutchison, members of the
Committee, my name is John Gockley, and I am Vice President, Legal and
Regulatory Affairs for United States Cellular Corporation. Thank you
for the opportunity to discuss how Congress and the FCC might consider
transforming the universal service fund to be better aligned with the
needs of the Nation in the era of broadband.
U.S. Cellular provides wireless service in nearly 200 markets
across 26 states located in regional clusters across the country,
including many of the states represented on this Committee such as
Kansas, Maine, Missouri, Nebraska, Virginia, West Virginia and
Washington. The overwhelming majority of the geography we serve is
rural in character. Our opinions and perspectives on the Universal
Service Fund are informed by our experience as an eligible
telecommunications carrier (``ETC'') serving rural America.
We use Federal universal service support to build new cell sites
and operate facilities in high-cost rural areas that would not
otherwise have access, and we see first-hand the profound effect that
access to advanced wireless service has on jobs and the quality of life
of the consumers in rural America that we serve.
From our rural-centric perspective, we offer the following views on
the role of universal service in a world evolving to broadband:
1. Providing USF Support Today for Investment in Fixed and Mobile
Broadband Infrastructure is Critically Important
This hearing comes at a critical juncture for our nation's
communications infrastructure. We have known for a long time that
mobility and broadband are the two ``must have'' applications to enable
our citizens and businesses to function in the modern world. Mobile
broadband uptake is exploding, and the percentage of wireless-only
households now approaches 30 percent. It has now been almost fifteen
years since Congress had the wisdom to declare that rural citizens
should have access to both telecommunications and information services
that are reasonably comparable to those available in urban areas. As
such, now is the time for the FCC to develop an approach that permits
carriers to directly invest universal service funds in the two services
that consumers desire most: broadband and mobility.
With wireless carriers poised to deploy state-of-the-art 4G
networks, the timing couldn't be better for supporting mobile broadband
deployment. Access to broadband should no longer be considered a
luxury--it is an absolute necessity. And any program with the goal of
``preserving and advancing universal service'' must make funding
available to build, maintain and upgrade state-of-the-art and high-
quality broadband networks throughout those areas of the country that
would not otherwise attract sufficient private capital. Along with
access to basic voice service, broadband, whether delivered over land
line or wireless networks, has the capability to deliver an enormous
array of services and applications that will grow exponentially every
year.
The FCC's National Broadband Plan identified a significant
broadband investment gap in rural America and recommended that the
universal service program be an essential tool to close that gap. We
agree that this program can and should be a key driver of broadband
investment and consumer adoption. Rural America would not have high-
quality telephone service today without universal service funding and
it will not have high-quality broadband services tomorrow unless this
program is properly structured to provide market-based incentives to
carriers who are willing to invest in rural areas.
Between 1999 and 2009, over $31 billion of universal service
support has been invested in fixed voice service while $6 billion has
funded mobile voice service.\1\ If the FCC simply permitted eligible
carriers to use the support we already receive today to build broadband
infrastructure, we would begin that process immediately, and our
investment would substantially narrow the broadband gap in just a few
years.
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\1\ 2009 Federal-State Joint Board Monitoring Report at Table 3.2;
http://hraunfoss.fcc.gov/edocs public/attachmatch/DOC-295442A5.pdf.
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We embrace the challenge of building out high-quality broadband
networks, but we also know that without universal service, rural and
high-cost areas are going to be left behind. Furthermore, we believe
there are ways to accomplish Congressional goals while maintaining
strict budgetary control over the program, guiding investment to the
areas of greatest impact, and ensuring the accountability of those that
utilize the funds.
To be clear, permitting USF high cost support to be used in the
deployment of fixed and mobile broadband services is the single most
important action needed to accelerate access for those living in rural
high-cost areas.
2. Mobility is Critical to Rural Americans
U.S. Cellular recently asked rural citizens in several states
whether they would give up their mobile handset or their home
connection to the Internet if they had to choose between them. We were
not surprised when a majority said they would give up their home
connection to the Internet, mostly because they viewed a mobile handset
as a critical health and safety tool. Although we are building out in
rural areas as quickly as possible, over 75 percent of the consumers in
states where we serve such as West Virginia and Maine still experience
dead zones or poor call quality while moving around the state, a clear
indication that work still needs to be done to make service ubiquitous.
What may also interest the Committee is that we get very few
comments from our customers concerning the universal service line item
on their bills. Yet, every day we receive scores of comments
identifying rural areas where service needs to be improved. Many of
these comments come from prospective customers who tell us that they
are leaving their old carrier because it has insufficient coverage in
rural areas. In addition, policymakers often tell us where they
personally experience persistent dead zones, or where their
constituents have identified a lack of coverage.
The symptoms are not just dropped calls and dead zones that
compromise safety. They include an inability to receive e-mail messages
or access the Internet, inability to use smart phone functionalities,
and batteries that die quickly because the device is constantly
searching for a network.
Problems also extend to law enforcement and health workers. Awhile
back, Sheriff Everett Flannery from Maine testified before this
Committee about the many ways he and other first responders use mobile
phones, and the frustration of attempting to deal with a domestic
disturbance or talk to an undercover officer in a rural area with
inadequate service.\2\
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\2\ See, http://commerce.senate.gov/public/
index.cfm?p=Hearings&ContentRecord_id=37f1f667
-9824-460f-a4b6-c678b6c815d0&Statement_id=f7e627f0-bf87-485f-9fa4-
b074c3beb8b9&Content
Type_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-
4cba-9221-de668ca
1978a&MonthDisplay=6&YearDisplay=2007.
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We have used support to aggressively fill in rural areas and want
this Committee to understand that while we have come a long way, the
job of delivering basic mobile wireless coverage to rural America is
not done. In fact, one point I would like to highlight for you is the
well-worn statistic that almost everyone has access to two or more
mobile carriers. That statement says absolutely nothing about the
quality of service in rural areas. For us, universal service is the
difference between some mobile service in some areas (think ``one bar''
that flickers in and out) and high-quality service (think ``five bars''
that remains steady as you move) everywhere that rural citizens live,
work and travel. A robust and ongoing program is needed to enable
carriers to fill in coverage gaps that continue to plague rural areas,
otherwise citizens will be forced to settle for service quality that is
inferior to that which is available in urban areas.
In recent years, we have aggressively invested Federal universal
service funds to dramatically improve coverage in rural areas. Those
coverage gains are illustrated in the maps I have attached for Maine,
Missouri, Nebraska, Virginia and West Virginia. In each of these
states, it is easy to see that much work remains to be done to provide
basic wireless coverage, and to improve that coverage to deliver
seamless access where rural citizens and visitors live, work and
travel. The same can be said for all of the states in which we operate
as an ETC. That is, while we obviously share the goal of delivering
broadband to these regions, many areas still require investment in
basic network access, to enable citizens to complete a telephone call.
Accordingly, we strongly disagree with the prior FCC's decision to
cap wireless funding in areas where we need to improve service. We also
disagree with the National Broadband Plan's recommendation to cut
funding to wireless carriers immediately by reducing the cap in areas
where Verizon and Sprint have voluntarily agreed to walk away from the
program.
We understand that the FCC is currently considering an item that
would recapture all of the funds relinquished by Verizon and Sprint,
contrary to its May 2008 cap order. If this item is adopted, there will
be a significant and immediate reduction in wireless investment in
rural areas. For example, in Maine, where Verizon Wireless has
relinquished its ETC status, we estimate that the state will lose up to
$3 million per year that other eligible carriers could use to build
facilities in rural areas that need improved service, without
increasing the size of the fund at all.
Given the need to continue to improve coverage, as our attached
maps make clear, it makes little sense to begin to decrease existing
funding before there is a concrete plan in place for the disbursement
of the new funds. We fear that if wireless voice support is reduced or
prematurely re-directed elsewhere, then coverage that exists today may
be compromised as carriers come to grips with the economic reality of
how to pay for the expense of maintaining and operating existing cell
sites in rural areas that never would have been built in the first
place but for USF support. Accordingly, we will oppose any proposal to
``recapture'' funds that large carriers are walking away from.
Chairman Genachowski recently said at the D8 Tech conference:
``Unleashing mobile is one of the most important, if not the most
important thing we can do. There's no doubt in my mind that the biggest
opportunity over the next decade to drive innovation, to drive
broadband success, to drive competition in broadband . . . is to take
advantage of mobile broadband.'' \3\
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\3\ D8 Video: FCC Chairman Julius Genachowski on the Broadband
Problem.
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We could not agree more. In rural and high-cost areas there is not
now, and will not be, enough of an infrastructure to attract and keep
businesses unless the universal service mechanism effectively
accelerates the construction of infrastructure that is reasonably
comparable to that now present in urban areas. We must have universal
service mechanisms which ensure that mobile wireless networks provide
sufficient coverage to enable broadband deployment to Americans living
in rural high-cost areas.
As a positive first step, the Commission should simply make
broadband a supported service and allow us to use the existing streams
of support to continue to fill in coverage gaps, while at the same time
deploying mobile broadband over the substantial network of towers we
have built with USF support. This would make for a remarkably efficient
use of both USF support already provided, and support yet to come,
which is vital to completion of existing voice networks and to jump
start high speed 4G mobile broadband networks.
We urge Congress to direct the FCC to develop mechanisms to provide
rural Americans with access to mobile services that are reasonably
comparable in quality and price to that which is available in urban
areas by immediately permitting use of the high cost support that is
available today for the deployment of 4G networks and including
dedicated funding for mobile broadband as part of any long-term
solution.
3. Market-Based Mechanisms Benefit Consumers and Accelerate
Investment
The National Broadband Plan recommends the use of mechanisms that
would select one winner per geographic area regardless of technology.
This would mean that rural citizens would receive either fixed
broadband or mobile broadband, but not both. And the government would
choose which one. We disagree with this approach on a number of levels.
A market-based mechanism that allows consumers to choose the carrier
that provides the best service is superior to one where the government
selects a single marketplace winner. Consumers benefit more when
carriers fight in the market to provide better service and lower
prices, rather than fighting in Washington to be awarded a dominant
market position. Rural consumers also deserve a choice of providers,
and the ability to access both fixed and mobile broadband, just like
consumers in New York City and Chicago.
Consumers are increasingly accessing the Internet while mobile. If
we fail to fund mobile broadband access in rural America, we are
acquiescing in the creation of a new and more intractable digital
divide. Therefore, we must have fixed and mobile broadband networks in
rural America. We think the Broadband Plan is not bold enough here
because we should be first defining goals properly and then proceeding
to determine how to pay for them--not limiting our goals because of a
concern that the size of the current fund may be insufficient today.
If universal service is limited to one government-selected and
subsidized carrier, soon thereafter it will become dominant, limiting
choices and requiring extraordinary government regulatory oversight.
The FCC will be required to impose market opening measures, including
regulation of rates, resale, unbundling, and interconnection, similar
to the current regime set forth in Section 251 of the Telecom Act for
incumbent wireline carriers. Other aspects of mobile wireless service,
such as customer service, reliability of coverage, availability of
advanced handsets and promotional offerings will all be very difficult
and expensive to regulate. This is counterproductive and amounts to the
government reconstructing the very monopoly-style system that the 1996
Act intended to break up. Universal service mechanisms were intended to
work within increasingly competitive markets, not prevent the very
competition that the 1996 Act intended to promote.\4\
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\4\ See, e.g., Federal-State Joint Board on Universal Service, 14
FCC Rcd 8078, (1999).
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Rather, we should be exploring alternative and creative ways to
foster competition by encouraging multiple carriers to seek support in
an area before we conclude that it is simply too expensive and turn our
back on the benefits of competition. It may make sense for policymakers
to consider the benefits and economies of scale that might accrue if
USF recipients were required to share the expenses of common
infrastructure such as towers or backhaul with one another in order to
maximize the USF support that is available.
U.S. Cellular has long favored mechanisms that determine an amount
of support in high-cost areas, allowing carriers to gain support only
when they get a customer, while losing support when they lose a
customer. The incentive to get and keep a customer must be aligned with
the availability of support. More important, from a budgetary basis,
this kind of concept ensures that the size of the draw on the fund is
controlled by the amount of subsidy available for each area. Frequent
claims that the high cost fund needs to be better controlled would be
addressed via mechanisms that only support the carrier that gets the
customer.
We believe that the mobility fund contemplated by the FCC should
fund the reasonable costs of both construction and operations for
mobile broadband providers and should be expanded from just supporting
3G networks to include the coming 4G revolution which will be so vital
to the future health, safety and economic growth of the Nation. If you
take anything away from my testimony let it be this--rural Americans
are entitled to have access to both fixed broadband and mobile
broadband so that they may choose one, or even both, to satisfy their
needs. Congress must provide sufficient funding for both.
With respect to determining the appropriate amount of support in a
particular area, the FCC is considering a model-based approach, and we
have previously testified before the Congress that models should be
considered. In a recent order, the Commission explained its use of a
model for some wireline carriers provides ``a specific and predictable
methodology for determining when non-rural carriers qualify for high-
cost support.'' \5\ Computing power and mapping software have advanced
the art and science of modeling light years ahead of the 1990s, when
that model was developed.
---------------------------------------------------------------------------
\5\ High-Cost Universal Service Support, Order On Remand And
Memorandum Opinion And Order, FCC 10-56 (April 16, 2010) at para. 18.
---------------------------------------------------------------------------
A form of cost model may also be a useful tool in determining the
true cost and benefits of introducing multiple competitors into a rural
area. We look forward to participating in discussions with Congress and
the FCC regarding the efficacy of adopting cost models to distribute
USF support.
Market-based support mechanisms that provide proper incentives to
invest and require accountability for the use of funds are far superior
to the government selecting one carrier for rural citizens.
4. Support Must Be More Accurately Targeted
Support funds are not unlimited and, thus, incentives must be
properly structured so as to drive investment to the high-cost areas
that need it most. Today, some relatively low-cost suburban areas
receive too much support while other high-cost rural areas receive too
little. Models can be an effective tool for identifying high-cost areas
and the amount of support that should be available to carriers serving
there.
We encourage more accurate targeting of support, in large part
because our internal market analysis suggests that we are making great
progress in areas where support is available. For example, in drive
tests we commissioned in 2009 analyzing dropped and incomplete calls in
urban and rural settings for all the major carriers, independent
testing confirmed that our network performance in rural areas
dramatically outperformed the networks of carriers not receiving USF
support. We attribute this to the additional investments we have made
using universal service funds. In short, rural consumers in areas where
we are investing support are receiving higher quality service as a
result of our participation in the program. That said, our drive tests
also showed that our networks in urban areas out performed our networks
in rural areas. As I said at the outset, there is still much work to be
done to bring rural areas up to a comparable level of service.
Targeting support to the areas that need it most will increase
incentives for rural carriers to deploy much-needed infrastructure to
the benefit of rural citizens.
5. Promote Access for Low-Income Individuals
Today, the Lifeline and Link-up programs provide low-income
individuals with access telephone service, while the Schools and
Libraries program enable access to broadband at anchor educational
institutions. Universal service reform must include promoting access to
discounted fixed and mobile broadband service for low-income
households. It is not enough to provide broadband to a household if
residents cannot afford to take advantage of it. Educational
opportunities expand with access to broadband, as many low-income
individuals cannot afford to attend traditional educational
institutions.
We agree with the National Broadband Plan that there needs to be a
Lifeline program promoting access to broadband for low-income
Americans.
6. The Transition to New Support Mechanisms Must be Measured and
Orderly
The FCC has set forth a core reform principle that there should be
no ``flash cuts,'' so that carriers can make appropriate adjustments
and prepare for significant changes. We agree with that approach. Yet
the National Broadband Plan and subsequent FCC proposals contain
several troubling recommendations.
For example, support to wireless carriers under the existing
mechanism would be phased down over a 5-year period, yet the Commission
has offered no public assurance that the new broadband funds will be
phased in over a similar period. The FCC must establish its broadband
funding mechanisms first so that the timing of a phase in coincides
with the phasing out of the current mechanisms.
Just as troubling is the recommendation that support to wireline
carriers be phased down over a 10-year period, despite the fact that
their networks are mature, while support to wireless networks would be
phased down over 5 years, even though our networks require substantial
additional investment to cover rural America. The arbitrariness and
inequity of differing phase downs aside, accelerating the phase down of
wireless carriers only reduces the ability of carriers to construct new
cell sites in remote areas. This seems counter-productive, especially
given that broad swaths of rural America still require significant
capital investment to be brought up to par with urban areas.
Moreover, any phase down should mirror the likely industry
conversion from voice networks to all IP networks. An accelerated phase
down that is not in sync with network deployment may have the
unintended consequence of causing voice networks to be prematurely
abandoned. We do not know what that right time-frame is yet, but a
record needs to be developed before the phase down occurs.
The transition to new support mechanisms should not be inequitable,
should occur on the same schedule as contemplated for wireline
carriers, and new mechanisms should replace the old in a timely
fashion.
7. Reforming the Mechanism for Contributing to Federal Universal
Service Must be a Priority
Today, Federal universal is funded by an assessment that is a
percentage of interstate and international revenues for
telecommunications services. Revenues from information services are not
assessed. States fund their universal service programs by assessments
on intra-state services. The immediate problem for the Federal program
is that spending on interstate telecommunications services has declined
by sixteen percent from its high.\6\
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\6\ See, FCC Quarterly Administrative Filings from 2001-2010 at
http://www.usac.org/about/governance/fcc-filings/2010/.
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Voice traffic is shifting to wireless and the Internet, prices are
falling, and business and residential consumers are spending less on
voice services as a result of the recession. As the amount of money
spent on interstate and international services declines, the percentage
assessment on the remaining revenue must rise. This of course is a
primary cause of the recent rise in the contribution factor, not growth
in funding to wireless ETCs, which have been capped.
The principle of universal service, that everyone should equitably
share the burden of ensuring that the entire country has access to the
services that we all need, since everyone gains from being connected to
a greater network of users, is undermined when some segments of the
industry bear a disproportionate share of the burden. In the case of
wireless, our industry contributes roughly $3.00 for every $1.00 that
comes back to support wireless services. This disparity harms rural
citizens, who deserve high-quality mobile wireless networks.
For years, the FCC has entertained proposals for reforming the
contribution mechanism so that all users of the network contribute
equitably to further the universal service goals set forth in the
Communications Act. U.S. Cellular has supported a hybrid approach that
would assess both connections and revenues. But we are not wedded to
this approach.
Near term action is needed to reform the contribution methodology
to ensure that the system is equitable and that there is sufficient
funding to enable all Americans to access our telecommunications
networks.
Concluding Remarks
The Nation is deep in catch-up mode when it comes to rural
broadband development. Universal service must accelerate infrastructure
investment so that rural citizens have access to advanced services and
rural communities can have the health, safety, economic development,
and jobs benefits that flow from broadband infrastructure. Just as
important, universal service must look well down the road, beyond the
markets and devices we see today. Last week, it was predicted that
tablet sales will exceed netbook sales in 2012 and desktop sales by
2013.\7\
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\7\ See, http://blogs.forrester.com/sarahrotmanepps/10-06-17-
steve_ballmer_right_pc_market
_getting_bigger; see also, http://www.forrester.com/rb/Research/
us_consumer_pcmarket
_in_2015/q/id/57210/t/2.
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Think about that--a device that made its debut just a few months
ago is going to overtake the desktop computer in 3 years. What this
tells us is that there will be more devices and more applications that
will bring enormous change to everything, including law enforcement,
health care, education, transportation, and energy management. Many of
these changes require access to mobile broadband. Put simply, our
citizens living in many rural high-cost areas are not going to have
access to these devices and the applications enabled by them unless
there are high-quality advanced networks in place.
We share your urgency concerning the need to keep rural and low-
income Americans from falling further behind the information revolution
and we are prepared to help the Committee confront the critical issues
addressed by today's hearing. We are supportive of the goals of the
National Broadband Plan and we think that with some common sense
adjustments that it can provide the way forward for deployment of fixed
and mobile broadband throughout rural America.
Map Exhibits Showing U.S. Cellular Coverage
[graphics]
Senator Begich. Thank you very much.
Mr. ``McSlaylow--Slarrow'' I'm always doing it to you, I
apologize.
Mr. McSlarrow. That's all right. Happily, my parents gave
me an easier first name.
Senator Begich. I know, I like it, Kyle. It's easier.
[Laughter.]
STATEMENT OF KYLE McSLARROW, PRESIDENT AND CEO, NATIONAL CABLE
& TELECOMMUNICATIONS ASSOCIATION
Mr. McSlarrow. Thank you, Mr. Chairman.
First, let me say, as the Commissioners did on the first
panel, we agree that reform of Universal Service Fund, and
particularly the High-Cost Fund, is overdue.
And there are really two massive marketplace changes that
have taken place over the last few years that I think help
point the way in how we might consider reform of the High-Cost
Fund.
The first is, when I first took my job, only a few years
ago, we had more dial-up customers in America than broadband.
Now 70 percent of households are taking broadband, and, at
least for my industry, we offer broadband to 92 percent of
American households. It's a huge change in the marketplace.
The second is, again with my industry, only a few years ago
we had very few phone customers. Now we offer a competitive
phone service to 90 percent of American households. Indeed, 22
million Americans actually take a phone product from a cable
company. And, of course, broadband and phone are increasingly
intermingled.
In our industry's case, very few of our companies actually
receive high-cost support. I think it's only 1 percent of
what's estimated to be $4.6 billion of the High-Cost Fund in
2010. And so, we would submit, as we did at the FCC last year,
that as we think about reform of the High-Cost Fund, number
one, it does make sense to begin to transition to broadband and
away from phone. As Commissioner Copps said, I think phone is
highly penetrated; it's something like 98 percent in America.
But, we should target those areas that don't actually have
access to broadband--unserved America, which, you know,
depending on your estimate, is 8 to 10 percent of households.
And with scarce resources, we ought to apply those dollars to
unserved America first.
The suggestion that we have, that we'd like this committee
to consider, as we asked the FCC, is to think about those
marketplaces where you have an unsubsidized wireline phone
competitor to an incumbent phone provider. In those markets
where you have an unsubsidized competitor to an incumbent
that's receiving USF, we think that is clear evidence that the
subsidy is not necessary. It's not a question of right or
wrong, it's a question of, How do you apply those scarce
resources to make the greatest impact?
So, one of the things we would submit is that some type of
analysis, in law or at the FCC as part of a petition, ought to
be a scrub, looking at these markets. And where we--and our
suggestion is, where you have a market where 75 percent of the
households have available to them a competitive unsubsidized
service, that is clear evidence that those monies should be
directed to unserved areas that actually need it.
And in the interests of time, Mr. Chairman, I'll stop
there.
Thank you.
[The prepared statement of Mr. McSlarrow follows:]
Prepared Statement of Kyle McSlarrow, President and CEO,
National Cable & Telecommunications Association
Good morning Chairman Rockefeller, Ranking Member Hutchison, and
members of the Committee. My name is Kyle McSlarrow and I am the
President and Chief Executive Officer of the National Cable &
Telecommunications Association (NCTA). Thank you for inviting me today
to testify on universal service reform.
NCTA represents cable operators serving more than 90 percent of the
Nation's cable television households and more than 200 cable program
networks. The cable industry is the Nation's largest provider of
residential high-speed Internet service, having invested more than $161
billion since 1996 to build two-way, interactive networks with fiber
optic technology. Cable companies also provide state-of-the-art digital
telephone service to more than 22 million American consumers in urban,
suburban, and rural markets--almost wholly without any high cost
support. Cable operators are committed to expanding access to quality
voice and Internet services, and the dramatic growth in cable broadband
subscribers is evidence of their success in doing so.
The universal service program has long been a critical element of
our Nation's communications policy, ensuring that all Americans have
access to rapid and efficient communications services at reasonable
rates--and it will undoubtedly remain a cornerstone of communications
policy in the broadband era. As recent disasters have pointed up, many
rural and remote areas of the country still lack access to the
communications technologies that consumers in urban and suburban areas
take for granted. It is appropriate for this committee to consider
reforms to the USF high cost program so that the program most
efficiently and effectively fulfills its objectives in today's
environment.
As a major contributor to the Federal Universal Service fund, the
cable industry has a significant interest in USF issues. We believe it
is time to consider ways to transition away from a monopoly-era support
program and toward a more modern, neutral, and forward-looking high
cost support mechanism that focuses on bringing broadband service to
unserved areas and underserved populations--and that the growth of
local competition offers the opportunity for policymakers to make this
transition.
The recommendations of the National Broadband Plan on universal
service reform provide a welcome starting point for transforming the
high cost program for the broadband era. In order to ensure that the
overall size of the fund remains reasonable, the Commission has
proposed to cap the high cost fund at the 2010 level and sought comment
on how to reduce the overall size of the fund. It has also proposed
better targeting of high cost support to noncompetitive areas.
Specifically with respect to broadband, the Commission has proposed the
establishment of the Connect America Fund (CAF) that directly supports
broadband without increasing the size of the USF over the current
baseline projection.
Consistent with these objectives, NCTA itself has advanced a
proposal for eliminating high cost support in competitive areas where
it is no longer needed. Our proposal would target reductions in areas
where there is unsubsidized facilities-based competition, thereby
freeing up funding that can be used to support deployment of broadband
in unserved areas.
We also support S. 2879, the bipartisan Broadband Opportunity and
Affordability Act introduced by Chairman Rockefeller and Ranking Member
Hutchison, Subcommittee Chairman Kerry, and Senators Snowe, Pryor, and
Warner. This bill would authorize the FCC to create a two-year pilot
program to expand the Commission's existing Lifeline program to cover
broadband service. NCTA, working with a wide array of stakeholders,
developed one such pilot program concept, the Adoption Plus (or ``A+'')
program, a public-private partnership to promote broadband adoption for
up to 3.5 million middle school-aged children eligible for the National
School Lunch Program in approximately 1.8 million low-income households
that do not currently receive broadband services.
I will address each of these issues in turn.
The Local Exchange Marketplace Has Changed Substantially Since
Congress Created the USF Program in 1996
When Congress directed the FCC to create the Universal Service Fund
program in 1996, incumbent local exchange carriers (ILECs) had a
monopoly on the local exchange market, interexchange carriers were the
only companies providing long distance service, wireless was a nascent
service generally considered to be a luxury, and broadband Internet
access was virtually nonexistent. Fourteen years later, the marketplace
has changed completely. Cable operators today provide voice service to
over 22 million voice customers, often offering it in rural areas
throughout the country. Already, cable's entry into the voice market
has produced billions of dollars in consumer benefits and promises even
greater benefits in the future.
Notwithstanding these fundamental marketplace changes, however, the
high cost program operates as if nothing has changed since 1996. Even
as millions of Americans take service from facilities-based wireline
competitors, and millions more decide they no longer need wireline
voice services at all, the high cost fund continues to provide billions
of dollars of support for wireline voice services provided by local
telephone companies. And because of structural flaws in the high cost
program, new entry by facilities-based competitors generally does not
reduce the amount of support a local exchange carrier receives. As a
result, the total size of the Federal USF program, and the resulting
burden on consumers, continues to escalate at a staggering rate. The
current USF program is on an unsustainable path, with the contribution
factor set to remain above 13 percent beginning on July 1--down only
slightly from its high of more than 15 percent earlier this year (and
as compared to under 6 percent 10 years ago).
USF Reform Requires a Cap on the Size of the High Cost Fund
A critical first step in USF reform is placing a cap on the size of
the high cost fund. Unless high cost support is brought within
reasonable bounds, it would be imprudent to expand the high cost fund
to cover broadband services. An effective cap in the size of the high
cost fund is absolutely necessary to protect consumers and promote
greater efficiency. Particularly if Congress or the FCC decides to
bring broadband within the scope of USF, consumers should not be
expected to pay any more than they do today. In its pending USF reform
rulemaking proceeding, the FCC has appropriately sought comment on
capping legacy high cost support provided to incumbent telephone
companies at 2010 levels. NCTA strongly supports the imposition of such
a cap, provided that it is implemented in a manner that ensures
sufficient USF support for tribal lands, which have been persistently
underserved.
High Cost Support Can be Reduced or Eliminated in Areas Where Basic
Service Can Be Provided Without Such Support
One of the fundamental problems with the current high cost scheme
is that it does not include any mechanism for reassessing which
providers and areas should receive support. With competition now firmly
entrenched in much of the United States, we believe a mechanism that
directs high cost support away from areas with unsubsidized competition
can and should be added to the USF framework to ensure that support is
targeted to areas that require it.
Cable voice service is available to approximately 90 percent of
U.S. households, all of which also have access to broadband service.
The vast majority of these customers, even in rural areas, are served
without any high cost support. Of the billions of dollars in high cost
support distributed in 2009, NCTA members received only about 1
percent.
The presence of an unsubsidized competitor that serves the vast
majority of consumers in a market is, in our view, clear evidence that
universal service support is no longer necessary in that particular
market. Last fall, NCTA proposed a two-step process by which the
Commission would reassess the level of USF support for providers in
areas experiencing unsubsidized wireline competition. With our
proposal, we submitted an economic analysis demonstrating the extensive
scope of unsubsidized competition for both voice and video services in
rural areas. In many study areas that currently receive high cost
support we demonstrated that cable operators are serving more than 95
percent of households. Based on this analysis, we are confident that
the reform of the current system will enable significant savings that
can be used to provide targeted support to programs that promote
broadband deployment, without harming customers in areas that receive
support from existing mechanisms.
The National Broadband Plan set forth a comprehensive plan for
reducing the funding for the legacy high cost support mechanisms and
distributing high cost support in a more efficient, targeted manner,
and using those savings to further the goals of universalizing
broadband without increasing the overall size of the universal service
fund. As recommended in the National Broadband Plan, the Commission has
proposed changes for all types of high cost support recipients,
including freezing Interstate Common Line Support (ICLS) funding
received by rate-of-return carriers; redirecting Interstate Access
Support (IAS) funding received by price cap carriers toward broadband
deployment; and phasing out the remaining legacy high cost support for
competitive eligible telecommunications carriers. These initial steps
would be followed in the future with more fundamental reforms of
existing mechanisms and creation of a new broadband mechanism.
Provided that these steps are taken in a manner that is
competitively neutral and sensitive to the needs of tribal areas, we
think the FCC has laid the groundwork for meaningful high cost support
reform. Competitive neutrality entails two elements. First, the high
cost program should be open to all communications service providers
able to provide required services, rather than limiting participation
to only telecommunications carriers, as in the current program. Second,
the service area of an eligible provider should be defined as the area
where the provider is licensed or authorized to provide services,
rather than requiring all providers to serve the area defined by an
underlying incumbent local exchange carrier or seek a waiver.
Universal Service Support for High-Speed Broadband
Broadband Deployment. Given the importance of broadband to our
economy and society and its increasingly central role as a
communications medium, we agree that it is appropriate to consider
changes in the high cost program to help achieve the national goal of
universal access to broadband. But the history of staggering growth in
the high cost program suggests that the role of USF in promoting
broadband must be carefully tailored to unserved areas and populations.
At a minimum, USF support for broadband deployment should be
targeted at those areas that currently do not have broadband facilities
in place. Cable broadband service--which was created from billions of
dollars of private investment and without any significant government
subsidy--is already available today to 92 percent of U.S. households
and subscribed to by more than 40 million of those households. It would
be a poor use of scarce government resources to subsidize a broadband
competitor in communities--including many small, rural communities -
where cable operators have invested risk capital to deploy broadband
services. Government subsidies for one competitor in markets already
served by broadband also might discourage the existing provider from
making continued investments in its network facilities.
The FCC's fresh look at universal service for the broadband era
includes many of these elements. In particular, the National Broadband
Plan proposes to cut inefficiencies in existing support of voice
services and create a Connect America Fund (CAF) that directly supports
broadband without increasing the size of the USF over the current
baseline projection. As proposed by the Commission, the CAF would only
provide funding in geographic areas where there is no private sector
business case to provide broadband and high-quality voice-grade
service. The CAF would also be available on a company- and technology-
agnostic basis, so long as the supported broadband service provided
meets the specifications set by the FCC. As I've explained, this
competitive neutrality is an essential element of any reform.
The Commission has proposed that the CAF be used in unserved areas
to fund broadband service with actual download speeds of at least 4
Mbps and actual upload speeds of at least 1 Mbps and an acceptable
quality of service for the most common interactive applications. We
believe this approach strikes an appropriate balance between the goal
of extending broadband to areas that currently lack it, while ensuring
that the costs of the universal service program will remain reasonable.
However, it is important to note that the Commission also proposed to
review and reset this target every 4 years, which would ensure that no
area would be without access to broadband at speeds comparable to what
is generally available through the operation of market choice.
Broadband Adoption. Given widespread broadband deployment, we
believe that Congress should focus on promoting broadband adoption.
Even in areas with one or more broadband providers, there are often
barriers to broadband adoption--such as affordability, lack of a
computer or other equipment to connect to the Internet, and low levels
of basic ``digital literacy.'' Of course, any broadband adoption
program must be technology- and competitively-neutral, with eligible
consumers given the same choice of providers as all other consumers--
either through a voucher program or by enabling all broadband providers
to recoup the costs of subsidizing service provided to low-income
households.
As a first step in extending USF support to broadband adoption, we
strongly support the establishment of a pilot program as contemplated
by the Broadband Opportunity and Affordability Act. S. 2879 would
expand the existing Lifeline program to cover broadband service. For
purposes of developing the pilot program, the bill appropriately
directs the FCC to consider the prevailing market rate for broadband
service and the prevailing speed of broadband service adopted by
households--this is essential to ensure that the cost of the program
remains reasonable while promoting the goal of broadband adoption. The
bill also directs the FCC to ensure that the program is technology-
neutral in order to promote competition from broadband service
providers to qualify to participate in the program. As I noted earlier,
this is a critical element of any broadband adoption program.
The Adoption Plus Program
NCTA has been at the forefront of developing a broadband adoption
pilot program concept--the Adoption Plus (or ``A+'') program. A+ would
be a comprehensive program that includes: (1) digital media literacy
training; (2) discounted computers that can access the Internet; and
(3) discounted home broadband service to households that do not
currently receive broadband service. Because it is one example of how a
pilot program might work, if established by legislation such as S.
2879, I include some more detail on A+ below.
First, school districts, or their state equivalent, would be
responsible for providing federally funded digital media literacy
training to eligible students, including online safety and the
responsible use of broadband. Once an eligible student is enrolled in
an A+ digital media literacy program, he or she would be eligible to
purchase a single discounted computer. Participating computer
manufacturers would be expected to provide their own contribution to
discount the cost of computers. Finally, for any household with a
computer and an eligible student enrolled in an A+ digital media
literacy program, participating ISPs would provide broadband service at
a 50 percent discount; provide a modem at a 50 percent discount,
whether purchased or rented; provide free installation of broadband
service; and provide parental control software and other online safety/
security tools. Participating ISPs would provide the discounted service
for a period of 2 years, which would consist of its entry-level
broadband tier.
The program contains three eligibility criteria: participants must
be middle school students (grades 6-8 or 7-9, depending on the
particular school district); participants must be eligible for free or
reduced-price school lunches under the National School Lunch Program;
and the participant's household does not currently receive broadband
Internet service. These criteria were chosen to target a population
where the A+ program can have a significant impact. Low-income
households have dramatically lower broadband adoption rates than the
general population, and middle school students--with appropriate
guidance and digital media literacy training--are developmentally
capable of safely and effectively taking advantage of the benefits of
broadband.
The goal of the A+ program is to help give millions of students the
opportunity to become digital citizens of the 21st Century by driving
sustainable broadband adoption and positively and materially affecting
educational outcomes. Meeting this goal would not only advance the
economic and social well-being of participating students, it would
advance the economic and social well-being of our Nation for decades to
come. We believe this targeted approach to expanding broadband adoption
is an example of how we can bring broadband to populations that cannot
afford it today.
Conclusion
NCTA welcomes the Committee's interest in USF reform. Reform is
imperative if the program is to be able to continue to meet its goals
and adapt to the significant changes in technology since the program's
inception. We remain committed to working cooperatively and
constructively with Members of this committee and other stakeholders to
address these issues. We appreciate the opportunity to share our views
with you and thank you again for the opportunity to appear today.
Senator Begich. Mr. Waits.
STATEMENT OF R. PAUL WAITS, PRESIDENT,
RITTER COMMUNICATIONS
Mr. Waits. My name is Paul Waits, President of Ritter
Communications.
I'm here also representing an ad hoc group of rural
carriers, referred to as the Rural Broadband Coalition. This is
a recently formed alliance of rural constituents from diverse
areas, united in our common concern over the impact these
policies will have on rural America. Our members are in all
these industries.
I'll go right to the point of our testimony.
Number one, reforms to the system are needed. They are
needed to preserve the goal of universal service. We are not
here to try to protect the status quo, we are here to argue for
responsible reform.
Number two, the contribution base for the Universal Service
Fund fee must be expanded to restore the original intent of the
program. It must be expanded to include all telecommunications
service in a collection base. It must be neutral to changes in
technology. All the other Universal Service Fund reforms are
dependent upon this.
Number three, this overhaul of our Nation's rural support
system must be orderly, predictable, and responsive to the
thousands of unique situations that exist across the country.
Not only must we avoid flash cuts, we should push the decision
of eligibility and who will be the carrier of last resort at
the State and local level in order to recognize these
variations. A one-size-fits-all approach will not work, if we
are to preserve the obligation to serve the rural public.
Number four, the plan relegates rural consumers to an
inferior and inadequate broadband service, creating a digital
divide. Current law already requires comparable rates and
services between urban and rural areas.
Number five, the marketplace will build a broadband
infrastructure in most of America. It has not, and it will not,
build this infrastructure in high-cost rural areas without
adequate government support.
The plan abandons some established ways of doing this, such
as intercarrier compensation, and the use of actual capital
costs and operating costs, and then leaves rural consumers
without support that is specific, sufficient, and predictable,
as the law requires.
Number six, bigger is not always better. Small local
companies have a unique focus and commitment to rural service
and can serve the high-cost areas more effectively and
efficiently. But, any size provider must have reasonable and
nondiscriminatory access to the connections with the outside
world.
Number seven, this is not a choice between wireline or
wireless. No one technology will fit all circumstances. The
plan assumes wireless can solve all problems for all people.
But, widely diverse circumstances in geography will require a
combination of technologies.
In sum, we ask the Congress and the FCC to reaffirm the
policies that have enabled rural Americans to receive basic
services, such as electricity, telephone, and now the next
frontier, broadband access. Rural America needs your support to
ensure the responsible and balanced reform of the Universal
Service Fund.
Thank you.
[The prepared statement of Mr. Waits follows:]
Prepared Statement of R. Paul Waits, President, Ritter Communications
Introduction
Chairman Rockefeller, Ranking Member Hutchison, and distinguished
members of the Committee, my name is Paul Waits, and I serve as
President of Ritter Communications. I sincerely appreciate the
opportunity to provide comments and appear before the Committee, and I
want to commend the Committee members for their attention to the issues
surrounding the development of telecommunications in general, and the
future of broadband Internet services. My comments will focus on the
latter as it relates to the preservation and extension of rural
consumers' functional access to the Internet, offering observations,
information and recommendations in reaction to the policies outlined in
the Federal Communications Commission's comprehensive broadband policy
blueprint, i.e., the National Broadband Plan (``NBP'').
I also want to commend the FCC in its thoughtful consideration of a
very complex, difficult and interrelated set of issues. I believe that
the NBP document includes some very sound policy recommendations, and
on the whole, represents an acknowledgement and positive response to
the present and emerging need for reformation of our systems of support
for the national telecommunications infrastructure, especially the
rural infrastructure. However, I and a growing number of rural
interests, have strong concerns regarding specific elements of the
plan, and believe such could have unintended and adverse consequences
for rural consumers, as we digest the document and overlay its
recommendations on the fabric of our diverse rural reality.
Who Is Ritter Communications?
My standing in this regard includes my present responsibilities as
leader of a small, diversified rural carrier in northern and
northeastern Arkansas. Our company operates two independent telephone
companies in two very disparate rural locales: one in the Mississippi
River Delta and one across the state in the Ozark Mountains. We also
operate a number of rural cable TV franchises, and actually compete
with other telephone companies, providing competitive broadband access
and telephone services in small towns and hamlets across northeastern
Arkansas. Finally, we operate a competitive local exchange carrier
(``CLEC'') in a larger town not far from our rural operations, where
our focus is service integration and custom solutions, as well as
commodity telephone and Internet access services. I mention all this to
point out that our interest in these issues is quite diverse and
somewhat unusual for a smaller company, given that we have a vested
interest in the outcomes affecting the customers of rural telephone
companies, rural cable TV companies and urban CLECs. It forces us to be
more holistic and perhaps less myopic when trying to establish our
opinions and beliefs regarding appropriate government policy, as we all
look for balance among competing interests.
The Rural Broadband Coalition
I am also here representing an ad hoc group of rural carriers,
referred to as the Rural Broadband Coalition. This is a recently-formed
alliance of rural constituents from diverse areas with diverse needs
and backgrounds, united under a common concern for how the imminent
changes in telecommunications policy will affect rural America.
Although we are members of the various rural telephone and cable TV
trade associations, we are not nor intend to be a formal trade
association.
Executive Summary
Mr. Chairman, allow me to quickly summarize my testimony, and then
elaborate on a few of the points as time permits. In summary, we
believe that:
1. Reforms are needed to preserve the goal of universal
telecommunications service and maintain a sustainable system of
rural support. We are not here to try to protect the Status
Quo; we are here to argue for responsible reform.
2. The solution must include restoring the contribution base
for the USF fee to effectively support the original intent of
what constitutes universal service, must include all
telecommunications service in its revenue base for collections,
and be neutral to changes in technology. The amount that
individuals pay on their telephone bill to support universal
service is simply too high and unsustainable. This is
imperative to shore-up the system, economically and
politically.
3. Whatever changes are made to the Nation's current rural
support system must be orderly and predictable, avoiding
unintended and adverse consequences that could result from
``flash cuts'' or approaches designed to short-circuit the
market, such as reverse auctions.
4. The standard for universal service contained in present law
should also apply to broadband access services, i.e.,
comparable rates and services between urban and rural
constituents, in lieu of the proposed disparity in broadband
service goals contained in the NBP.
5. The Federal USF is part of a larger and long-term system of
rural support. History is repeating itself as the Nation re-
tools the networks for an all-IP infrastructure, and we ignore
it at the peril of rural customers across the Nation.
6. Because of their unique focus and commitment on rural
service areas, smaller companies have an important role to play
in the extension and preservation of rural broadband access,
and require reasonable and real protections from discrimination
in the availability and price of certain wholesale inputs.
7. There is no silver bullet or national panacea for affordable
and universal broadband access. No one size or method of
delivery will fit all needs. The solution lies in an on-the-
ground approach that considers the widely diverse circumstances
that exist among the thousands of discrete geographic pockets
that collectively create the ``availability gap.''
With regard to the National Broadband Plan as now proposed, we must
strongly recommend that the Committee use its very significant powers
and influence to correct what we see as major deficiencies in the Plan:
1. The Plan relegates rural consumers to an inferior and
inadequate broadband service standard that in the long-term
will create a ``digital divide;''
2. The Plan makes faulty and dangerous assumptions about the
ability of wireless to solve all problems for all people;
3. The Plan assumes that in many rural areas a one-time
investment in capital expenditures alone will meet rural
customers' needs, although broadband network providers and the
customers they serve require operational support for on-going
operating costs and maintenance, for customer care and for
long-term growth in the number of broadband connections;
4. The Plan would undermine some important consumer protections
enforced by the states under the obligations known as Carrier
of Last Resort;
5. The Plan's implementation notice contemplates an ill-
conceived Federal auction which assumes ``bigger is always
better.'' In rural America we believe very often smaller is
better and more effective; and finally,
6. The Plan, as currently proposed, violates the
Telecommunications Act this Congress passed that requires that
USF funding be sufficient and predictable, and result in
services that are comparable between urban and rural customers.
The Plan seriously fails on these issues.
We ask Congress and the FCC, as a matter of public policy and sound
precedent, to reaffirm the gains we have made as a nation in extending
services and technologies in rural areas, to preserve those gains to
prevent harm to these groups of rural citizens, and extend a policy of
expansion with the goal of reasonable comparability in rates and
services among all communities.
Background: How Did We Get Here?
The standard for Universal Telecommunications Service should be the
creation and maintenance of reasonable comparability in the
availability and in the financial accessibility of telecommunications
services, including broadband access services, between urban and rural
areas of the nation.
The basic proposition of the National Broadband Plan (``NBP'')
related to universal access to broadband services is that the current
regulatory mechanisms, such as the Federal Universal Service Fund
(``USF''), should be replaced with a new mechanism(s), e.g., the
Connect America Fund, to provide financial support for the extension of
broadband access where such access is not available today, or not
available at the speed or price that would meet consumers' Internet
access requirements. While this appears to create new policy, in
reality, it is an extension of existing public policy at its most
fundamental level, given that the goal has been for many decades the
creation and maintenance of universal telecommunications service, i.e.,
universal connectivity to the public telecommunications network.
I want to emphasize that the use of the term ``telecommunications''
throughout my testimony is to refer to the generic act of communicating
over a distance, e.g., across the street, across the state, across the
world. I am not using nor do I intend to use this term as it is defined
in Federal statute or FCC regulations, nor do I imply or advocate any
form or degree of regulatory oversight of all or some subset of the
networks, technologies or services with which humans telecommunicate.
The public network has been evolving in form and function, and
whether one is electronically traversing the public switched telephone
network talking to grandma, or the information superhighway doing
global climate research, or merely watching the latest re-runs of
Desperate Housewives, it is all now converging into a
telecommunications infrastructure that is losing traditional
distinctions, such as ``voice,'' ``data'' or ``video.'' When one
considers the goal of universal telecommunications services, and the
public's evolving telecom needs, then one must embrace the fact that
broadband access to the public Internet is emerging as the common
denominator in a world where ``voice'' and ``video'' and ``data'' are
applications riding upon this common transport infrastructure. In this
sense, the NBP is on the right track in that rural support for
universal service should and must shift from a myopic focus on voice
services, and extend and expand to support functional and adequate
(high-speed, or ``broadband'') access to the public Internet.
There is a long-standing policy goal in the current statutes that
codified the purpose and character of the USF. Section 254(b)(3)
requires that ``consumers in all regions of the nation, including low-
income consumers and those in rural, insular and high cost areas,
should have access to telecommunications and information services,
including interexchange services and advanced telecommunications and
information services, that are reasonably comparable to those services
provided in urban areas and that are available at rates that are
reasonably comparable to rates charged for similar services in urban
areas.''
This policy of comparability was not created in a vacuum by
Congress, which recognized and preserved a system of support that had
been in existence in various forms for decades, as well as recognized
that the overall economic health of the Nation, as influenced by the
overall strength of its telecommunications infrastructures, was
increased as connectivity increased. This national policy affirmed that
the needs and uses of telecommunications services in the rural areas of
the country were at least comparable, and in some contexts more vital,
when compared to the needs and uses by consumers and businesses in the
urban communities.
A Digital Divide Cannot Be Justified
One of the proposals of the NBP that has come under criticism by
those concerned with the long-term impact on rural constituents is the
disparity in the broadband access goals expressed in the plan. In
particular, the plan's goals call for a download speed of 100 megabits
per second (``mbs'') service to 100 million households, presumably in
more densely-populated locales, and for a minimum download speed of 4
mbs service for those else residing in more rural locales. Both of
these goals appear arbitrary and lacking an assessment of functional
adequacy over the life of the plan's proposed transition period. My
experience has been that we get around to re-writing these rules about
once every 10 or 15 years. Although the plan suggests this standard
will be reviewed and adjusted, it is more likely that economic and
political inertia will prevent any meaningful reversal of this
precedent. The urban market has already moved beyond download speeds of
4 mbs, so this goal already appears inadequate to fulfill a
comparability standard.
We believe the FCC should instead recognize and affirm that it will
be consumers and businesses, users of these services, who will
determine what will be functional, economic, useful, demanded and
desired. As in the past and continuing through the future, the need for
more access speed will continue to evolve in ways that are difficult to
fully predict. However, it can be said with relative certainty that the
demand for speed will increase, and the needs of rural residents and
businesses will be no less demanding or important, no less
sophisticated or productive, and no less deserved or desired than the
needs of their brothers and sisters residing in urban areas.
Moreover, and noted by the lawyers in this debate, such disparity
clearly contradicts the controlling statute (Section 254 of the
Communications Act as amended), which is crystal clear on Congress'
intention to create and maintain a system of support that preserves
comparable availability and financial accessibility of
telecommunications services across our very geographically diverse
nation. The context of this policy's intention was the Telecom Reform
Act of 1996, which codified and expanded an existing system of support
in direct recognition that the move toward opening local exchange
telephone services to competition in the mid-1990s, and the move toward
deregulation, would naturally cause a loss of support in high cost
areas unless an explicit affirmation was made by government that would
prevent such harm to rural consumers. It was recognized that
competition would naturally drive rates to cost, absent some
intervention, and such would result in extraordinary rate increases and
restricted services in high cost terrains. The concern now is that the
FCC appears to have essentially ignored this aspect of the law, or more
importantly, appears to have abandoned the fundamental tenet that
comparable services between urban and rural areas are essential to the
public's collective convenience and necessity.
The arbitrary assignment of 4 mbs to the rural areas appears to
imply that 4G wireless technologies can become the panacea for
ubiquitous and cheap broadband access. Such does not, in our view,
reflect a bona fide and responsible concern for the actual broadband
access requirements of rural medical clinics, rural schools, rural
government, rural businesses, rural residents working from home, rural
residents taking on-line courses, and rural residents accessing high-
definition television programming over the Internet, in addition to
others.
Just this month, our company signed a contract to provide 50 mbs of
dedicated Internet access to the Cross County School System, a
consolidated rural school near Cherry Valley, Arkansas. This school is
located miles from the nearest community amid farm fields, and is
raising the bar in the use of computers and technologies in the
classroom and in the homes of their students. With 1.2 computers per
student, including laptops for home use, they indicate their Internet
access needs are expected to increase to 100 mbs. Fiber optic cable is
the only solution for this rural location.
Telecommunications technology inherently knows no boundaries. It
does not know when you exited the interstate in a rural county, and it
is by some measures of greater benefit in rural communities because of
greater distances and higher cost of transportation. The very benefits
that are lauded by the FCC in the NBP draft, such as extending
educational opportunities, productivity of medical systems and
technologies, access to global markets, etc., are arguably more intense
and more prevalent in the rural communities across the Nation. A goal
of limiting support to an inferior standard (i.e., 4 mbs) in order to
presumably favor a class of carrier, while potentially and ironically
creating an availability gap for legitimate and pressing needs for
services requiring higher bandwidths, is patently incongruent to the
overarching purpose of any national broadband plan.
We ask Congress and the FCC, as a matter of public policy and sound
precedent, to re-affirm the gains we have made as a nation in extending
services and technologies in rural areas, preserve those gains to
prevent harm to these groups of rural citizens, and extend a policy of
expansion with the goal of reasonable comparability to all communities.
USF Reform must Build Upon and Improve the Existing Marketplace
USF is part of a larger and long-term system of rural support.
History is repeating itself as the FCC and Congress now grapple with
how to rebalance the competing interests between rural and urban
constituents in the wake of an emerging and growing ``availability
gap.''
In the decades prior to the Divestiture of AT&T in 1984, advances
in long distance technologies, namely the invention of microwave
communications and automatic switching systems, were bringing down the
cost of long distance services. Also, during these earlier years of
telephony, the goal of universal telecommunications services was still
simply a goal, with the rural and low-income areas of the country
without service or with very expensive service because of the high
cost. There was a conscious effort and decision by the industry and the
regulators to keep long distance rates high, and use the profits from
this service to implicitly subsidize the rural and residential local
telephone rates. In a closed and regulated system, this approach worked
well, and did the job of extending services at comparable rates to the
rural consumers of the Bell System, as well as to the customers of the
independent telephone companies.
However, this closed system was broken open by a court decision
that ruled in favor of a long distance start-up company called MCI, who
had built a microwave route from St. Louis to Chicago. This long
distance facility was being marketed directly to businesses under the
Execunet brand. AT&T took MCI to court, arguing that it had the
exclusive franchise for telephone service in exchange for having its
rates and services strictly regulated. In the Execunet decision, the
court ruled in favor of MCI, and thereby opened the long distance
market to competition. The market forces of competition naturally push
rates toward cost, especially if such rates are being kept at an
artificially-high level to fulfill a macroeconomic policy goal. Thus,
the beginning of the end of this policy alliance of regulation,
industry and universal service began to unravel as long distance
competition put pressure on carriers to reduce the long distance rates
to the actual and declining cost.
Intercarrier compensation for long distance traffic is still an
important part of rural service support.
Prior to the Divestiture of AT&T, the independent telephone
companies received their share of the long distance revenue from a
process referred to as cost separations and settlements, wherein their
costs were allocated to long distance using cost allocation formulas
approved by the FCC. The basic premise of such cost allocations were to
allocate the local network costs based on relative usage between local
and long distance services. Over time, allowances were incorporated to
reflect the higher unit costs associated with less densely populated,
rural areas typically served by the smaller independent telephone
companies.
After Divestiture in 1984, the same cost allocation principles were
applied by the FCC to determine the structure and level of carrier
access charges that long distance companies would pay to the local
exchange carriers for access to the local network, replacing the prior
system of cost settlements with tariffed carrier access rates applied
to long distance minutes of use. From the moment such access charges
were first created in the mid-1980s, there has been a constant push to
reduce them. The push has come primarily from the long distance
carriers wishing the access rates to be zero, as well as from the FCC,
who through this period, wanted to reduce interstate access and long
distance rates. As evidenced by the NBP, this is still a goal of the
FCC.
The framework that we now refer to as the USF was created in the
context of such long distance rate reform during the 1980s, and was
originally referred to as the High Cost Fund. This fund was created as
a supplemental source of revenue for high cost areas in the regulatory
context of reducing access charges, and shifting cost recovery to the
Federal subscriber line charge (local flat rate to consumers). It was
and is based on the relationship of an area's average cost per
connection with the national average cost. If an area's cost per
connection was significantly greater than the national average, it was
entitled to compensation from the high cost fund.
It cannot be overemphasized that the high cost fund then, and the
universal service fund now, even as it has evolved in reaction to
shifting policies and industry trends, is still a supplemental fund and
does not alone provide the total support to many rural areas. There is
yet a significant amount of support still being provided in the form of
tariffed carrier access rates, both state and Federal, which for the
smaller rural carriers are generally higher than such rates for large,
urban carriers.
However, in a world of so-called ``free'' long distance over the
Internet, and Internet traffic not being subject to such access rates,
this carrier access rate disparity is not sustainable. This has led to
the call at the FCC for reform in such intercarrier compensation
arrangements, as this source of support continues to decline as long
distance traffic migrates to wireless services and to Internet voice
applications providers, or gets misclassified as such by the long
distance providers to avoid the higher cost of traditional access.
USF Reform must Be Multi-faceted, Inclusive, and Recognize Access
Charges' Role
This leads us to another concern we have with the NBP and its
impact on rural consumers. While the plan acknowledges that much rural
support comes from access rates and the need to reduce these over time
to recognize the lack of sustainability of disparate rates, there is
little provided in the plan to recognize the dependence some rural
service areas have upon the traditional access charge system. From the
perspective of the rural consumers in these areas, a loss of such
support in many cases could be as great, or greater, than the loss of
USF support, which would have a deleterious effect on the continued
growth and availability of voice and broadband access.
The Federal USF is part of a larger, long-term and largely
successful system of rural support, which also included support from
carrier access charges (intercarrier compensation) that, today, are not
part of the USF. Although the NBP acknowledges that intercarrier
compensation has been a source of financial support for rural
consumers, its treatment of the issue appears unbalanced, i.e.,
including an affirmative and unambiguous goal of reducing interstate
and intrastate carrier access rates to zero, but only acknowledging the
``potential'' for a need to include any such loss of this type of rural
support from the replacement Connect America Fund.
History repeats itself.
It should be noted that most rural support before the
implementation of the USF was implicitly provided in the form of
geographic rate averaging and value-of-service pricing by the state
regulators, who historically kept residential and rural rates at a
``residual'' level after accounting for higher margins from long
distance, urban services, and services to businesses. These regulatory
decisions and approaches helped fund universal connectivity; however,
their effectiveness has been diluted over time by the pressures of
competition, causing many rural areas to lose the implicit support of
traditional residual ratemaking. This trend is now intensified by the
steady attrition in the support from both the USF and intercarrier
service rates.
History is now repeating itself as the FCC grapples with the
``availability gap,'' analogous to the availability gap that once
existed for rural telephone services, as well as the gap that once
existed for electricity, transportation, education, healthcare, etc.
Then, as today, the value of the network for everyone is directly
related to the number of households and businesses that have access.
Even as we talk about a new broadband availability gap, we should
acknowledge that there are still areas of the country without
commercial power or wireline telephone service, or even mobile wireless
service.
For example, in Jasper, Arkansas, one of the rural towns our
company serves and the county seat of Newton County, I have trouble
getting a reliable cell phone signal in the parking lot in front of the
courthouse located in the center of town.
The emerging and new availability gaps are mobile communications
and broadband access, two distinct needs in rural America, and the
redirecting and expansion of explicit support for broadband and for
mobility is the same as, from a historical perspective, the maintenance
of universal telecommunications service. Just as technology and the
demands of the public evolve, so too must the focus and methods of
support continue to evolve in order to keep in sync with the original
policy intentions for universal telecommunications connectivity. The
infrastructure for rural broadband access has been successfully
supported in many, but not all rural areas and the consumers of such
areas do, in many cases today, receive broadband rates and services
that are reasonably comparable to urban communities. We are concerned
that the NBP essentially scuttles the present system instead of
building upon this long-term foundation with a holistic recognition of
the various sources of support, thereby explicitly avoiding the adverse
consumer impact and reactions that will be created if there is a
disruption in the continuity and adequacy of support. In the words of
the Act (Section 254(b)(5)), such support must be ``specific,
predictable and sufficient . . . to preserve and advance universal
service.''
The USF is in need of reform and retargeting in order to ensure
``specific, predictable and sufficient'' support.
While we can point to areas of the USF and intercarrier
compensation system where the outcomes have been positive and necessary
for rural constituents and consistent with the goals of universal
telecommunications service, we can also point to and acknowledge the
NBP's assertions that reforms and retargeting of the support programs
are required in order to most effectively and efficiently move the
Nation forward and close the availability gaps for rural broadband
access.
The Key to USF Reform Is to Expand the Contribution Base
First and perhaps foremost among the needed reforms, and a topic of
considerable review and comment at the FCC in recent years, is the need
to expand the contribution base of the USF assessment fee. Even though
the FCC has capped elements of the fund, the USF fee, as a percentage
of the billed revenues upon which it is assessed, has increased over
time. This is largely due to the collection base declining as
telecommunications traffic and associated revenues have shifted from
traditional services to services that are exempt from such assessment,
such as Internet access and Internet applications. Absent a
restructuring and expansion of this collection base to a technology-
neutral and industry-wide alternative, the fee percentage will continue
to increase because of the steadily declining revenue collection base.
Such expansion of this base and the stabilization of USF collections
are imperative in order to sustain the system, economically and
politically. The FCC has a considerable record on this issue, and
acknowledges in the NBP the need for such expansion of the assessment
base for the USF fee, yet delays in implementing this aspect of the
plan. We strongly urge Congress or the FCC to move forward with this
reform as soon as possible.
USF Needs to Be Refined and Retargeted
In addition, the NBP rightly concludes that the USF needs to be
refined and retargeted in order to most efficiently and effectively
focus the limited resources of the fund to rural areas of the country
with a bona fide and festering lack of broadband availability. We agree
with this basic premise, but we are concerned that the NBP makes some
assumptions that understate the cost to preserve the broadband and
voice services provided in presently-supported areas, while
understating the cost to provide a reasonably comparable service mix in
the areas that do not receive sufficient support today.
There are two historical points we believe are relevant to this
discussion of USF reform. The first relates to the uneconomic
consequences of the ``identical support rule,'' and the second relates
to the systematic exclusion or limiting of support for many high cost
service areas through the grandfathering and freezing of eligibility.
The identical support rule proves to be a costly option.
When the Act was amended by Congress in 1996, the framers were
focused on the introduction and promotion of local exchange
competition. It was believed to be prudent policy at the time to allow
new rural market entrants an opportunity to become eligible for USF
support, and that such support should be identical to the support
received by the incumbent carrier (i.e., ``ILEC,'' or incumbent local
exchange carrier). This has been referred to informally as the
``identical support rule,'' and was based on the premise that Congress
should remove barriers to competition, even if this resulted in
propping it up with USF support in the high-cost areas.
There are instances in certain rural service areas where aspects of
this policy have worked well, especially in those areas where the ILEC
was not willing or able to invest in upgraded facilities and services.
A rural competitive local exchange carrier (``CLEC'') filled in this
service gap, partially funded by USF and/or the identical higher
intercarrier compensation rates allowed for rural carriers. Such
communities now enjoy a higher standard of care and service level than
would have been possible absent a mechanism(s) for non-ILEC support.
Ironically, these communities are now at risk of losing this support
under the NBP.
By far, the largest recipients of identical support from the USF
are large mobile wireless carriers, and this has driven most of the
growth in the size of the USF in recent years. While there may be some
rural areas of the country where mobility and broadband access have
been enhanced because of the identical support rule, such outcome is
made less likely by the fact there is no assessment of these carriers'
costs , i.e., there is no correlation between rural service support
needed and the USF distributions received by such mobile carriers.
There also is no specific accountability to ensure that the support is
being used to extend rural mobility.
It has had little impact in downtown Jasper, Arkansas.
While the ILECs' services are more tightly regulated by the state
commissions to preserve quality and availability under an obligation to
be the carrier of last resort, the mobile carriers have enjoyed the
freedoms of regulatory forbearance in a more competitive landscape,
able to pick and choose deployment and quality of service criteria that
are most profitable and responsive to the competition. This has
naturally limited wireless deployment to those areas where there is
adequate traffic (and profit) to justify the high cost of building and
maintaining towers, radio transmitters and leased transport facilities.
While this is an appropriate regulatory regime for a competitive
service, the payment of USF to such carriers without a concomitant
commitment to extend rural services has been the greatest contributor
to inefficiency in this system of rural support, and should be the
first order of business for the FCC.
The cost of propping up competition in rural areas is too great,
and this is an area of the NBP that is on target, i.e., the move toward
a single supported carrier in a given rural service area. We believe
such support must be based on a financial assessment of need,
considering the actual costs to provide a comparable service as
generally available and expected in urban America. We agree with the
NBP that the reforms to USF collection and eligibility should free-up
funding, providing an opportunity to redirect some funding toward rural
areas with a bona fide availability gap.
However, we disagree with the language of the NBP when it appears
to conclude that such USF retargeting and reforms alone will be
sufficient to create and maintain comparable service availability and
rates for all rural consumers and businesses. Frankly, without a
measurement of the impact of the reforms outlined above, and absent a
realistic long-term standard of comparable service for rural areas, it
is difficult to predict how much additional funding will be needed to
affect ``specific, predictable and sufficient'' support.
Where did the ``availability gap'' come from?
As mentioned earlier, the forms of rural cost and rate support most
prevalent in the early stages of advancing universal telecommunications
services were the regulatory ratemaking practices of geographic rate
averaging and value-of-service pricing. In the former, rates across the
state or region of a local carrier were essentially averaged, or
virtually the same across the carrier's urban and rural service areas.
In the latter, local rates in the large, urban centers were actually
higher than in the smaller towns and rural exchanges because of the
higher perceived value to consumers in being able to call more people
without a long distance charge. In addition, local rates for businesses
were historically set much higher by the state regulators than
residential rates to reflect the greater value associated with the
necessity of telecommunications for engaging in commerce. This resulted
in rates for business and for urban consumers that were greater than
actual cost, and the profits from these market segments were implicitly
used to keep rates in the rural areas at comparable or even lower
levels. This, coupled with regulatory scrutiny over quality of service
and service availability, was the system within which rural customers
were supported.
During the rounds of access and long distance rate reductions of
the 1980s and 1990s, the local carriers were forced to reduce carrier
access charges paid by the long distance carriers (included in their
cost to provide long distance services), with corresponding increases
in local flat rates paid by consumers via the creation of a Federal
subscriber line charge. Local rate averaging between the urban and
rural areas of such carriers was still alive and well in the halls of
the state regulatory agencies. However, smaller rural carriers
typically did not and do not have any urban service areas with which to
rate average, resulting in the need for financial support from external
sources, such as carrier access charges and the USF, in order to ensure
reasonably comparable rates and services to their rural consumers.
When local telephone service competition was mandated by Congress
in 1996, perhaps one of the greatest flaws in hindsight in the
implementation of this policy was the lack of recognition that
competition would erode the implicit support for the rural, high cost
service areas. As competition from CLECs, cable TV companies and
wireless services has thrived in the urban markets, reducing retail
rates and benefiting urban consumers, the implicit support provided to
the rural markets has been significantly reduced as a direct result of
such competition. Prudent business practice dictates that unprofitable
services are not sustainable propositions, and without adequate
implicit or explicit support in such high cost areas, the deployment of
network upgrades and new technologies, such as those that would provide
a network foundation for broadband access, have fallen behind that of
the urban areas. This, and the fact that Internet access has not been
explicitly included as a supported service, is the primary cause of the
present availability gap.
The USF and the pooling of carrier access charges restored a
portion of this support using a similar ratemaking vehicle, i.e., a
nationally-averaged USF assessment fee, as well as nationally-averaged
carrier access rates. However, the high cost areas in these rural
support programs were grandfathered by the FCC, preventing many rural
and high cost areas in the country from being disaggregated and
identified, and thereby were systematically excluded from eligibility.
Then, as now, there were strong interests opposed to any increase in
access charges or in USF support.
While urban consumers have seen their service options and value
propositions improved by the natural forces of free enterprise, rural
consumers face declining service options and increasing rates absent a
specific, predictable and sufficient vehicle for restoring universal
service support.
Universal broadband service policy must begin with realistic
assumptions about the extent and location of needs and economically
efficient responses.
Today, the FCC, Congress and the drafters of the NBP face this
difficult conundrum: How to restore rate and service support to certain
rural segments of society in the face of pecuniary and political
pressures to limit, if not eliminate, rural support for
telecommunications as currently embodied in carrier access rates and
the USF.
In our view, the NBP may not be realistic in some of its
conclusions, with its drafters understandably looking for a ``silver
bullet'' amid the interrelated and inaccurate assumptions apparent in
the NBP:
an access speed for a ``basic set of applications'' (i.e., 4
mbs) represents a realistic long-term goal for rural
constituents;
an upgrade to the mobile wireless networks will be the
savior, providing an adequate, less costly and ubiquitous long-
term broadband access solution;
support is either required only for a one-time investment to
chum the system, and/or can be limited to a hypothetical model
inherently designed to limit support; and,
competition for funding in the form of reverse auctions
administered by the Federal Government will rid the system of
waste.
Using these questionable assumptions as cornerstones of its
solution to the present availability gap, the NBP appears to be heading
rural broadband support down a path to a system that may be 100 yards
wide, but only \1/2\-inch deep. While such a course may appear to be
the best compromise in the face of very real economic and political
challenges, we submit that the net effect of such an outcome will
likely be a severe disruption in support and services to rural
consumers that today have access to broadband services, without an
effective and functional expansion to those rural consumers who
presently lack broadband access. We're about to make a lot of rural
constituents really angry.
Costs and Models: ``Rate of Return'' or ``Price Caps'' May No Longer Be
Sufficient Options
Costs are what they are, and are not affected by hypothetical
models or by types of regulatory control.
Telecommunications access service, such as wireline or wireless
telephone service, high speed Internet access service, or cable TV
access, is a very capital-intensive business, requiring investors and
lenders to be willing to make long-term investments. Capital
expenditures and other costs-per-customer are much higher in rural
areas than they are in urban areas. In order to attract capital to such
ventures, there must be sufficient confidence in the future growth and
stability of services and revenues. Uncertainty will place a chill on
the investment in service extensions and technology upgrades. Continued
attrition in end user, access and USF revenues will end further rural
infrastructure investment in high-cost and hard-to-serve areas.
It must be recognized, too, that the provision of
telecommunications services is fluid, and requires constant additions
and rearrangements of plant to respond to new customer additions and
movements, and in response to increasing demands of the customer base,
such as the increasing penetration and usage of broadband access to the
Internet. As with any other business, equipment wears out and needs to
be replaced, be it a server, router, central office switch, or service
truck. The cost of labor increases as employees demand and need wage
increases to keep up with the pace of inflation. The price of major
inputs increase as well, including the cost of wholesale access to the
Internet from the large Tier I Internet transport carriers.
The idea that a long-term policy of comparable broadband rates and
services can be sustained through a single injection of capital (such
as a grant) and/or through the offering of a fixed support level
(capped USF) is not economically responsible. For an established
enterprise, a grant under certain conditions can throw a marginal,
high-risk project into a more feasible position. For an operation that
is relatively stable, with little growth and without increasing cost of
inputs, a fixed support level may be sufficient for an extended period.
However, these are more the exceptions than the rule, given that we are
in a period of extensive technological and market change, and in the
middle of a national need to invest and build-out the broadband
infrastructure. If we truly want the benefits of broadband access to
extend to the rural consumers of this country, it will take a
substantial and sustained financial commitment. Such investment will
deliver extraordinary returns for decades to come.
Even so, we are sensitive to the need to make sure the USF and any
new system of rural support is highly targeted to the availability gap,
and results in an increase in the efficiency of the system. For the
system to work, though, it must provide sufficient and predictable
support to create and maintain service comparability, and be
predictable and specific enough to attract and sustain investment. This
issue is not about forms of regulation, such as ``rate of return'' or
``price cap,'' but instead about matching a reasonable and relevant
measure of cost to the territory and service need. The cost of network
access per customer varies considerably with customer density, terrain,
geographic isolation, and service levels expected by consumers.
Therefore the support required and received must also vary considerably
in direct proportion to these cost variables in order to provide the
amount needed to attract and sustain the capital for network build-outs
and upgrades, support the on-going cost of operation and maintenance,
and recognize that these are impacted over time by the increasing needs
and demands of consumers.
We are not here to advocate that the FCC make no changes to the
current cost allocation system determining eligible levels of USF
support and intercarrier access rates. The present system is replete
with regulatory tweaks from the past, making it unsustainable in the
long term. However, the NBP avers that support be based on a new and
different set of principles, essentially scuttling the principles of
current law in Section 254 of the Act and implemented in the current
USF cost allocation and recovery process. As rural operators supplying
broadband services to a base of rural consumers, it is hard for us to
envision a workable system of rural support that does not provide some
means for adjusting that support in direct response to variations in
actual costs and consumer demands among locations and over time.
Big, National Wireless Model Is No Panacea
Merely upgrading and extending a mobile 4G wireless network will
not get the job done.
In the quest to find the most cost effective path toward ubiquitous
broadband, the NBP first sets a lower standard of 4 mbs as the long-
term goal. In order for the mobile wireless infrastructure to be a
potentially viable option for a total broadband solution in any service
area, a lower service standard must be set because of inherent
limitations of wireless. With limited radio spectrum, the total
throughput of a single tower/transmitter is also limited, particularly
as the number of subscribers sharing the resources of a single radio
transmitter continues to increase. Even at 4 mbs, we question the
assumption that such networks can sustain the load of a fixed and
mobile subscriber base where Internet usage is increasing at geometric
rates. The engineering response is to place more towers and
transmitters and/or increase the amount of radio spectrum. Both of
these are quite costly, and in some cases are not available options.
New tower construction also requires the build-out of fiber optic cable
to connect the tower location and transmitter to the wireless carrier's
network and core routing centers. As the NBP acknowledges, there is a
lack of spectrum and an explicit goal in the NBP to allocate more radio
spectrum. Meanwhile, such spectrum resources remain both limited and
consolidated in the control of a shrinking number of mobile carriers as
the industry continues to consolidate.
As operators of rural broadband systems, we know first-hand that
there are areas of this country where the cost to extend cables to
remote and sparsely populated areas are prohibitive. In many such
locations, the application of radio technologies, be they fixed or
mobile, will be the most cost-effective solution. Being the most cost-
effective, however, does not translate into cheap, as such will require
the construction of towers, transmitters, fiber or microwave transport
facilities, as well as the acquisition and use of radio spectrum (if
one is not using the public spectrum) and the provision of whatever
consumer electronics are being used by the customer, e.g., a fixed
receiver and wiring, smart phone, etc.
It is ironic that I, too, am a consumer that lives in an area
without access to broadband. We have a house in a rural area in
northwest Arkansas, specifically on Wolfe Ridge, about four miles west
of Eureka Springs. This house is only about a mile or so from Highway
62, a major artery across northern Arkansas. High speed Internet is not
available to the residents in this area and is not in an area our
company serves. The terrain is very rugged and mountainous and cabling
the area with fiber or a fiber-deep design would be expensive. We rely
upon our 3G wireless service for access to e-mail, web, work
applications, etc. Such service is only barely functional, and is not
sufficient for a household that downloads movies on demand, video
conferences with the grandkids, and passes large files to and from the
corporate file server. We are the lucky ones. Some of our neighbors on
the other side of the ridge cannot receive a reliable cell phone
signal.
When I contemplate the future of broadband service to this
location, the future upgrades of my mobile wireless service from 3G to
4G do not come to mind. I expect only a marginal improvement, with such
additions to wireless capacity being quickly consumed by the mobile
public's voracious appetite for mobile data applications, now
proliferating on the newer touch screen phones like the Apple iPhone or
the Motorola Droid. The lack of bandwidth on the mobile networks is
today's news. It is much more likely that a fixed wireless solution,
one that uses a radio frequency that is more forgiving in mountainous
and wooded terrain, will be the most viable option in my particular
case. That is, if I believe I need an access speed reasonably
comparable to what I can get on the wired network in town.
I also ask myself the question of how this aspect of the NBP would
help my personal situation as a rural resident and broadband consumer.
Frankly, I do not have much confidence that a national, mega-carrier
will have any interest in deploying a node or transmitter for a few
dozen residents, which is typical of the pockets of unserved or
underserved rural areas today. I also believe it would be a huge
barrier to entry for a small start-up company or cooperative focused on
this area to incur the legal costs and challenges that would be
required to participate in a federally-administered auction. In this
context, the NBP appears to leave us pretty much on our own.
My intention here is not to merely whine to the Committee about my
personal situation as a consumer, but to point out that this set of
circumstances is quite typical of the rural availability gap referred
to in the NBP.
The conclusion that we offer in this context is that a national
policy to promote and support broadband in such geographic pockets
across the Nation must embrace a more realistic set of assumptions
regarding the role of wireless technologies and carriers:
1. Mere expansion of the mobile wireless network into rural
areas will not fill the availability gap.
2. The mega-carriers do not have the organizational focus and
alignment to respond to geographically-dispersed pockets or
gaps in broadband service coverage and support.
3. National policy should be agnostic about the distribution
technologies used in the last mile; however, we cannot afford
to be agnostic about the outcome, which will require targeting
of support in a way that can adapt to unique local conditions
and needs.
Broadband Is a Wired World
All broadband distribution technologies, including wireless, rely
upon a deep deployment of fiber optic cable.
There is another point that needs mentioning in the context of what
will be the most economic approach to expanding and sustaining
broadband access. The ``last-mile'' technologies, e.g., cable modem
over coaxial cable, digital subscriber line (DSL) over copper cable,
fixed and mobile wireless, and, of course, fiber-to-the-premise, all
rely upon fiber optic cables to connect and consolidate the
distribution nodes or towers. A limited exception to this is point-to-
point microwave to perform this function in the most remote tower or
node locations, but microwave has some inherent limitations that
prevent it from being the best long-term choice for intermediate
transport. If it did not, we would not have been replacing it world-
wide with fiber optic cables for the past thirty years. The wireless
carriers depend upon the embedded wireline network for such
connections. The existing networks represent a sizable investment, and
it would be imprudent to implement policies that would cause
degradation or an abandonment of this resource.
What is truly most cost effective depends on the current state of
the local distribution network(s), and in many cases the most cost-
effective option will be to build upon these existing infrastructures.
This is especially true in the territories of supported carriers that
provide an extensive rural coverage for broadband services today under
the present rural support system. At the national policy level, we
should take care not to oversimplify this issue as a choice between
wireless and wireline. It is like creating a choice between having a
bathtub and having the plumbing to connect it to the water supply. If
you want to take a bath, you need both. Even as wireless technologies
evolve and offer the promise of greater coverage in unserved areas,
there must yet be a wired, fiber optic network that extends deep into
these rural terrains to connect to such radio transmitters and
accomplish the task of ubiquitous broadband access, i.e., to re-
establish and extend universal telecommunications service.
In Rural America, Small May Be More Effective and Efficient
Smaller rural carriers are specialists in rural service delivery.
I have heard it expressed by some that the Nation does not need the
small carriers and that it would be more efficient to provide support
to the large carriers who presumably have greater economies of scale
and can do the job better and cheaper. To the extent that there are
elements of this sentiment among those herein engaged in the policy
debate over rural telecommunications support, I believe it important to
point out some of the theoretical assumptions underlying such a notion,
and how these may not match with economic reality.
First, if a geographic area is inherently a high cost area to
serve, it is so because of the factors that are repeated in this
testimony, i.e., households and rural businesses that are scattered
across the landscape, sometimes in mountainous terrain that is
difficult to cover with wire or radio and isolated from major traffic
routing and switching centers resulting in a high cost to build and
maintain long-distance fiber cables to connect to the outside world. If
being large and having economies of scale was all there was to it, then
the broadband availability gap would not be most predominant within the
traditional franchise territories of the largest local exchange and
wireless carriers. The economic issue most affecting rural service is
not business entity scale, but the fundamental characteristics of
customer density, service terrain and service level.
Another point that is often overlooked begins with the fact that
any successful business venture, or any collective venture among humans
in general, requires sufficient focus and a sustained commitment. The
larger carriers are engaged in a competitive battle for market share in
the urban, suburban and exurban communities. This is good for consumers
in these areas, but also consumes these carriers' focus, as well as
investment capital. Such national and multi-state carriers are not as
focused on rural services and rural markets, nor should they be.
Business prudence and fidelity dictates that they commit their energy
upon those areas with the most economic potential. It is and would be
difficult for the mega-carriers to align their organizations to the
unique requirements of discrete rural locales. A one-size-fits-all
approach will not be the most economic response, nor will it even be
capable of attacking the problem on the ground where it lays. This will
require the attention of a rural specialist.
The smaller local and regional carriers are inherently more focused
on the unique needs and circumstances of the rural markets they serve.
This is a natural part of living, working and drinking coffee among the
people that pay the bills; of being a customer of the product you
provide; of being engaged and aligned with the health and vitality of
the local economy, all resulting in a level of market and civic
accountability that large corporate CEOs cannot feel from the captain's
chair of a high-rise board room in the heart of one of our Nation's
urban centers of commerce. This is not to imply that the captains of
the telecommunications industry are not accountable or responsible, but
to simply point out that as it relates to rural services and support,
it just is not their primary job.
The small, rural carriers are specialists in the provision of rural
broadband services, have the experience to do this most effectively and
continue to learn through such experience what works and what does not
work, and how to align an organization to serve a geographically-
dispersed population. Our advice to the FCC and Congress as they
wrestle with the very important issue of closing the rural broadband
availability gap is to tap into this well of experience, and leverage
these organizations' commitment and focus on rural infrastructure
development.
To this end, we respectfully and urgently ask Congress and the FCC
to pay particular attention to the unique risks faced by smaller
carriers as they work to extend and preserve broadband services to
rural constituents.
Stuck in the Middle Mile: the Need for Non-Discriminatory Access
In many rural locations across the country, a single large or
regional carrier may own and control the only long distance fiber optic
cable facility into a rural town or geographic region served by a small
telephone, cable TV and/or wireless provider. In this circumstance,
which is fairly common in rural regions, such small carriers are
totally dependent on this single, much larger carrier (who may also be
a competitor) for access to the outside world, including wholesale
access to the Internet. As more consumers in the area subscribe to
broadband services, and as each of these consumers increase their usage
and demand for faster connections, the local rural service provider
must continuously monitor and increase the capacity of their wholesale
link to the Internet. The wholesale rates for such links are often much
higher than the same level of Internet transport capacity in a more
competitive or more urban community. In direct contrast to this, long
distance companies pay the local rural carrier for access to the local
network. With Internet access, the situation is reversed.
The unit cost, i.e., per customer cost, for regional or ``middle
mile'' transport into rural areas is higher because of the lower
traffic densities and longer distances involved. When such transport is
controlled by a single carrier at arms' length to the communities that
are dependent upon this service, there is also the potential for
predatory pricing. For these reasons, we believe there is a strident
need for rules against discrimination, and to recognize these costs as
a significant and indispensible component of providing rural broadband
services.
Who should get rural support and who is the Carrier of Last Resort?
Of all the issues surrounding the USF reform provisions of the NBP,
the determination of which carrier or entity should get support is one
of the most problematic, and is interrelated with the question of who,
if anyone, will retain a regulatory obligation to serve all comers. In
other words, how will the plan insure a broadband (telecommunications)
connection will be provided under reasonable terms and conditions for
all premises within a designated geographic area, i.e., who will be the
carrier of last resort (``COLR'')?
The obligation to serve all households and businesses is a legacy
requirement of the local telephone companies, whose original telephone
service franchises required compliance with state commission rules for
service availability and nondiscrimination. The local telephone
company's rates were regulated by the commission, and in return the
regulated carrier enjoyed exclusive rights to serve a designated
geographic area. Although the franchise right of service exclusivity is
now essentially gone, the legacy requirement to serve all consumers in
the franchise area is alive and well, if not in the present rules and
authority of a state utility commission, then in the culture of most
rural telephone companies.
A rural cable TV company may have a similar obligation within the
franchise agreement with a town city council or county government, but
this can vary considerably in word and in practice. Retail rates and
services of cable TV companies have not received the same level of
regulation as those of telephone companies, but are subject to notice
and review requirements. Since rural cable companies have received no
rural support, they must limit their cable footprints to those areas
that have enough subscriber density to make a build-out or cable
extension profitable. Now that direct broadcast video providers, such
as DirecTV and EchoStar (d/b/a Dish Network), have taken a substantial
share of the rural video market, rural cable carriers are attempting to
remain viable with the addition of high speed Internet access and
telephone services. The challenges here are significant, especially in
the face of persistently-rising wholesale video rates, rising pole
attachment rates and limited options for wholesale connections to the
Internet.
A regulatory obligation to be the carrier of last resort only
exists, to the extent it exists at all, for those business entities
that are or were more strictly regulated, namely the local telephone
companies. The other telecommunications service providers, like
satellite, wireless, wireline CLEC, or Internet-based voice providers,
do not have a regulatory obligation to serve everyone in their service
area, and are free to pick and choose the best customers. This is okay,
because the benefits of competition have outweighed the loss of a
closed system of monopoly regulation.
However, such competition has diverted revenues, profits and USF
collections, thus fragmenting and diluting the economic ability of
rural carriers, large or small, from fulfilling a continued rural COLR
obligation, especially where rural support is eroding or non-existent.
If there is to be a COLR obligation in high cost areas, where such an
obligation is arguably most needed, it is imperative that financial
support for these areas is truly ``specific, predictable and
sufficient.'' To do less will result in business failures, and
disruption of vital services to rural communities and constituents.
Consumers wince at the sound of a Federal auctioneer's gavel.
Whether there is or is not a COLR obligation that survives this
transition, there is still the issue of how to fairly and consistently
determine the most competent and efficient service provider for a given
rural service area and of how to ensure that supported broadband
services meet rural consumers' needs while being affordable, both from
the standpoint of the rural consumer and of the consumers nationwide
that are paying a percent of their telecom bill into a rural support
fund. The NBP proposes that only one service provider be eligible in
any given high cost area. The FCC also suggests that an auction process
should control eligibility, wherein the support funding would be
awarded to the lowest bidder.
We agree with the NBP that a single, eligible provider in a given
service area is the most economically efficient framework for
supporting the expansion and preservation of rural broadband access.
However, the idea of government-administered auctions to allocate USF
support gives us serious pause for concern.
Frankly, I find myself on several sides of this issue. As leader of
a company that operates a regulated telephone company that serves an
extremely rural and high cost area, I am gravely concerned about the
impact that a speculative bid process could have on the services
provided to our customers, and how these services could be disrupted.
In addition, as a leader of a company that operates rural cable TV
systems in direct competition with rural telephone companies, and one
who has invested in broadband network upgrades and offering broadband
services to a number of small, rural towns and hamlets, I think it
would be reasonable for the government to provide an economic
opportunity to extend this network into the adjacent areas without
broadband access. As a broadband consumer, who has a house where
broadband is not available, I do not care who is picked, as long as
someone with mettle, who will focus on my situation, is granted the
means to make it happen.
There is no easy way to remake the rural landscape and the system
of support to reflect the most economically efficient and economically
relevant allocation of resources. What makes it difficult is the sheer
size and diversity of the problem. There is no way to do this
effectively from the Beltway without creating substantial and
unintended harm, such as forcing the rural telecommunications
infrastructure into a free-for-all grab for government subsidy, fueling
speculative ventures and political diversions, and subjecting rural
consumers to either disruption and loss of the broadband services
provided today, or to create expectations left undelivered for lack of
integrity in a process untailored to the local needs and circumstances.
It is almost impossible to see the trees within the national forest
from a desk in Washington, D.C. Without a view on the ground, Federal
Government administrators must resort to clear-cutting the landscape,
in lieu of more sustainable harvesting practices that require a tree-
by-tree assessment of maturity and suitability. We think the FCC would
be prudent to share this burden with state authorities, who have a
closer view of the landscape, and who are more likely to feel the sting
of errors or omissions.
Above all, Congress and the FCC should resolve to do no harm to
existing broadband consumers, and move forward in an incremental and
orderly and judicious fashion. Auctions are messy and unpredictable,
and usually are the last resort when the normal channels for buyers and
sellers have not worked, or when there is not enough time for the
market to find its level and one is desperate to bring closure, as in
foreclosure, to a transaction. On its face, an auction process appears
fraught with economic and political risks.
The current system of support establishes zones of economic
reasonableness, using actual rural area costs and comparisons to
national benchmarks to determine if the amount of support is
appropriate. In contrast, there is no guarantee that the outcome of an
auction process would be economically reasonable or sustainable. In an
auction there is always the potential that a speculative and
irresponsible bidder would gain eligibility, and then not able to
perform because of errors in projections or because of a speculative
agenda to consolidate and ``flip'' the funding rights.
In fact, the FCC is considering allowing a bidder to self-define
the area on which it is bidding without limitation. Such a process
could also have unintended and adverse consequences for rural
constituents. This is because a local distribution network is designed
and sized as an interconnected system to service and support a given
area. It is not a warehouse of vending machines that can be set up or
moved at will. The system is more akin to an organism, with a brain
(switching center), limbs (transport facilities) and toes and fingers
(distribution facilities). An auction for a portion of an existing
network, without regard to the existing design and network contexts,
could lop off a vital portion of this organism, the remainder of which
may not be complete enough to survive without some serious life
support. While the portion of the area reallocated may appear to be
less costly to support a reverse auction, the cost to support the
remaining consumers could be much higher, resulting in an overall
increase in support required. While it is reasonable to create a
process by which carriers can self-define areas where there is a bona
fide interest to extend broadband service, we do not think it is
reasonable to subject this to the whims of an auction. Any allocation
or re-allocation of support should include a careful review of the
specific circumstances and the overall impact on rural consumers in the
areas affected.
In those locations where the current system of support is working,
and consumers' needs are being reasonably met, prudence would provide
deference to the status quo in order to prevent unwarranted consumer
disruption and confusion. In short, while aspects of the USF and
intercarrier arrangements need to be updated to reflect the evolving
needs of rural consumers, and to do a better job of targeting the
funds, we should work just as hard to preserve the positive elements
and outcomes embodied in the present support system. Moreover, there
are more orderly and predictable ways, other than auctions, to
determine if a dislocation exists among services, rates and rural
support.
Admittedly, there is no easy or quick solution to the question of
who will get the call where there are pecuniary interests competing for
eligibility in the unserved and underserved areas. That is the point.
Auctions are typically applied to drive a quick resolution when there
is not time for the market to work. They are not the proper vehicle for
managing the build-out of the Nation's telecommunications
infrastructure. If we want this process to be both efficient and
targeted to the rural need, while balancing the overall needs of
society, then we would do well to bring a scalpel wielded by a local
surgeon, instead of forcing everyone to get in line with a hatchet and
wait for the Federal auctioneer's gavel.
Final call to action.
The smaller, rural carriers have long been a vital part of the
telecommunications ecosystem, setting up shop and serving areas that
the larger carriers of the day chose to pass by. History repeats
itself. If there is to be a robust and effective long-term system for
supporting a rural broadband expansion, we believe rural consumers will
benefit if the smaller telephone, cable TV and wireless carriers are
recognized as important and vital participants. This will require
recognition of the need for focus and commitment at the local level, as
well as the need to protect small business from being quashed amid the
battles and maneuvers of the telecommunications titans. Rural broadband
is a role best suited to rural specialists.
Finally, Congress and the FCC must wrestle with the balancing of
interests among rural and urban constituents, as well as between the
customers of the mega carriers and the smaller, localized or regional
carriers. The current system reflects decades of compromises and such
balancing of competing interests, and it would be prudent to build upon
this foundation, in lieu of tearing it completely down and starting
from scratch, as proposed by certain elements of the National Broadband
Plan.
Senator Begich. Thank you very much.
Senator Pryor, I'm going to turn to you and let you have
any questions. I'm going to step out for 2 minutes. You're not
allowed to take more than that.
[Laughter.]
Senator Begich. I'm just kidding you.
Senator Pryor. Yes. But, I will be right back in.
Senator Pryor. Sure. That's great. Thank you, Mr. Chairman.
Thank you very much.
If I may, let me go ahead and start with you, Mr. Waits,
and follow up a little bit on something you said just a moment
ago. You said the Universal Service Fund is not a one-size-
fits-all. You also said that some aspects of the fund are
working. So, based on your experience in serving rural areas,
which is pretty much what you do, what are your recommendations
on the best way to target reform for the USF?
Mr. Waits. The very first thing I think we must do is
identify where it is working--and we have broadband access that
is successfully being supported by the fund--and not make
changes that could undermine those gains. But, we have to also
be wary of assumptions--oversimplifying assumptions that assert
that we can solve the problem, nationwide, merely by extending
existing mobile network--mobile wireless network, through its
upgrade to 4G.
A more efficient response--a more economically efficient
response would be to make sure that we're leveraging the assets
that are there, whether they are assets of Ritter
Communications or Windstream, or anyone else, or any wireless
carrier. The targeting really needs to be on the ground, where
the problem is. We're skeptical that a nationally-administered
reverse auction, for example, will do that effectively and
efficiently.
Senator Pryor. OK.
Mr. Gardner, let me ask you--I'm sorry, I had to step out
for your opening statement--but, you did make a point that
Windstream is an industry leader in take-rate by consumers. And
apparently, like in our State of Arkansas--- the group called
Connect Arkansas, they estimate that 51 percent of Arkansas
households are not subscribed to the Internet, and 29 percent
of the population in our State has never used the Internet.
Given your perspective and the fact that you are an
industry leader in take-rate, what's the best approach to boost
the number of people who are starting to utilize broadband?
Mr. Gardner. Well, obviously, availability is key, Senator.
And, as I said in my testimony, we serve 90 percent, today. So,
as our cost structure has improved, we've been able to get out
to new customers. And then it's the whole issue of
affordability, to make sure that, in these rural markets, you
can get broadband for roughly the same price you can get in the
more urban markets.
And that's really been our key to this success, is very
aggressive marketing, bundling voice service with broadband at
a very reasonable price for our customers. We've offered a
price-for-life promotion, for the last 6 months, where
customers can pay the same price for the life of their contract
with Windstream. And that has been very attractive.
So, I think it's about affordability and availability. In
our network today, 67 percent of our customers can get 6
megabits and above. Virtually everybody can get 3 meg. So,
that's important, as well.
Senator Pryor. OK. And would the other three witnesses like
to comment on how to increase the take-rate?
Mr. Wilson. Well, I agree, availability is definitely part
of the key factor. In our telephone cooperative today, we can
offer a DSL-broadband service to approximately 90 percent of
our customers. We have about 5500 DSL customers. We're adding
about 100 a month. We continue to increase our bandwidth
capacities and our rights, and we have also worked
aggressively--of course, we concur on the NECA tariff, trying
to lower these prices--but, yes, there is an affordability
issue with that, as well. But, I think availability is one of
the key factors to it.
Mr. Gockley. At the risk of being glib, I believe ``If you
build it, they will come.'' I can recall the day that I first
accessed the Internet, not knowing what to quite make of it.
I'm certainly not the most technically astute subscriber or
user. But, if a day goes by that I don't use it 15 times a day
to check my e-mails, to check the news, or to conduct commerce,
I think that I've cheated myself.
One of the things that we've learned, with the explosion of
data in the wireless world, is, we probably underestimated its
impact. And we see what has happened with 3G technology now. We
can only expect that that will exponentially grow as we roll
out faster networks, with the promise of long-term evolution
networks, which is the 4G--networks that you'll be seeing
shortly.
Senator Pryor. OK.
Mr. McSlarrow. Senator, the only thing I would add is, I
think Senator Rockefeller has introduced a bill, which I
believe you're a cosponsor of, which also points to another
part of the take-rate problem, which is, in addition to
deployment, there's a broadband adoption issue, and sets forth
an idea of a pilot project within the Low-Income Fund to try to
marry together the different challenges of availability,
pricing, whether or not you have a computer in the home,
digital literacy, which is a concept that we very much support.
So, focusing USF, in part, on broadband adoption is a key part
of success.
Senator Pryor. Great.
Mr. Waits. I have--this is a slightly different
perspective.
We're also in a rural cable TV business, and we really
don't have a problem with the penetration television service
among households across this country. And as watching TV
becomes much more prevalent, an accepted practice, over the
Internet, I think the issue is going to be more about, How do
we manage the bandwidth over these networks? And that's about
adoption rates.
Senator Pryor. OK.
Mr. Chairman, if I could ask just one more question to the
panel.
And that is, you all sat through the earlier panel's
testimony, and you heard a little bit of disagreement among the
FCC Commissioners, but you also heard a little disagreement
among the Senators about how much authority the Federal
Communications Commission has to reform the USF and to get us
into the Broadband Age, like we need to be. And some members
were saying that they thought that Congress should really lay
out the parameters, and give more authority, and be more
specific on things; and others took the position, ``No, the FCC
has that authority and can manage this,'' et cetera. Since you
all sat in here and listened to that, I'd like to get you all's
opinion on whether you think the FCC has the authority to do
what it needs to do in this area, with regard to broadband and
USF reform, or if you think that that issue should come back
before the Congress, for Congress to decide.
Mr. Gardner. At Windstream, regarding Title II, we'd be in
the camp that it should go back to Congress. We really don't
believe it's necessary today. I think, when you step back and
look at the incredible rate at which private investment has
built out broadband in this country, it's quite impressive. I
know we're all focused on that last 10 percent. But, getting to
the 90 percent, where the economics were justifiable, happened
very quickly. And usage is increasing at incredible rates.
We're able to pick that up.
What I worry about, the whole Title I/Title II issue,
Senator, is this--We've got a lot of work ahead of us with this
broadband plan. It's very ambitious. I think it gets to the
real issue, How do we get to this last 10 percent? To the
extent we spend months, and maybe years, working through Title
I and Title II, I think it takes our eye off the ball. The
world's not going to wait for us. So, I'd rather see us move
forward quickly.
And if something is done regarding Title II, I think the
most important thing that's come across in this panel is that
it be neutral across technologies, because wireless and
wireline are both going to be important as we think about
providing broadband more deeply into the rural markets.
Senator Pryor. Anybody else want to comment on that?
Mr. Wilson. From our rural company's perspectives, we
believe the FCC has the authority to do so. For example,
expanding the contribution base, where anyone that uses the
network for broadband--anyone that benefits or uses--should be
contributing to USF. We believe they have authority to expand
that. So, yes, we think the law is pretty well adequate, in
most cases, to do what needs to be done.
Senator Pryor. Thank you.
Mr. Gockley. I think that Congress, in 1996, gave the
Commission the authority, under section 254, to make broadband
a supported service. I think that's a fairly common sense
interpretation of the section, when you look at it
holistically. One of the bedrock principles that the Congress
laid out for the FCC was that Universal Service be used to
support advanced telecommunications and information services. I
recognize that there is some tension between that and a
subsection of 254 that refers to telecommunications--or,
Universal Service being an evolving set of telecommunications
services.
But, that same section instructed the FCC that they could
change ``the services'' that could be supported--and they used
the word ``services,'' they didn't use ``telecommunications
services,'' they used the word ``services.'' And that's exactly
the same analysis that the FCC did, 13 years ago, when it
concluded that it had the authority to use the Schools and
Libraries Program to support broadband deployment. I think that
that was right, then, and I think that that's right today.
Mr. McSlarrow. Similarly, 254(a) and 254(b)(2) and (3) talk
explicitly, in terms of advanced telecommunications and
information services, as universal service principles. The
combination of that, as was just mentioned--the fact that we
have over 10 years of precedent of having extended information
service--support to information service providers--that was
upheld in the Fifth Circuit over 10 years ago. So, it suggests
to me that there is a strong case that the FCC could do this.
That said, if the FCC itself concludes that it--that that
authority is ambiguous, and they don't want to go down that
path, it would, from my perspective, be far more preferable
that Congress step in and clarify that, rather than going down
the Title II path.
Mr. Waits. It is an important issue, as far as sorting out,
you know, the balance of powers. But, as a manager of a rural
broadband company, I just hope it gets sorted out soon so that
we can get on with our business. It's creating a lot of
uncertainty in our business. And that's really our most
competent response to that question.
Senator Pryor. Good. OK.
Mr. Chairman, thank you. You've let me go 6 minutes over my
time and I appreciate that. Thank you very much.
Senator Begich. Thank you, Senator Pryor.
I'm going to actually pick up on that. And I'm afraid to
ask this question, so I might just say it, and not really ask
you to respond.
[Laughter.]
Senator Begich. I think the answer is in the question, and,
because it sounds like a lot of you want certainty, to
understand the rules of the game and how you move forward. But,
the phrase ``to move quickly'' does not really connect with the
U.S. Senate.
The telecommunications business moves so rapidly. I'm more
afraid of waiting for Congress to act, that you will be light
years ahead of us. I'm struggling through this, listening to
this panel and the last panel. I don't think anyone disagrees
that the Universal Fund should be reformed. It should be fair,
it should be as neutral as possible on how to deliver the
system. But, there are some underserved areas that need to have
clear understanding of how they deliver to it. I don't see
anyone really disagreeing with a lot of that.
So, I'm going to jump to a different question. I was going
to ask you about the Senate's capacity, but Senator Pryor and I
will have to debate that with our colleagues at a later time.
This has always my struggle with committee meetings like this;
we have a panel before you, they leave, then you're here, then
you leave, and then we get kind of left with all the info. My
preference would have been: have you here, have them here, have
you talk, us listen. A very difficult thing for the U.S. Senate
to do, but that would be my hope. So, do you think you--and
each one of you can answer this--do you think you have fair
access to sitting with the FCC informally, of actually a
working environment that exchanges ideas? Many of you had very
good points. And, you know, here are your three points, seven
points, whatever they were. Do you feel there is that kind of
relationship, a capacity to sit down and work through this,
recognizing the issue of I and II is a broader thing? If we
spend all our time on that, we'll never get anywhere. Do you
think you have that kind of free flow of discussion, from your
own respective industries and folks that you represent?
We'll start from Mr. Waits and kind of go down.
To me, without that, I'm not sure that's a good thing.
But, go ahead.
Mr. Waits. It's a difficult set of issues, and one where
there's going to be a lot of disagreement. I think the FCC has
done a very commendable job of bringing in a lot of inputs and
coming up with some very sound policy recommendations. And our
concerns are with specific elements of that, which would be
inevitable. And so, there may need to be some sort of arbiter,
so to speak, outside the system, to allow those diverging views
to coalesce. I think, on the whole, they've done a fair job of
getting input. There are just some fundamental areas of
disagreement, in terms of what we keep and how we proceed.
Senator Begich. Very good.
Mr. McSlarrow. I suspect some behind you and behind me will
know what I'm referring to. I've not always been a fan of the
FCC processes. But, I have to say, Chairman Genachowski has set
a tone for openness and transparency, and a willingness to
listen. I think all four of his colleagues do the same, and the
bureau chiefs do the same. So, I think everybody has a chance
to make their case and articulate pretty complex issues. You
know, you may win some, you may lose some, but I think that's
all you can ask.
Mr. Gockley. I completely agree with Mr. McSlarrow. I think
that there's never always going to be a meeting of the minds,
and we're not always going to agree. All we can ask for is an
open forum to be heard. And I think that the FCC has fostered
and created that environment, especially under the new
administration.
Mr. Wilson. Being from Texas, I only get to come to
Washington two or three times a year. But, I was here last
November, at the--ex parte meetings, and, in March, some more
ex parte meetings, and I was actually up here last week. And
I'll say that we had numerous meetings with the FCC, where we
were not able to get any of our questions answered, but we were
able to relay our concerns to them. And I will add, in the last
day or 2 I have had more conversation with them, what seemed
like a willingness to open up to better understand where we're
coming from on our concerns involving our rural operations and
stuff. So, you know, they give us an ear now.
Senator Begich. Good.
Mr. Gardner. Sure. Mr. Chairman, I think the FCC did a very
good job of reaching out to the industry. And, with Windstream,
we had a lot of dialogue. These are hugely important issues.
We've got a team of people here focused, in Washington, on
these issues. So, we work very hard to put forth our view. We
also had access, I think, through our industry association, the
United States Telecom Association. So, I think we did feel the
FCC did a good job.
It's very complex. You're never--everybody's not going to
be satisfied with the answer, but I think--as we said in our
testimony, we think we have a framework here to move forward.
And you said it best, I think. The key is that we move forward
quickly.
Senator Begich. Let me ask, and just close with this
question. We, as an elected body, want to jump into situations,
for a variety of reasons--political, constituencies, whatever.
As you've each described your experience, now, with FCC, it's
not always that you agree on the elements. Is the time right,
now, or is the time later on, as you continue to work with the
FCC? When do you think the right time is for Congress to fully
intervene with those areas that may, I'll use your words, Mr.
Waits, need an arbitrator? And this may be a hard one to
answer. If you can't answer it, that's fair. Sometimes we like
to jump, because today there's a headline, tomorrow there's
not. I hate to be so crass about it, but I think a lot of times
we jump, sometimes too soon, when the process is still melding.
So, who wants to start with that?
Mr. Wilson. I will.
Senator Begich. OK.
Mr. Wilson. I would say, this year with the latest notice
of inquiry out on USF. And, as proposed in the National
Broadband Plan, where the FCC would come in and freeze our
local switching support and our interstate commonline support,
which, at this point, would move us away from rate-return
regulation, which is a form of regulation that truly works in
rural America, to price-cap regulation. I would say that we may
well need help from you this year, if we're not able to alter
that process, because that's going to have very detrimental
effects upon our industry. And, actually, it's already
beginning to cast a huge shadow of uncertainty with our lenders
and our ability to make loan payments and continue our
operation.
So, this time-frame they've got, that starts later this
year and next year, for us, is--we're watching it very closely,
because we're really concerned about it. So, we may need some
help.
Senator Begich. Very good.
Who else wants to respond to that?
Mr. McSlarrow. If I were just thinking about USF, I would
say--I would urge the FCC to go ahead and use the authority we
think they have. But, it's all bound up in this Title II net
neutrality, which I know you discussed n the last panel. And
there, I think, we're headed toward a train wreck. And I think
this is, at least in that targeted sense, a case where there's
a need for Congress to act earlier, taking into account your
admonition about how slow that is.
Senator Begich. But, it may be a moment that's coming
sooner than we----
Mr. McSlarrow. Yes, sir.
Senator Begich.--should have, because the process could
have worked itself out, maybe.
Mr. McSlarrow. Yes, sir.
Senator Begich. OK. Anyone else want to comment on that?
Mr. Wilson. I would like to say one more thing. If we're
not able to alter that process--we talk about the digital
divide, but I would predict we'll see the Grand Canyon occur as
rural telephone companies begin to go out of business as a
result of this plan, as proposed.
Senator Begich. Very good.
Mr. Gardner. And again, Chairman, we believe that it's
possible to go ahead and deal with the Broadband Plan--
Universal Service Reform, Intercarrier Comp Reform within the
current framework, and hopefully not go to Congress in advance
of that, but get moving as soon as we can.
Senator Begich. Very good. Anyone else, before I close----
Mr. Gockley. I have just one quick comment. I've been a
telecommunications attorney since before the divestiture of the
Bell system, so I can make this statement without hesitation or
reservation. No matter what the FCC does, or no matter what
Congress does, litigation will ensue. It is just a reality.
[Laughter.]
Senator Begich. From Alaska, with the oil and gas industry,
we understand that same phrase.
[Laughter.]
Senator Begich. Thank you all very much. I appreciate it,
and especially want to say thank you for your very definitive
testimony, in the sense of your descriptions of things that
should be done. I want to thank you all for being here today.
And at this time, the meeting is adjourned.
[Whereupon, at 11:56 a.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. John F. Kerry,
U.S. Senator from Massachusetts
Mr. Chairman, thank you for holding this hearing. Broadband service
is increasingly becoming the platform over which Americans communicate
and access information. As such, some level of access to it is an
increasingly essential service. And Americans should not be isolated
from it due to geography, income, or disability.
To keep faith with our tradition of ensuring that all Americans
have access to essential services at affordable rates, we must revisit,
restructure, and reform the universal service system that today
guarantees access only to traditional voice telephone service and use
it to connect all Americans to each other over the Internet at
broadband speeds. The National Broadband Plan presents a strong
proposal from which to initiate that process.
The program must evolve to reflect an evolving level of
telecommunications services in the market. And through reform, we must
make sure the billions we spend to execute on that mission are spent
effectively and efficiently and focused on increasing the number of
Americans who receive and connect to our broadband network rather than
on the size of the companies that receive the subsidy. Today very
little USF support goes to Massachusetts and the reason for that has
nothing to do with how well or poorly connected our households are.
Broadband funding has to focus on households and how well connected
they are and measure success by improving those numbers.
In their submissions of comments for the National Broadband Plan,
our state experts called for a cap on high-cost support as well as an
elimination of the identical support rule. The underlying principles
guiding those suggestions are a commitment to financial sustainability
of the program as well as more efficient and fair distribution of
funds. I echo those principles.
The purpose of the High-Cost program has always been to help ensure
that consumers have access to traditional telecommunications services
where the cost of providing that service would otherwise be
prohibitively high. These areas, typically rural areas, are the so-
called ``high-cost'' areas. Telecommunications carriers that receive
high-cost universal service support utilize this funding in order to
subsidize the cost of telephone service assessed to consumers. In
theory, due in part to this subsidization, consumers in rural areas
have access to and pay rates for telephone services that are
``reasonably comparable'' to those in urban areas.
The current High-Cost program, however, is not cost-efficient.
Support is provided to carriers through a patchwork of programs in
which support is dependent not upon the characteristics of the area to
which support is directed but instead is dependent upon the size and
the regulatory classification of the carrier. Smaller, more rural
carriers typically are recipients of USF high-cost funding. As a result
of the current high-cost framework, in 2008 Massachusetts carriers
ranked roughly 44th in the United States for the amount of high-cost
support received. In contrast, Massachusetts ranks roughly 6th in total
USF contributions. For instance, according to annual FCC estimates
provided by the Federal-State Joint Board on Universal Service, in 2008
Massachusetts state contributions totaled roughly $163,789,000, but
Massachusetts providers received a total of $36,467,000 in Federal USF
support payments--only $2.365 million of which went toward high-cost
support (see below). Since 2006 alone, this equates to a $5 million
reduction of total USF support for Massachusetts, but an increase of
contributions by over $7 million. Since 2002, this reflects roughly a
$10 million reduction in total USF support but an approximate
contribution increase of over $25 million.
I support universal service and I am committed to the values that
make it possible. Almost 95 percent of American households subscribe to
telephone service today. That is because it is available to them, it
delivers the voice service it promises, and it is affordable. That is
the measurable success of our existing universal service system. But as
we declare that significant victory over the telephone divide that
would have existed without universal service, there are lessons learned
that we should apply to broadband going forward and we have to
recognize that the modern communications system poses some new
challenges in a time of increased fiscal constraints. And we have to
make sure that we fund services with the end user in mind.
I look forward to working with you and the FCC on this challenge.
It should be a top priority for the agency and for this committee.
Thank you.
______
Response to Written Questions Submitted by Hon. Maria Cantwell to
Hon. Michael J. Copps
Question 1. Commissioner Copps, I support the use of broadcast
white spaces for both fixed wireless and personal portable devices as a
means for making broadband services available. When the Chairman
testified in front of the Committee in April on the National Broadband
Plan, he committed to me that the Commission would complete a number of
open white space items by the end the third quarter this year.
One of the challenges with respect to the practical use of the
whitespaces is the backhaul--both from a technical standpoint and from
a business case. Do you see companies performing backhaul for broadband
networks operating in the broadcast white spaces as being eligible to
receive support under any broadband USF fund?
Answer. I supported the Commission's decision to allow unlicensed
radio transmitters to operate in broadcast TV spectrum in so-called
``white spaces'' locations where the spectrum was not being used by
licensed services. The goal was to make significant amounts of spectrum
available for new and innovative services such as broadband. The
National Broadband Plan recommends that we move expeditiously to
conclude the final rules for white spaces operations to accelerate the
introduction of new and innovative wireless services, and I look
forward to doing just that in the very near future.
I strongly believe that if we are going to ensure that no
community, no citizen, is left behind by lack of access to basic or
advanced telecommunications in this new digital age, we must include
broadband as part of our universal service program. The existing
Universal Service Fund (USF) includes many moving parts, and we must
consider them all when bringing our universal service system into the
broadband age. This will require something more than merely an
adaptation of the current USF programs--we must consider the broadband
ecosystem and make fundamental changes. To get this done right, the
Commission must launch proceedings, ask questions and make the hard
decisions. It is my understanding that the Chairman will initiate such
proceedings soon. Whether companies performing backhaul for broadband
networks operating in the broadcast white spaces will be included as
eligible to receive broadband is one of the myriad questions that we
must consider when creating a wholly new program, but backhaul is a
critical component of a comprehensive infrastructure that must be
considered holistically.
Question 2. More broadly, does the fact that these networks use
unlicensed devices preclude the operators from accessing any USF funds?
Answer. It is my understanding that later this year the Chairman
will initiate proceedings for the Commission to consider comprehensive
reform of the universal service program and bring it into the broadband
age. With this complete overhaul, the Commission will be considering
which and to what extent operators, services, and networks will be
eligible for support. Networks using unlicensed devices will be under
consideration, along with other types of operators, services and
networks involved with providing broadband service.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Hon. Michael J. Copps
Question. The National Broadband Plan proposes changing the
Universal Service program so that broadband, in addition to traditional
telephone service, will be supported without increasing the overall
size of the Universal Service Fund. Do you believe that it is possible
to achieve this ambitious objective without asking consumers in states
like New Jersey to contribute even more than they already do to the
program?
Answer. Yes, I do believe that it is possible to achieve this
ambitious but much needed goal of ensuring that no community, no
citizen, is left behind by lack of access to basic or advanced
telecommunications in this new digital age without asking consumers in
a specific state to contribute more disproportionately to the program
than they do now.
______
Response to Written Questions Submitted by Hon. Claire McCaskill to
Hon. Michael J. Copps
Question 1. Everyone agrees that the current USF program that
supports telephone service was begun as a laudable program to expand
phone service. Now we're looking to justifiably reform the USF and
steer it toward support for broadband. I want your thoughts not on what
we need to do in the next 5 years, but tell me how you see this support
in 20 or 30 years. As we try to move the USF to broadband we're going
to hear a lot of resistance from voice providers who rely on USF
support and for serving high cost areas. I want to make sure that
whatever new system that we move to will be flexible and based on real
needs and not just replace an old unsustainable system with a new
system that is built on an equally unsustainable set of expectations.
How does the proposal in the broadband plan or other proposals get to
this goal?
Answer. I certainly agree we need to think, as best we can in a
fast-changing telecommunications environment, about the long-term
stability and sustainability of a new universal service program. I also
strongly believe that if we are going to ensure that no community, no
citizen, is left behind by lack of access to basic or advanced
telecommunications in this new digital age, we must bring broadband
fully into the Universal Service system. The existing Universal Service
Fund (USF) includes many moving parts, and we must consider them all
when bringing our Universal Service system into the broadband age. This
will require something more than merely an adaptation of current USF
programs--we must consider the broadband ecosystem and make fundamental
changes. In the near term, the Commission needs to launch a
multiplicity of proceedings and expeditiously make the hard decisions
that will get this done. The future of this country's communications
network depends on it. And it will be no easy task to get to where we
need to go. There will have to be shared sacrifice among all
participants as we pursue the goal of eliminating inefficiencies in the
legacy high cost program and phasing it out. At the same time, we must
develop broadband and mobility funds that focus carefully on providing
support at efficient levels in geographic areas where there is no
private sector business case for broadband and high-quality voice
service, all the while making sure to be company- and technology-
agnostic. This comprehensive reform must be at the top of our agenda as
we work to make sure that every American has access to 21st century
communications services. In the long term, the Commission must be
committed to reviewing and reconsidering the universal service program
on a regular basis, to make sure that it is efficient and continues to
meet the needs of consumers throughout the country.
Question 2. In 2007 and 2008 the USF was audited by the OIG and it
showed that 3 of the 4 USF programs were ``at risk.'' Some of the
reported figures on improper payments were eye-popping. Others have
stated that this may have been shoddy. Many do not believe the results
of that audit and we haven't seen any subsequent results. How can we
have such a large program with apparently no auditing oversight--at
least no effective auditing oversight? What is being done about putting
together a robust auditing program to fight waste, fraud and abuse?
Answer. Any program that distributes money faces attempts by some
to engage in arbitrage schemes and, sometimes, in waste, fraud and
abuse. The Universal Service Fund has been no exception. Keen oversight
and effective auditing of such a program are necessary to make certain
that funds are distributed efficiently and used as intended. As the
Commission seeks to comprehensively reform the universal service
program and bring it into the broadband age, the Commission must
consider how it will oversee the program in a way that is efficient and
effective, through audits, reporting and other forms of oversight.
Auditing activities have increased at the FCC in recent years, but, as
you know, there has been some controversy about the processes employed
and the results obtained. It is important to do thorough auditing, but
the process must have ongoing credibility.
Question 3. Moreover, should we have some type of requirement that
we re-examine what areas of the country need support? We really don't
have a mechanism to look at where support is actually needed--how do we
ensure that unserved areas of my state and other states are getting
what they deserve?
Answer. While the National Broadband Plan is thorough in its
recommendations for comprehensive universal service reform and its
transition to broadband, the devil will be in the details as the
Commission works on implementation. I agree that it will be essential
for the Commission to re-examine any universal service program on a
regular basis to assess its effectiveness and efficiency, and I will
certainly consider this as the Commission moves forward with reforming
and updating the universal service program for the broadband age.
Question 4. In the past we have put the onus of certifying eligible
telecommunications carriers (ETCs) on the states. Some states have been
generous in certifying ETCs and we've ended up with 30 competitors
being supported in the same region, while other states have been more
modest. How do we move forward with choosing ETCs under the new
broadband plan? Are we freezing the status quo? Are we leaving it to
states? Should it be a Federal decision?
Answer. I know that all of us on the Joint Board are looking
forward to more referrals from the Commission so that Federal and state
Commissioners and staff may work together to transform our Universal
Service system for a broadband world. Federal-state cooperation was, I
believe, very much the intent of Congress when it wrote the
Telecommunications Act of 1996. As the Commission moves forward with
reforming and updating the USF for the broadband age, we will be
considering the role of the states in promoting universal service. I do
believe that a higher level of consistency and more uniform approaches
should be high on the list of issues that the Joint Board should
address.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Hon. Michael J. Copps
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support build-out plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Answer. I agree that we must bring broadband fully into the
Universal Service system, as recommended in the National Broadband
Plan. At this time, the existing Universal Service Fund (USF) includes
many moving parts, and the Commission must consider them all when
bringing our Universal Service system into the broadband age. This will
require something more than merely an adaptation of current USF
programs--we must consider the broadband ecosystem and make fundamental
changes. The Commission needs to launch a multiplicity of proceedings
expeditiously. And it will be no easy task to get to where we need to
go. There will have to be shared sacrifice among all participants as we
pursue the goal of eliminating inefficiencies in the legacy high cost
program and phasing it out. At the same time, we must develop broadband
and mobility funds that focus carefully on providing support at
efficient levels in geographic areas where there is no private sector
business case for broadband and high-quality voice service, all the
while making sure to be company- and technology-agnostic. In addition,
integral to comprehensive universal service reform is reform of
intercarrier compensation. The National Broadband Plan proposes a 10-
year transition altogether to achieve this goal, starting with the
creation of the Connect America Fund and the Mobility Fund in the next
year, among other things, and ending with the elimination of the legacy
high-cost programs of the existing USF. With the extent of work to be
done by all stakeholders to achieve this goal, I think the proposed
timeline is reasonable.
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs?
Answer. The Commission has the option of making receipt of
universal service funding contingent on certain requirements. I believe
that recipients of universal service support should be required to meet
certain broadband requirements. Periodic revisiting of what constitutes
``broadband'' is an important element in the proposed plan.
Question 2a. Are there specifics metrics we should use to ensure
better value for the taxpayer?
Answer. I believe the goal for a universal service program should
be to ensure ubiquitous, high-speed broadband throughout the United
States. Congress has provided a metric for achieving this in section
254 of the Act. Section 254(b)(3) seeks to ensure that consumers in all
regions of the Nation have access to reasonably comparable services at
reasonably comparable rates to those provided in urban areas.
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim?
Answer. The National Broadband Plan recommends transitioning the
universal service program to a single-provider system. This
recommendation has yet to come squarely before the Commission for
consideration. I look forward to hearing from all stakeholders
concerning this proposal, as well as alternatives.
Question 3a. If so, how can smaller market providers remain
competitive?
Answer. Part of a robust broadband future depends upon robust
competition. Competition has proven itself time and time again to be
the most reliable tool to bring innovation, choice, value and quality
to consumers. As the Commission works toward ensuring that broadband is
deployed and adopted throughout this great nation, it is critical that
we strive to encourage a competitive market.
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Answer. While the National Broadband Plan is thorough in its
recommendations for comprehensive universal service reform and its
transition to broadband, the devil will be in the details as the
Commission works on implementation. The Commission has the option of
making receipt of universal service funding contingent on certain
requirements. I believe that recipients of universal service support
should be required to meet certain broadband requirements, and a number
of requirements, including physical buildout, will be under
consideration by the Commission as we move forward with reforming and
updating the Universal Service system for the broadband age.
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Answer. Reform of intercarrier compensation and the various
problems surrounding it--including phantom traffic and traffic
stimulation--is integral to comprehensive universal service reform and
must be addressed at the same time, as proposed in the National
Broadband Plan.
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Answer. I agree with the National Broadband Plan's statement that
both broadband and access to mobility are now essential needs, and
America should have healthy fixed and mobile broadband ecosystems.
However, several questions must be answered as the Commission considers
what services to fund through a universal service program and whether
both fixed and mobile broadband should be supported. Certainly both
wireline and wireless are important components of broadband in rural
America. It is my understanding that later this year the Chairman will
initiate a proceeding to consider the creation and implementation of a
CAF. I expect the Commission will ask and receive comments on these
important questions. I look forward to full review of the record.
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the fund should also
provide grants for ongoing costs? If not, why not?
Answer. The National Broadband Plan recommends the creation of a
Mobility Fund to provide one-time support for deployment of 3G networks
where 3G wireless service is lacking. It is my understanding that later
this year the Chairman will initiate a proceeding to consider creating
a Mobility Fund. Certainly the availability of financial resources in
that fund will affect any proposed utilization or division of support
as between deployment and ongoing operations. Difficult choices will
have to be made based on a more comprehensive record than what is
available now. I look forward to full review of this recommendation by
the Commission.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Michael J. Copps
Question 1. One of the rationales I have heard for the ``Third
Way'' is the idea that we cannot move ahead providing universal service
for broadband without it. But I understand there are at least seven
instances where the Commission applied ancillary jurisdiction to Voice
Over Internet providers to, for example, make them pay into universal
service, provide 911 service etc. So if that's the case, why do you
need to reclassify broadband in order to make USF payout for broadband?
Answer. I do believe it is possible for the Commission to provide
universal service for broadband under Title I ancillary authority, but
this would result in repeated visits to court and regulatory
uncertainty which would cobble industry's ability to make sound
business decisions. The Commission would have to engage in something
akin to legal acrobatics to be successful in asserting Title I
jurisdiction over each and every action it engages in to implement
comprehensive universal service reform and include broadband Internet
access as a supported service. This would likely result in a piecemeal
program subject to lawsuit at the whim of any disgruntled entity that
has standing. The clearest and cleanest option for the FCC to carry out
all necessary duties over broadband Internet access--which includes
assuring universal service, consumer protection, public safety and
privacy--is for the FCC to reassert its authority under Title II. With
such a decision, industry would finally have the regulatory certainty
it needs to carry on its business, and consumers would be assured the
protections intended by Congress in the Communications Act. I have no
doubt that the Commission would face a lawsuit, as it does with most
controversial decisions it makes, but this would be one single lawsuit
to determine that the FCC does have jurisdiction, and then industry and
consumers could carry on.
Question 2. If the FCC enacts the proposed Connect America Fund,
how large would the fund be? How long would this fund have to exist in
order to achieve the National Broadband Plan goal of 4 megabytes per
second to at least 99 percent of homes by 2020?
Answer. The National Broadband Plan proposes to maintain the
current size of the Universal Service Fund, with the Connect America
Fund (CAF) replacing the current High Cost program. Of course, the
amount of support will be a major factor in determining how quickly any
broadband deployment and speed goals can be reached. It is my
understanding that later this year the Chairman will initiate a
proceeding to consider the creation and implementation of a CAF. I
expect the Commission will ask and receive comments on these very
questions. I look forward to full review of the record.
Question 3. Some argue that the National Broadband Plan will create
new digital divide since the plan predicts broadband speeds of 100
megabytes per second for 100 million urban households and 4 megabytes
per second for most rural households. Do you agree with this
assessment? If the Universal Service Fund or the new Connect America
Fund is going to support broadband in rural areas are the principles of
``universal service'' achieved when we have two different broadband
standards?
Answer. I believe the goal for a universal service program should
be to ensure ubiquitous, high-speed broadband throughout the United
States. While the NBP provides an aspirational goal of 100 Mbps in 10
years, the NBP suggests that 4 Mbps should be the actual speed to be
supported by the universal service program at this time. Universal
service support for broadband speeds of at least 4 Mbps is consistent
with the metric provided by Congress in section 254 of the Act. Section
254(b)(3) seeks to ensure that consumers in all regions of the Nation
have access to reasonably comparable services at reasonably comparable
rates to those provided in urban areas. According to the National
Broadband Plan, a reasonably comparable speed for broadband service at
this time is 4 Mbps. But the Plan also proposes that the Commission
revisit the target broadband speed supported by the CAF on a regular
basis and, upon review, consider whether the extant speed achieves
reasonably comparable broadband service pursuant to the Act.
Question 4. The National Broadband Plan recognizes that only one
broadband provider should be eligible to receive support. Under what
process will the FCC use to determine who receives support? Reverse
auctions? And should the awarded provider have carrier of last resort
obligations?
Answer. The National Broadband Plan recommends transitioning the
universal service program to a single-provider system. This
recommendation has yet to come squarely before the Commission for
consideration. I look forward to hearing from all stakeholders
concerning this proposal, as well as alternatives.
Question 5. Should the contribution base of the Universal Service
Fund be expanded? If so, how? Should an increase in the contribution
base of the Universal Service Fund result in an increase in the overall
size of the fund?
Answer. The current USF--which provides support for voice
services--receives contributions based on interstate and international
revenues for voice services. If the universal service program is
expanded to include support for broadband services, then I believe the
contribution base should include broadband services.
Question 6. The broadband stimulus program allocated $7.2 billion
to be used for broadband deployment. To what extent will broadband
stimulus money assist in reaching the broadband deployment goals as
established within the National Broadband Plan?
Answer. In February 2009, Congress passed the American Recovery and
Reinvestment Act which appropriated $7.2 billion to create the
Broadband Telecommunications Opportunities Program at the U.S.
Department of Commerce and the Broadband Initiatives Program at the
U.S. Department of Agriculture. The Commission took no part in
determining the awards under these programs, but I do expect many of
the funded projects will help meet the goal of providing universal
broadband access. However, the $7.2 billion in broadband stimulus
funding will not be sufficient to close the broadband availability gap.
Question 7. Will the FCC do any economic analysis from the
perspective of small rural telephone companies with regards to moving
more companies into a price-cap system rather than rate-of-return if
that is the ultimate decision of the Commission?
Answer. For the purpose of a universal service system for
broadband, the National Broadband Plan proposes that the Commission
require rate-of-return carriers move to price cap regulation to
increase efficiency and innovation. This recommendation has yet to come
squarely before the Commission for consideration. I look forward to
hearing from all stakeholders concerning this proposal.
Question 8. How can we better eliminate waste, fraud and abuse
within the Universal Service Fund?
Answer. Any program that distributes money faces attempts by some
to engage in arbitrage schemes and, sometimes, in waste, fraud and
abuse. The Universal Service Fund has been no exception. Keen oversight
and effective auditing of such a program are necessary to make certain
that funds are distributed efficiently and used as intended. As the
Commission seeks to comprehensively reform the universal service
program and bring it into the broadband age, the Commission must
consider how it will oversee the program in a way that is efficient and
effective, through audits, reporting and other forms of oversight.
Auditing activities have increased at the FCC in recent years, but, as
you know, there has been some controversy about the processes employed
and the results obtained. It is important to do thorough auditing, but
the process must have ongoing credibility.
______
Response to Written Questions Submitted by Hon. Maria Cantwell to
Hon. Mignon L. Clyburn
Question 1. Commissioner Clyburn, states have a unique position as
gatekeepers in the administration of the USF program. For example,
states determine carrier eligibility in the program. Should the states
have a similar role in determining carrier eligibility for any future
broadband fund?
Answer. The National Broadband Plan states that closing the
broadband availability gap and connecting the Nation will require a
substantial commitment by both states and the Federal Government. It
recommends that the FCC should seek input from state commissions on how
to harmonize Federal and state efforts to promote broadband
availability. The issue you raise concerning the states' role is an
important one, and I would anticipate that this would be considered in
the universal service reform proceeding that the FCC is planning to
initiate later this year.
Question 2. The stimulus included a broadband mapping program.
Should the State PUC or the FCC use the results of the broadband
mapping program in its carrier eligibility determination in any future
Connect America Fund?
Answer. The National Broadband Plan recommends overhauling the
Universal Service Fund so that it supports both voice and broadband
service in those geographic areas where there is no private sector
business case to offer such service. As your question recognizes, a
significant input for determining whether a geographic area needs
funding is whether broadband service already is provided. As noted
above, the FCC plans to initiate a proceeding later this year to
consider reform of the Universal Service Fund, and I would anticipate
that one of the considerations will be the information used to
determine funding, including information from the state mapping
efforts.
Question 3. Washington State has a state USF fund. As the number of
intra-state long distance minutes is declining, the Fund is also
declining. There is pressure to come up with new mechanisms to keep
whole these typically rural exchange carriers. The National Broadband
Plan is silent on state USF funds. Should states also move toward a
State broadband fund or should the FCC focus on broadband while states
focus on supporting the remaining voice services? Or is there another
approach?
Answer. Please see response to your first question.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Hon. Mignon L. Clyburn
Question. The National Broadband Plan proposes changing the
Universal Service program so that broadband, in addition to traditional
telephone service, will be supported without increasing the overall
size of the Universal Service Fund. Do you believe that it is possible
to achieve this ambitious objective without asking consumers in states
like New Jersey to contribute even more than they already do to the
program?
Answer. Yes, I believe it is possible that we can complete a much-
needed overhaul of the Universal Service Fund so that it supports both
voice and broadband service, without increasing the overall size of the
Fund.
______
Response to Written Questions Submitted by Hon. Claire McCaskill to
Hon. Mignon L. Clyburn
Question 1. Everyone agrees that the current USF program that
supports telephone service was begun as a laudable program to expand
phone service. Now we're looking to justifiably reform the USF and
steer it toward support for broadband. I want your thoughts not on what
we need to do in the next 5 years, but tell me how you see this support
in 20 or 30 years. As we try to move the USF to broadband we're going
to hear a lot of resistance from voice providers who rely on USF
support and for serving high cost areas. I want to make sure that
whatever new system that we move to will be flexible and based on real
needs and not just replace an old unsustainable system with a new
system that is built on an equally unsustainable set of expectations.
How does the proposal in the broadband plan or other proposals get to
this goal?
Answer. I agree with you that the Universal Service Fund has been
instrumental in providing voice service to many areas of the United
States that were difficult for the private sector to serve, but for
assistance from the Fund. The National Broadband Plan recommends
overhauling the Fund so that it supports both voice and broadband
service in those geographic areas where there is no private sector
business case to offer such service. The Plan offers many details for
the Commission to consider in its proposed overhaul of the Universal
Service Fund. For example, the Plan proposes that the initial broadband
speed supported by the Fund be reevaluated on a periodic basis. The FCC
plans to initiate a proceeding later this year to consider the National
Broadband Plan's proposal to reform the Universal Service Fund. I would
anticipate that among the issues we will consider is whether the Fund
will be flexible enough to take into account technological changes in
the future and the sustainability of the Fund for future generations.
Question 2. In 2007 and 2008 the USF was audited by the OIG and it
showed that 3 of the 4 USF programs were ``at risk.'' Some of the
reported figures on improper payments were eye-popping. Others have
stated that this may have been shoddy. Many do not believe the results
of that audit and we haven't seen any subsequent results. How can we
have such a large program with apparently no auditing oversight--at
least no effective auditing oversight? What is being done about putting
together a robust auditing program to fight waste, fraud and abuse?
Answer. The National Broadband Plan discusses a number of changes
the FCC has made to provide stronger management and oversight of the
universal service program in order to fight waste, fraud and abuse.
First, the FCC has moved oversight of the audit program to the Office
of Managing Director and has directed USAC to revise its audit
approach. Second, the FCC has implemented a new Improper Payments
Information Act (IPIA) assessment program that is tailored to cover all
four USF disbursement programs, measure the accuracy of payments,
evaluate the eligibility of applicants, test information obtained by
participants, and ensure a reasonable cost while meeting IPIA
requirements. Third, the FCC has implemented a new compliance audit
program for all four USF disbursement mechanisms and contributors which
takes into account such factors as program risk elements and size of
disbursements and is conducted at a reasonable cost in relation to
program disbursements, and reduces unnecessary burdens on
beneficiaries. The Plan also proposes that as the FCC reforms universal
service, it should build in accountability and oversight provisions in
order to ensure the proper use of funds and fight waste, fraud and
abuse.
Question 3. Moreover, should we have some type of requirement that
we re-examine what areas of the country need support? We really don't
have a mechanism to look at where support is actually needed---how do
we ensure that unserved areas of my state and other states are getting
what they deserve?
Answer. The National Broadband Plan recommends overhauling the
Universal Service Fund so that it supports both voice and broadband
service in those geographic areas where there is no private sector
business case to offer such service. As noted above, the FCC plans to
initiate a proceeding later this year to consider reform of the
Universal Service Fund as proposed by the National Broadband Plan. I
expect that in that proceeding we will be considering how the
Commission can ensure that unserved areas are being addressed so that
all Americans are served by robust broadband and voice service.
Question 4. In the past we have put the onus of certifying eligible
telecommunications carriers (ETCs) on the states. Some states have been
generous in certifying ETCs and we've ended up with 30 competitors
being supported in the same region, while other states have been more
modest. How do we move forward with choosing ETCs under the new
broadband plan? Are we freezing the status quo? Are we leaving it to
states? Should it be a Federal decision?
Answer. The National Broadband Plan states that closing the
broadband availability gap and connecting the Nation will require a
substantial commitment by both states and the Federal Government. It
recommends that the FCC should seek input from state commissions on how
to harmonize Federal and state efforts to promote broadband
availability. The issue you raise concerning the states' role is an
important one, and I would anticipate that this would be considered in
the universal service reform proceeding that the FCC plans to initiate
later this year.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Hon. Mignon L. Clyburn
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Answer. The National Broadband Plan recommends a ten-year
transition period that takes into account the need for FCC proceedings
to reform the Universal Service Fund and allowing parties time to
adjust to the reform. The FCC plans to initiate a proceeding later this
year to consider the reforms proposed by the National Broadband Plan,
and I would expect that the transition period would be a subject of the
proceeding. I believe it is important to give parties time to adjust to
the proposed changes and look forward to reviewing the record on the
amount of time that would be appropriate.
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs?
Answer. I agree that in our review of the proposed reforms of the
Universal Service Fund, we should maintain high standards for both
rural and urban areas. Section 254 directs the Commission to ensure
that service in rural areas is ``reasonably comparable'' to urban
areas. The Plan proposes that the initial broadband speed supported by
the Fund be reevaluated on a periodic basis so that the standard of
service supported is consistent with what most Americans are
purchasing. The Plan also proposes that changes to the Fund include
accountability and oversight provisions from the outset in order to
ensure the proper use of funds and to fight waste, fraud and abuse.
As noted above, the FCC plans to initiate a proceeding later this
year to consider the National Broadband Plan's proposals, and I would
expect that the issues you raise will be fully considered in that
proceeding.
Question 2a. Are there specifics metrics we should use to ensure
better value for the taxpayer?
Answer. See immediate response above.
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Answer. I have heard those concerns as well, but I believe it is
too early to determine whether there is evidence to support the claims.
The Commission has not initiated its universal service reform
proceeding, but expects to do so in the fourth quarter of this year.
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Answer. The Plan also proposes that changes to the Fund include
accountability and oversight provisions from the outset in order to
ensure the proper use of funds and to fight waste, fraud and abuse. I
would expect these issues to be considered in the Commission's
universal service reform proceeding planned for later this year.
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Answer. The Plan proposes intercarrier compensation reform that
would result in those costs being replaced by the CAF, where such
support is needed. The Commission plans to initiate a proceeding
specifically to address intercarrier compensation reform later this
year.
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Answer. Currently, competitive eligible telecommunications carriers
(CETCs) can receive universal service support for the provision of
voice service, and some CETCs are offering mobile voice service. The
National Broadband Plan proposes that the Commission reform the
Universal Service Fund so that only one provider receives support per
geographic area, where support is needed, in order to use the limited
funds more efficiently. The Plan proposes a technologically neutral
approach for awarding support.
The issue you raise is an important one for the Commission to
consider when it is deliberating the Plan's reform proposals.
Nonetheless, I do believe that it is prudent for the Commission to
first ensure that there is one reasonably comparable broadband service
available to all Americans.
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the Fund should also
provide grants for ongoing costs? If not, why not?
Answer. I expect that the Commission will be considering the Plan's
proposal for a Mobility Fund later this year and that the issue you
raise will be discussed in that proceeding. I look forward to reviewing
the record for any evidence that ongoing operational costs would
require support from the Fund.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Mignon L. Clyburn
Question 1. One of the rationales I have heard for the ``Third
Way'' is the idea that we cannot move ahead providing universal service
for broadband without it. But I understand there are at least seven
instances where the Commission applied ancillary jurisdiction to Voice
Over Internet providers to, for example, make them pay into universal
service, provide 911 service etc. So if that's the case, why do you
need to reclassify broadband in order to make USF payout for broadband?
Answer. Section 254(c)(1) of the Communications Act currently
provides that ``[u]niversal service is an evolving level of
telecommunications services.'' As I understand the Commission's
precedent, it has consistently interpreted this provision to mean that
only telecommunications services can be supported for purposes of high-
cost areas. (The same does not hold true for the funding of schools,
libraries, and rural health care providers as the statute includes
information services for universal service support to these types of
entities.) Because broadband Internet access service is currently
classified as an information service, it cannot be directly supported
through the Universal Service Fund for high-cost areas at this time.
Accordingly, if broadband is reclassified as a telecommunications
service, then the statute clearly provides for it to be funded under
Section 254(c)(1).
In contrast, VoIP service has not been classified either as a
telecommunications service or an information service. Further, as you
note, the Commission has extended certain obligations to certain VoIP
providers, each time analyzing the Commission's statutory authority in
the Communications Act of the subject matter at issue. For universal
service contribution obligations on interconnected VoIP providers, the
Commission found that interconnected VoIP providers are ``providers of
interstate telecommunications.'' Section 254(d) states that the
Commission may require ``[a]ny other provider of interstate
telecommunications'' to contribute to the Universal Service Fund, ``if
the public interest so requires.'' As such, the Commission found that
interconnected VoIP providers are providing interstate
telecommunications, and that it is in the public interest for them to
contribute to the Fund.
In other words, the statute permits the Commission to seek
contributions to the Universal Service Fund from any provider offering
``interstate telecommunications'' if it is in the public interest,
whereas for the distribution of Universal Service Funds in high-cost
areas, support is for ``telecommunications services.''
Question 2. If the FCC enacts the proposed Connect America Fund,
how large would the Fund be? How long would this fund have to exist in
order to achieve the National Broadband Plan goal of 4 megabits per
second to at least 99 percent of homes by 2020?
Answer. It is my understanding that the Plan's recommendation to
reform the Universal Service Fund does not include a proposal to grow
the Fund. In fact, it states that the FCC ``should proceed with
measured steps to assure that as it advances the Nation's broadband
goals, it does not increase the USF contribution factor.'' What's
proposed in the Plan, if adopted by the Commission, would be a sea
change in the way the Fund is currently operated. Many stakeholders are
involved, and this will require significant input in FCC rulemaking
proceedings prior to any change being adopted by the Commission.
Nonetheless, the Plan calls for a staged and measured transition to
enable the industry time to prepare and adjust. As I understand it, the
Plan contemplates that these proposed changes could enable the U.S. to
significantly address the broadband availability gap--the goal you
identify in your question--within the decade.
Question 3. Some argue that the National Broadband Plan will create
new digital divide since the plan predicts broadband speeds of 100
megabits per second for 100 million urban households and 4 megabits per
second for most rural households. Do you agree with this assessment? If
the Universal Service Fund or the new Connect America Fund is going to
support broadband in rural areas are the principles of ``universal
service'' achieved when we have two different broadband standards?
Answer. I believe that we should maintain high standards for both
rural and urban areas. The Plan proposes that the initial broadband
speed supported by the Fund be reevaluated on a periodic basis so that
the standard of broadband service supported is consistent with what
most Americans are purchasing. I believe this is one way we can ensure
that there is not a ``digital divide'' between urban and rural America.
Of course, the National Broadband Plan's proposals to reform the
Universal Service Fund have not been implemented. The Commission plans
to initiate proceedings later this year to fully consider those
proposals, which will include input from industry, consumers, and
Members of Congress. I look forward to considering that input as we
decide the best path forward for ensuring that rural areas receive
services that are ``reasonably comparable'' to urban areas as Section
254(b) currently provides.
Question 4. The National Broadband Plan recognizes that only one
broadband provider should be eligible to receive support. Under what
process will the FCC use to determine who receives support? Reverse
auctions? And should the awarded provider have carrier of last resort
obligations?
Answer. The Commission has not initiated its proceeding to consider
the recommendations for the Connect America Fund as presented in the
Plan, but it plans to do so later this year. As you know, the National
Broadband Plan recommends overhauling the Universal Service Fund so
that it supports both voice and broadband service in those geographic
areas where there is no private sector business case to offer such
service. Until the Commission seeks comment and has a record on these
issues and has adopted an order, it would be premature to say what
process the FCC will use to determine who receives support. The Plan
recommended that we consider market-based mechanisms for making support
determinations. It also recognized the need to carefully consider the
carrier of last resort obligations during our reform proceedings.
Through the Joint Conference on Advanced Services, the Commission is
gathering information from our state colleagues about these
obligations, as they vary from state to state. I believe it is critical
that we understand and consider the impact of those obligations on any
new regime we develop.
Question 5. Should the contribution base of the Universal Service
Fund be expanded? If so, how? Should an increase in the contribution
base of the Universal Service Fund result in an increase in the overall
size of the Fund?
Answer. My understanding is that the Commission will initiate a
proceeding later this year to consider contribution reform for the
Universal Service Fund. If the Fund is reformed to include direct
support to broadband providers (as proposed by the National Broadband
Plan), then I believe it is prudent to consider whether such service
providers should be contributing to the Fund. It is my understanding
that the Plan's recommendation to reform contributions does not include
a proposal to grow the Fund.
Question 6. The broadband stimulus program allocated $7.2 billion
to be used for broadband deployment. To what extent will broadband
stimulus money assist in reaching the broadband deployment goals as
established within the National Broadband Plan?
Answer. The National Broadband Plan states that the awards under
the broadband stimulus program should help meet the goal of providing
universal broadband access; however, it estimates that the awards would
not be sufficient to close the broadband availability gap and that
other government support would be required. The Plan provides that as
stimulus awards are completed, along with the completion of the state
broadband maps, the FCC may be able to improve upon its knowledge of
where gaps continue and where additional funding is needed. As noted
above, the Commission plans to initiate proceedings later this year to
consider the proposals in the Plan to reform the Universal Service Fund
to include broadband. Among the issues I would expect we will be
considering is how the Commission should analyze the information it
gathers through periodic reports from providers, the broadband maps,
and other public information in order to determine funding
requirements.
Question 7. Will the FCC do any economic analysis from the
perspective of small rural telephone companies with regards to moving
more companies into a price-cap system rather than rate-of-return if
that is the ultimate decision of the Commission?
Answer. The Commission has not instituted a proceeding to consider
this part of the Plan's reform proposals to date. I would expect that
our consideration of these issues will include significant input from
many stakeholders, including economic analysis from multiple sources,
prior to a Commission decision on this issue.
Question 8. How can we better eliminate waste, fraud and abuse
within the Universal Service Fund?
Answer. The National Broadband Plan discusses a number of changes
the FCC has made to provide stronger management and oversight of the
universal service program in order to fight waste, fraud and abuse.
First, the FCC has moved oversight of the audit program to the Office
of Managing Director and has directed USAC to revise its audit
approach. Second, the FCC has implemented a new Improper Payments
Information Act (IPIA) assessment program that is tailored to cover all
four USF disbursement programs, measure the accuracy of payments,
evaluate the eligibility of applicants, test information obtained by
participants, and ensure a reasonable cost while meeting IPIA
requirements. Third, the FCC has implemented a new compliance audit
program for all four USF disbursement mechanisms and contributors which
takes into account such factors as program risk elements and size of
disbursements and is conducted at a reasonable cost in relation to
program disbursements, and reduces unnecessary burdens on
beneficiaries. The Plan also proposes that as the FCC reforms universal
service, it should build in accountability and oversight provisions in
order to ensure the proper use of funds and fight waste, fraud and
abuse. I agree that we must carefully consider measures that will
ensure the most effective use of the limited funds, including tailoring
our requirements in a way that will better eliminate waste, fraud and
abuse of the Fund.
______
Response to Written Questions Submitted by Hon. Maria Cantwell to
Hon. Meredith A. Baker
Question. Commissioner Baker, as you know, the Universal Service
Fund supports the high-cost, low-income, e-rate, and rural health
programs.
Title 2, Section 254(c) begins with ``Universal service is an
evolving level of telecommunications services.'' Other language in
section 254 expressly associates the e-rate and rural health programs
to advanced services, better known as broadband. The statutory language
is more obscure when it comes to the high-cost and low-income Universal
Service Funds. The high-cost fund may be tied exclusively to
telecommunications services. If so, it is not clear after the Comcast
decision how it can be transformed to a broadband Connect America Fund?
In your dissent on the NOI, you said ``We have a proven way forward
under the existing `information services' classification by lawfully
asserting our direct and ancillary authority to address universal
service reform . . .'' Commissioner Baker, can you share with us that
proven way forward, specifically with respect to the high cost fund?
Answer. There is clear consensus that an overhaul of the Universal
Service Fund is critical to better manage the costs of the program and
help address broadband adoption and deployment challenges. Only
Congress has the ability to provide the Commission with clear
jurisdictional footing to move forward to tackle the challenges of the
broadband age, and I always welcome the direction that only legislation
can provide. But in the alternative, I think we can and should move
forward with critical reforms to the Universal Service Fund, including
the high-cost component, under our existing authority. I believe the
foundation of a strong national broadband policy is already in place,
and we need not alter the regulatory classification of broadband
Internet access services to achieve a true consensus agenda.
In 2007, the Federal-State Joint Board on Universal Service
recommended that broadband Internet access service be a ``supported
service'' under the program, and a number of parties have advocated
ways to expand the Fund to support broadband based on section 254.\1\
Title I of the Communications Act of 1934, as amended, permits the
Commission to assert ancillary authority over interstate communications
by wire or radio--such as broadband--when the assertion of jurisdiction
is ``reasonably ancillary to the effective performance of [its] various
responsibilities.'' \2\ The D.C. Circuit's decision in Comcast v. FCC
did not foreclose lawful assertion of ancillary authority by the
Commission where it satisfies the legal standard affirmed by the
Supreme Court in Southwestern Cable.
---------------------------------------------------------------------------
\1\ See, e.g., Letter from Kyle McSlarrow, President and CEO,
National Cable & Telecommunications Association, to Julius Genachowski,
Chairman, FCC, GN Docket Nos. 09-51, 09-191, WC Docket No. 07-52 (March
1, 2010) (NCTA USF Letter); Letter from Gary L. Phillips, General
Attorney & Associate General Counsel, AT&T Services, Inc., to Marlene
H. Dortch, Secretary, FCC, GN Docket Nos. 09-51, 09-47, 09-137, WC
Docket Nos. 05-337, 03-109 (Jan. 29, 2010).
\2\ United States v. Southwestern Cable Co., 392 U.S. 157, 178
(1968) (Southwestern Cable); see also Southwestern Cable, 392 U.S. at
177-78; United States v. Midwest Video Corp., 406 U.S. 649, 667-68
(1972); FCC v. Midwest Video Corp., 440 U.S. 689, 700 (1979).
---------------------------------------------------------------------------
In my view, we can satisfy that threshold with regard to universal
service reform and it is a reasonable reading of the statute to
conclude that reforming the Universal Service Fund to support broadband
is reasonably ancillary to our responsibilities under section 254.
Specifically, section 254 speaks in terms of the ``evolving level'' of
universal service and directs the Commission, in determining the
supported services, to ``tak[e] into account advances in
telecommunications and information technologies and services.'' \3\ In
addition, section 254 states that the Commission shall base universal
service on the principle that ``[a]ccess to advanced telecommunications
and information services should be provided in all regions of the
Nation.'' \4\ Section 706's directive to deploy advanced services to
all Americans provides further support that this would be consistent
with Congressional intent.
---------------------------------------------------------------------------
\3\ 47 U.S.C. 254(c)(1).
\4\ 47 U.S.C. 254(b)(2).
---------------------------------------------------------------------------
I recognize that section 254's language is ambiguous and that it
also describes universal service in terms of ``telecommunications
services.'' I acknowledge that the approach I advocate is not without
some legal risk but in my assessment, reclassification under Title II
also carries significant litigation risk. Most significant decisions
this Commission makes are tested in court. On balance, absent
legislation, I believe that retaining the information service
classification and asserting ancillary authority to achieve universal
service reform is less risky as a legal and policy matter than
reclassifying an entire sector of the Internet.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Hon. Meredith A. Baker
Question. The National Broadband Plan proposes changing the
Universal Service program so that broadband, in addition to traditional
telephone service, will be supported without increasing the overall
size of the Universal Service Fund. Do you believe that it is possible
to achieve this ambitious objective without asking consumers in states
like New Jersey to contribute even more than they already do to the
program?
Answer. Yes. The Universal Service Fund is not without limits. The
Fund has grown from $2.3 billion in 1998 to nearly $9 billion this
year. The universal service contribution factor has been as high as
15.3 percent. This is real money from real people--including consumers
in New Jersey. I have stated often that our efforts to modernize should
not lead to further growth of the overall size of the Fund and I
believe that we can do that. But to achieve this, hard choices will
have to be made and we will have to design a more efficient fund
focused on broadband and funded in a technologically neutral manner. It
is our obligation to ensure that money is spent wisely to achieve the
goals set out by Congress--but without distorting the market or
breaking the bank.
______
Response to Written Question Submitted by Hon. Claire McCaskill to
Hon. Meredith A. Baker
Question 1. Everyone agrees that the current USF program that
supports telephone service was begun as a laudable program to expand
phone service. Now we're looking to justifiably reform the USF and
steer it toward support for broadband. I want your thoughts not on what
we need to do in the next 5 years, but tell me how you see this support
in 20 or 30 years. As we try to move the USF to broadband we're going
to hear a lot of resistance from voice providers who rely on USF
support and for serving high cost areas. I want to make sure that
whatever new system that we move to will be flexible and based on real
needs and not just replace an old unsustainable system with a new
system that is built on an equally unsustainable set of expectations.
How does the proposal in the broadband plan or other proposals get to
this goal?
Answer. I agree. While it is difficult to know what such a rapidly
evolving communications landscape will look like in 20 or 30 years, and
periodic review of any reformed mechanism is critical, comprehensive
reform of universal service and intercarrier compensation, done right,
should and will be a strong foundation for long-term sustainability of
universal service and ubiquitous broadband for decades to come.
To create a fund with long-term sustainability, I believe we must
transition in a considered way to an explicit support mechanism that
will ensure accountability, efficiency, and adequate funding in areas
where market forces are not sufficient to drive broadband services to
America's consumers. I believe that one of the keys to a sustainable
fund will be to constrain further growth in the overall size of the
Fund. The National Broadband Plan gives us helpful recommendations to
begin the process of modernizing the Fund and as we consider the
recommendations in detail, our broadband policy should be focused on
those efforts directly tied to promoting adoption, deployment, and
facilities-based competition. A sustainable fund in the long-term will
be built upon the strong regulatory foundation that we have before us--
harnessing private investment, taking targeted action to support
deployment to the seven million unreached households, and promoting
digital inclusion and literacy.
Question 2. In 2007 and 2008 the USF was audited by the OIG and it
showed that 3 of the 4 USF programs were ``at risk.'' Some of the
reported figures on improper payments were eye-popping. Others have
stated that this may have been shoddy. Many do not believe the results
of that audit and we haven't seen any subsequent results. How can we
have such a large program with apparently no auditing oversight--at
least no effective auditing oversight? What is being done about putting
together a robust auditing program to fight waste, fraud and abuse?
Answer. A reformed universal service support mechanism that is
sustainable and achieves its goals must ensure efficiency and
accountability, and deter waste, fraud, and abuse. This depends on a
rigorous auditing program and vigilant oversight by the Commission. The
Commission is not waiting to provide stronger management and oversight
of the Fund and a number of changes to oversight of the existing Fund
have been implemented. For example, we have implemented a new Improper
Payments Information Act assessment program for all four USF
disbursement programs, to measure the accuracy of payments, evaluate
the eligibility of applicants, test information obtained by
participants, and ensure a reasonable cost while meeting IPIA
requirements. Going forward, the National Broadband Plan recommends
that future enhancements to the USF have accountability and oversight
provisions built in from the outset and I strongly support that
approach.
Question 3. Moreover, should we have some type of requirement that
we re-examine what areas of the country need support? We really don't
have a mechanism to look at where support is actually needed---how do
we ensure that unserved areas of my state and other states are getting
what they deserve?
Answer. It is critical that we repurpose the nearly $9 billion
Universal Service Fund, targeted to broadband investment. We must
evolve our support mechanisms into an era in which all Americans have
the opportunity to benefit from broadband by ensuring adequate funding
in areas where market forces are not sufficient to drive broadband
services to America's consumers. The Commission's ongoing data
collection efforts will help us more precisely identify unserved
consumers, which will help us better target funding to unserved areas.
In addition, I support periodic review to ensure that our reforms, when
implemented, are initially achieving the goal of ubiquitous broadband
set out by Congress, and continue to be effective in years ahead. As we
make decisions about how the new Universal Service Fund will work, we
will not lose sight of the special circumstances facing rural America.
Question 4. In the past we have put the onus of certifying eligible
telecommunications carriers (ETCs) on the states. Some states have been
generous in certifying ETCs and we've ended up with 30 competitors
being supported in the same region, while other states have been more
modest. How do we move forward with choosing ETCs under the new
broadband plan? Are we freezing the status quo? Are we leaving it to
states? Should it be a Federal decision?
Answer. Before the Commission implemented an interim cap on CETC
support, CETC support was a significant driver in growth of the Fund.
The National Broadband Plan proposes to phaseout CETC support and shift
those resources to supporting broadband. At the same time, it
recommends a newly designed Mobility Fund to provide support for 3G
networks. As we begin comprehensive reform, we will need to consider
all parts of the program, including CETC support, to ensure efficiency,
accountability, and adequate funding. I feel strongly that our ultimate
decisions should be guided by the principle of technology neutrality.
______
Response to Written Question Submitted by Hon. Mark Warner to
Hon. Meredith A. Baker
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Answer. The National Broadband Plan recommends a ten-year
transition for universal service and intercarrier compensation reform,
with the Connect America Fund (CAF) beginning disbursements in 2016.
The Commission's broadband team did a commendable job in compiling the
findings and recommendations in the National Broadband Plan and I
support many of the recommendations. I believe we must transition in a
considered way to an explicit support mechanism for broadband that will
ensure adequate funding in areas where market forces are not sufficient
to drive broadband services to America's consumers. We must transition
in a way that will constrain the size of the Fund but also avoid shock
to consumers or providers that could endanger connections to the
network--broadband or traditional voice services on which users depend.
We will need to consider the many implementation details, and weigh the
costs and benefits of proposed approaches, including the transition
period, in the proceeding expected in the fourth quarter of this year.
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs? Are there specifics metrics we
should use to ensure better value for the taxpayer?
Answer. The National Broadband Plan recommends that recipients of
CAF support be accountable for its use and subject to enforceable
timelines for achieving universal access, including operational and
service quality requirements. I agree that recipients of universal
service support must be accountable and subject to Commission oversight
to ensure that the program, on an ongoing basis, is achieving the goals
set out by Congress. One specific measure recommended in the Plan is to
require that providers offer at least 4 Mbps down and 1 Mbps up to
receive universal service support. Regardless of what minimum threshold
we ultimately select, we should regularly revisit that finding so that
we keep up with technology and ensure that this speed baseline is a
floor not a ceiling for rural America. I look forward to considering
specific proposed requirements and metrics in the course of the
rulemaking scheduled to begin in the fourth quarter of this year.
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Answer. I believe that consumers will benefit most from continued
investment, innovation, and competition. I start with an assumption
that markets work better than government intervention. To the extent
that market forces are sufficient in an area to drive broadband
services to America's consumers, I see a limited role for government.
But where the market does not provide sufficient incentives for
businesses to deploy, the government may need to step in with carefully
targeted policies to ensure the availability of critical infrastructure
without foreclosing the possibility of future competition as the market
and technology progress. During the rulemaking expected to begin in the
fourth quarter of this year, we will need to consider carefully the
costs and benefits of proposed approaches, including the effect
proposals could have on competition in smaller markets.
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Answer. The National Broadband Plan recommends that recipients of
CAF support be accountable for its use, including requirements for
enforceable timelines for extending broadband to unserved areas. I
agree that recipients of universal service support must be accountable
and subject to Commission oversight to ensure that the program, on an
ongoing basis, is achieving the goals set out by Congress. We will
consider specific proposed requirements in the course of the rulemaking
scheduled to begin in the fourth quarter of this year. To the extent
that the Commission adopts buildout requirements, we should look to
lessons learned from our previous experience with similar restrictions
and craft requirements with a degree of flexibility to ensure
successful deployments are not constrained by rigid and unnecessary
regulatory burdens.
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Answer. The National Broadband Plan recommends a framework for
long-term intercarrrier compensation reform that creates a glide path
to eliminate per-minute charges while providing carriers an opportunity
for adequate cost recovery, and establishing interim solutions to
address arbitrage. I feel strongly that comprehensive universal service
reform can only be successful and sustainable in the long run if
universal service and intercarrier compensation are reformed together.
Network investments are paid for by some combination of user
charges, intercarrier compensation, and universal service support. Many
providers are heavily dependent on intercarrier compensation to support
network investment and operational expenses. Regardless of the
regulatory approach we ultimately adopt, we must transition in a way
that avoids shock to consumers or providers that could endanger
connections to the network--broadband or traditional voice services on
which users depend. As we begin to consider the best policy solutions
for universal service reform and intercarrier compensation reform, we
need to move toward a regime that provides appropriate incentives for
network investment, while addressing uneconomic arbitrage issues.
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Answer. The CAF, as recommended by the National Broadband Plan,
would support only one provider of broadband per geographic area. The
eligibility criteria for obtaining support would be company- and
technology-agnostic. At the same time, a newly designed Mobility Fund
would provide support for 3G networks. As we begin comprehensive
reform, we will need to consider all parts of the program, including
whether both fixed and mobile should be supported in the same area,
through which universal support mechanisms, and if supported, what
financial strain that could put on the overall size of the Fund. I feel
strongly that our ultimate decisions should be guided by the principle
of technology neutrality.
Question 7. I understand that the proposed Mobility Fund is a one-
time grant to build a cell site. Do you think the Fund should also
provide grants for ongoing costs? If not, why not?
Answer. The Mobility Fund, as recommended in the National Broadband
Plan, would provide a one-time support for deployment of 3G networks,
to bring all states to a minimum level of 3G (or better) mobile service
availability. In the course of the rulemaking to create the Mobility
Fund, I expect we will build a robust record that will likely include
arguments that ongoing costs should be supported. We will need to
consider carefully the costs and benefits of the proposed approach, as
well as whether the Mobility Fund should be extended to ongoing costs.
This debate will undoubtedly balance, among other things, any effect
expanded support could have on availability of mobile broadband against
the financial burden ongoing support would impose on the overall size
of the Universal Service Fund.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Meredith A. Baker
Question 1. One of the rationales I have heard for the ``Third
Way'' is the idea that we cannot move ahead providing universal service
for broadband without it. But I understand there are at least seven
instances where the Commission applied ancillary jurisdiction to Voice
Over Internet providers to, for example, make them pay into universal
service, provide 911 service etc. So if that's the case, why do you
need to reclassify broadband in order to make USF payout for broadband?
Answer. I do not believe that reclassifying broadband under Title
II is necessary to reform the Universal Service Fund to support
broadband. There is clear consensus that an overhaul of the Universal
Service Fund is critical to better manage the costs of the program and
help address broadband adoption and deployment challenges. I think we
can and should move forward with critical reforms to the Universal
Service Fund, including the high-cost component, under our existing
authority. I believe the foundation of a strong national broadband
policy is already in place, and we need not alter the regulatory
classification of broadband Internet access services to achieve a true
consensus agenda.
In 2007, the Federal-State Joint Board on Universal Service
recommended that broadband Internet access service be a ``supported
service'' under the program, and a number of parties have advocated
ways to expand the Fund to support broadband based on section 254.\1\
Title I of the Communications Act of 1934, as amended, permits the
Commission to assert ancillary authority over interstate communications
by wire or radio--such as broadband--when the assertion of jurisdiction
is ``reasonably ancillary to the effective performance of [its] various
responsibilities.'' \2\ The D.C. Circuit's decision in Comcast v. FCC
did not foreclose lawful assertion of ancillary authority by the
Commission where it satisfies the legal standard affirmed by the
Supreme Court in Southwestern Cable.
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\1\ See, e.g., Letter from Kyle McSlarrow, President and CEO,
National Cable & Telecommunications Association, to Julius Genachowski,
Chairman, FCC, GN Docket Nos. 09-51, 09-191, WC Docket No. 07-52 (March
1, 2010) (NCTA USF Letter); Letter from Gary L. Phillips, General
Attorney and Associate General Counsel, AT&T Services, Inc., to Marlene
H. Dortch, Secretary, FCC, GN Docket Nos. 09-51, 09-47, 09-137, WC
Docket Nos. 05-337, 03-109 (Jan. 29, 2010).
\2\ United States v. Southwestern Cable Co., 392 U.S. 157, 178
(1968) (Southwestern Cable); see also Southwestern Cable, 392 U.S. at
177-78; United States v. Midwest Video Corp., 406 U.S. 649, 667-68
(1972); FCC v. Midwest Video Corp., 440 U.S. 689, 700 (1979).
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In my view, we can satisfy that threshold with regard to universal
service reform and it is a reasonable reading of the statute to
conclude that reforming the Universal Service Fund to support broadband
is reasonably ancillary to our responsibilities under section 254.
Specifically, section 254 speaks in terms of the ``evolving level'' of
universal service and directs the Commission, in determining the
supported services, to ``tak[e] into account advances in
telecommunications and information technologies and services.'' \3\ In
addition, section 254 states that the Commission shall base universal
service on the principle that ``[a]ccess to advanced telecommunications
and information services should be provided in all regions of the
Nation.'' \4\ Section 706's directive to deploy advanced services to
all Americans provides further support that this would be consistent
with Congressional intent.
---------------------------------------------------------------------------
\3\ 47 U.S.C. 254(c)(1).
\4\ 47 U.S.C. 254(b)(2).
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I recognize that section 254's language is ambiguous and that it
also describes universal service in terms of ``telecommunications
services.'' I acknowledge that the approach I advocate is not without
some legal risk but in my assessment, reclassification under Title II
also carries significant litigation risk. Most significant decisions
this Commission makes are tested in court. Only Congress has the
ability to provide the Commission with clear jurisdictional footing to
move forward to tackle the challenges of the broadband age, and I
always welcome the direction that legislation can provide. On balance,
absent legislation, I believe that retaining the information service
classification and asserting ancillary authority to achieve universal
service reform is less risky as a legal and policy matter than
reclassifying an entire sector of the Internet.
Question 2. If the FCC enacts the proposed Connect America Fund,
how large would the Fund be? How long would this Fund have to exist in
order to achieve the National Broadband Plan goal of 4 megabits per
second to at least 99 percent of homes by 2020?
Answer. The National Broadband Plan recommends shifting up to $15.5
billion (present value in 2010 dollars) over the next decade from the
current High-Cost program to broadband, with $11.5 billion expressly
targeted to the Connect America Fund (CAF). By 2020, the CAF would
replace the existing High-Cost program and would continue to provide
support in areas where there is no private sector business case to
provide broadband and high-quality voice-grade service. The Plan
predicts that the initial universalization target of 4 Mbps down/1 Mbps
up would be reached within the ten-year projection but also recommends
that the Commission review and reset this target every 4 years. I
support periodic review to ensure that our reforms, when implemented,
are initially achieving the goal of ubiquitous broadband set out by
Congress, and continue to be effective in years ahead. As the Plan
acknowledges, there could be transitional impacts that the Commission
will have to consider carefully before implementing this proposal. We
expect our deliberations on the proposed fund to begin in the fourth
quarter of this year. As we make decisions about how the new Universal
Service Fund will work, we will not lose sight of the special
circumstances facing rural America.
Question 3. Some argue that the National Broadband Plan will create
new digital divide since the plan predicts broadband speeds of 100
megabytes per second for 100 million urban households and 4 megabytes
per second for most rural households. Do you agree with this
assessment? If the Universal Service Fund or the new Connect America
Fund is going to support broadband in rural areas are the principles of
``universal service'' achieved when we have two different broadband
standards?
Answer. It is critical that we repurpose the nearly $9 billion
Universal Service Fund to target it to broadband investment. We must
evolve our support mechanisms into an era in which all Americans have
the opportunity to benefit from broadband by ensuring adequate funding
in areas where market forces are not sufficient to drive broadband
services to America's consumers.
The National Broadband Plan recommends that we require recipients
of CAF support to offer at least 4 Mbps down/1 Mbps up to receive
universal service support. Regardless of what minimum threshold we
ultimately select, we should regularly revisit that finding so that we
keep up with technology and ensure that this speed baseline is a floor
not a ceiling for rural America. I expect the Commission to examine
this concern, which we have also heard from rural carriers, in depth in
the course of the rulemaking scheduled to begin in the fourth quarter
of this year.
Question 4. The National Broadband Plan recognizes that only one
broadband provider should be eligible to receive support. Under what
process will the FCC use to determine who receives support? Reverse
auctions? And should the awarded provider have carrier of last resort
obligations?
Answer. The National Broadband Plan recommends that the Commission
identify ways to drive funding to efficient levels, including market-
based mechanisms where appropriate, to determine the firms that will
receive CAF support, on a company- and technology-agnostic basis, and
the amount of support they will receive. In the course of the
rulemaking, I support exploring all options to improve efficiency and
accountability, and deter waste, fraud, and abuse. I expect a fulsome
discussion of reverse auctions in the record, along with other ideas,
and we will need to carefully weigh the costs and benefits of all
proposed approaches. The Plan also recommends that recipients of CAF
support be subject to a provider-of-last-resort option to ensure that
providers are accountable for the use of CAF support and that no
customers are left behind in the transition to the new support
mechanism.
Question 5. Should the contribution base of the Universal Service
Fund be expanded? If so, how? Should an increase in the contribution
base of the Universal Service Fund result in an increase in the overall
size of the Fund?
Answer. The National Broadband Plan recommends that the Commission
broaden the universal service contribution base. Although the Plan does
not recommend a particular approach, the Commission has an extensive
record on reforming the contribution methodology including proposals to
broaden the base by including broadband revenues or assessing phone
numbers or connections. I support reforming the contribution
methodology and we will have to carefully consider the options during
the course of the contributions proceeding, expected to begin in the
fourth quarter of this year.
Broadening the contribution base, however, must not result in an
increase in the overall size of the Fund. It has grown from $2.3
billion in 1998 to nearly $9 billion this year. The universal service
contribution factor has been as high as 15.3 percent. I have stated
often that our efforts to modernize should not lead to further growth
of the overall size of the Fund and I believe that we can do that. But
to achieve this, hard choices will have to be made and we will have to
design a more efficient fund focused on broadband and funded in a
technologically neutral manner. It is our obligation to ensure that
money is spent wisely to achieve the goals set out by Congress--but
without distorting the market or increasing the size of the Fund.
Question 6. The broadband stimulus program allocated $7.2 billion
to be used for broadband deployment. To what extent will broadband
stimulus money assist in reaching the broadband deployment goals as
established within the National Broadband Plan?
Answer. The American Recovery and Reinvestment Act of 2009 provided
the Department of Commerce's National Telecommunications and
Information Administration (NTIA) and the U.S. Department of
Agriculture's Rural Utilities Service (RUS) with $7.2 billion to expand
access to broadband services in the United States. In addition, other
agencies, including RUS, provide or have provided broadband-related
funding.\5\ Various Federal funding sources help fill the gaps in
broadband service across the country, and USF support specifically
should be targeted to areas where market forces are not sufficient to
drive broadband services to America's consumers. The Plan recommends
that the CAF support mechanism should take into account funding from
sources, such as Recovery Act grants, and I believe that support
programs should be coordinated to maximize efficiency of Federal
programs and to avoid distorting the market.
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\5\ See Acting Chmn Michael J. Copps, FCC, Bringing Broadband to
Rural America: Report on a Rural Broadband Strategy, GN Docket No. 09-
29, 24 FCC Rcd 12792, paras. 48-56 & App. B (2009).
Question 7. Will the FCC do any economic analysis from the
perspective of small rural telephone companies with regards to moving
more companies into a price-cap system rather than rate-of-return if
that is the ultimate decision of the Commission?
Answer. The National Broadband Plan recommends that the Commission
move rate-of-return carriers to incentive regulation. Price caps, and
other forms of incentive regulation, are designed to promote efficiency
and innovation. To the extent that recipients of universal service
support become more efficient, it should allow USF dollars to go
farther, reducing pressure to increase the size of the overall Fund. On
April 21, 2010, we sought comment on whether the Commission should
replace rate-of-return regulation with the price-cap framework recently
adopted for voluntary conversions by some carriers, an alternative
price-cap framework, or some other form of incentive regulation. The
record is currently under review by Commission staff.
Although incentive regulation is expected to drive efficiency for
carriers, consumers and the Fund, I think it is critically important
that we transition USF support in a measured way that does not put
services to consumers--existing or future, broadband or voice--at risk.
As a result, before the Commission moves forward with proposals to
modify the regulatory framework for small rural telephone companies, it
is imperative that we consider carefully the affects of the proposed
regulation, including economic analysis, and perhaps most importantly,
potential unintended negative consequences that could outweigh any
intended benefits to the detriment of rural consumers. I will ensure
that, as we move forward with needed reforms, we will not lose sight of
the special circumstances facing rural America.
Question 8. How can we better eliminate waste, fraud and abuse
within the Universal Service Fund?
Answer. A reformed universal service support mechanism that is
sustainable and achieves its goals must ensure efficiency and
accountability, and deter waste, fraud, and abuse. This depends on a
rigorous auditing program and vigilant oversight by the Commission. The
Commission is not waiting to provide stronger management and oversight
of the Fund and a number of changes to oversight of the existing Fund
have been implemented. Going forward, the National Broadband Plan
recommends that future enhancements to the USF have accountability and
oversight provisions built in from the outset and I strongly support
that approach.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Jeff Gardner
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Answer. I share your goal of quick action on comprehensive
universal service reform by the FCC and support the framework of the
FCC's reform proposal. Last year, Windstream and other carriers
proposed that the FCC adopt the ``Broadband Now Plan''--a series of
reforms that, if enacted, would prompt immediate broadband deployment
in many unserved areas. I also share the concern of Chairman
Rockefeller, who recently wrote to Chairman Genachowski that there is
``a pressing need for reform'' so that the rural-rural divide created
by existing universal service programs can be eliminated. President
Obama also has expressed a sense of urgency to make broadband more
widely available.
At a minimum, the FCC should act now to make more broadband
available by adopting the following reforms by the end of 2010:
1. Plug the ``leaky buckets.'' The finances of rural broadband
providers are undermined by well known problems that have been
documented and debated for years. It is time to act. The FCC
should address phantom traffic and definitively state that VoIP
must pay the same jurisdictionalized access charges as all
other voice traffic using the telephone network. Phantom
traffic schemes and evasion of intercarrier compensation
requirements by VoIP providers divert payments that should be
made under the system in place today, thereby undermining
broadband investment. Acting now would reduce financial needs
that the universal service system otherwise would have to
address.
2. Launch an interim fund for broadband infrastructure
construction in unserved areas. This measure would enable at
least some rural Americans to see quick results, even as the
FCC continues work on a detailed, comprehensive, long-term
broadband solution. One potential source of funds: Certain
wireless carriers committed 2 years ago to surrender universal
service funding as a condition of mergers, yet continue to
receive this funding. The National Broadband Plan said
recapturing this funding alone would free up $3.9 billion over
the next decade. In addition, public funds could be stretched
farther by a requirement that companies invest some of their
own funds in broadband deployment projects that are supported
with universal service dollars. Universal service funding
should fill, but not exceed, the gap between costs and the
amount of investment companies generally would be willing to
make in areas that are economic to serve.
When considering further reforms, it is vital that Congress and the
FCC gain a deeper appreciation of the scope of the broadband investment
gap, which will largely drive funding challenges, before locking in
final decisions about the amount of total universal service support
available and a timeline for meeting ubiquitous deployment goals. A
prudent transition process is needed to ensure that any broadband and
voice deployment requirements are sufficiently supported. Unfunded
mandates could be ruinous for consumers relying on existing carriers of
last resort, i.e., the entities most willing and able to serve as
broadband and voice providers of last resort in high-cost areas.
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs? Are there specifics metrics we
should use to ensure better value for the taxpayer?
Answer. Some critics of the National Broadband Plan say that it
would lock in relatively low speeds for rural America and thus
permanently hold back rural areas relative to urban areas. Windstream
believes this concern is misplaced. The FCC's approach of initially
funding 4-megabit connections to every household that lacks broadband
today is prudent and will pose a very significant financial challenge
in its own right. In contrast, building to significantly higher
performance requirements now would place an untenable burden on the
universal service system: Chairman Genachowski has stated that using
universal service to build 100-megabit connections to every home
``could translate into a 7-fold increase in a consumer's contribution
to the universal service fund.''
As we move forward, it is important that the universal service
system support deployment of scalable technology, i.e., broadband
platforms that can be upgraded later to reach higher speeds. A great
example of this is funding for ``second-mile'' fiber--fiber that feeds
the distribution node for a neighborhood or small group of houses. In
the future, second-mile fiber offers many scalability options. For
instance, it can be extended closer to the premises; outfitted with
upgraded electronics to boost speeds or overall capacity; and connected
to wireless towers that provide high-speed data services.
The best possible metric for assessing taxpayer value of new
broadband deployment projects will be the actual experience of
consumers. If the goal is to enable small businesses, it is important
that the firms be able to utilize broadband to enhance their
businesses--for example, to host websites or engage in
teleconferencing. If the goal is improved educational opportunities,
the government must support deployment of broadband that will enable
students to view online lectures or conduct academic research. The
government's focus should be on supporting a uniform performance
standard--applicable both to wireline and wireless technologies--that
will enable essential core broadband functions.
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Answer. The National Broadband Plan's proposal to fund only a
single provider in an area makes sense. A high-cost area is, by
definition, an area that cannot support service by even one provider
absent universal service support. Scarce universal service funding
should not be used to fund competition in an area that cannot even
support one provider on its own.
Because the FCC appropriately intends to fund only one provider in
an area, however, it is vitally important that it target universal
service to providing core broadband and quality voice capabilities to
consumers in granular high-cost areas, without regard to the type of
company or the type of technology involved in providing the service.
Moreover, the focus of reform should be on all rural consumers, not
just those served by smaller providers. In current debates over the
National Broadband Plan, some recipients of universal service funding
are trying to shift the conversation away from rural consumers and back
to their particular financial interests. This is classic interest-group
politics, but the risk is that many rural consumers will remain a
secondary concern and reform will be stopped or weakened. If the agency
is serious about its commitment to ensuring ubiquitous access to
broadband and quality voice services, the FCC, as Chairman Rockefeller
recognizes, must make changes to ensure that the universal service
regime does not continue to be a ``system in which support is dependent
on the size and regulatory classification of the carrier.''
Finally, under the National Broadband Plan's proposals, smaller
carriers will remain eligible for support in high-cost areas.
Certainly, for instance, they would be eligible to seek support from
the new CAF.
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Answer. Yes. Funding should be used for sustainable networks--that
is, facilities-based entities that deliver second-mile and last-mile
service. That said, some areas will also require ongoing support after
initial construction is complete. Windstream supports the creation of
two new distribution mechanisms, one to enable deployment of broadband
to unserved households where initial support is needed but operational
support is not, and one to support up-front deployment costs as well as
recurring operational costs in those areas that need it.
Question 5. Some providers have argued that the broadband plan does
not take into account costs incurred through provider-to-provider
transactions/reimbursement costs. Should additional costs such as
intercarrier compensation, phantom traffic, etc. be factored into the
costs of providing broadband service? If not, why not?
Answer. Windstream has been working for years to build support for
constructive reforms to the intercarrier compensation system.
Constructive reform would recognize that intercarrier compensation
provides a vital revenue stream for providers in high-cost areas and
that reform will require transition periods and the creation of
alternate revenue mechanisms. As I noted in my reply to Question 1,
Windstream believes that compensation for VoIP and phantom traffic,
issues within the intercarrier compensation system, can be addressed by
the FCC this year. Harvesting this low-hanging fruit would reduce the
price tag of comprehensive intercarrier compensation reform and make it
easier for the FCC to move ahead with other reforms, including those
recommended by the National Broadband Plan.
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Answer. The primary goal of the CAF should be to provide consumers
access to core communications services in their homes and business
locations. Core services would enable online video applications needed
for teleconferencing and distance learning. CAF funds, which most
likely will be limited, should be targeted toward delivering these core
broadband services to all Americans, without emphasis on any particular
technology. Both fixed and wireless providers should be eligible for
funding, as long as uniform performance requirements apply equally
across all technologies.
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the fund should also
provide grants for ongoing costs? If not, why not?
Answer. There is significant pressure to hold the Universal Service
Fund to about its current size. The FCC has said that doing so will
help keep broadband affordable, as it will hold down the surcharge on
consumers' monthly bills.
In light of funding constraints, the FCC should not dedicate
ongoing support to projects focused on delivering mobility until after
the agency first has fully funded deployment and ongoing support of
multi-use facilities that are important for provision of both last-mile
connections to homes and backhaul to wireless towers. These multi-use
facilities offer the greatest ``bang for the buck.'' Moreover,
according to the National Broadband Plan, ``it is not clear that
government intervention will be necessary to enable a robust mobile
broadband ecosystem in most parts of the country.''
______
Response to Written Questions Submitted by Hon. Mark Warner to
Delbert Wilson
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Answer. Senator Warner, my understanding is that the only portion
of the NBP involving grants is the creation of the Mobility Fund (MF).
This Fund will administer grants to build towers in areas of the
country lacking in 3G coverage. Under the current proposed plan, the MF
is in existence for 3 years.
The CAF, similar to the current USF, wouldn't be a ``grant''
program but would allow carriers to recover their costs after an
initial capital investment was made to their network.
I, too, support the goal of nationwide ubiquitous broadband for all
Americans, and also support a national policy directive that moves our
country in that direction. However, under the proposed NBP we see just
the contrary. Moving rural ILECs away from rate-of-return regulation,
which has been a proven form of regulation that has yielded broadband
infrastructure investment in rural areas of our country to price-cap or
incentive regulation, will put a hold on any further investment in
broadband infrastructure. It will cripple rural carriers as it takes
away the ability to recover our costs to deploy networks. The NBP needs
to be altered; otherwise, it will create a whole new class of
``unserved'' consumers as rural telcos go out of business.
To get to your specific question on the time-frame for the
transition, it is vitally important that any reforms to the existing
cost-recovery mechanism be done in a thoughtful manner that allows for
ample time for a reasonable and sensible transition period.
Policymakers need to avoid flashcuts to existing support mechanisms and
allow for the gradual transition to any new system. Rural ILECs depend
on stable, certain cost-recovery mechanisms to keep consumer rates
reasonable and predictable, invest in infrastructure, and pay back RUS
and private sector loans used for network upgrades. In theory the NBP
provides a generous transition period in that it envisions its
implementation over a 10-year period. The dilemma however is that the
plan itself is built upon incorrect assumptions and concepts that will
not transition the rural sector to workable alternatives. Rather, it
proposes transitioning us to an environment of where costs can not be
recovered and operations will not be sustained.
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs? Are there specifics metrics we
should use to ensure better value for the taxpayer?
Answer. I contend it would be easy to require any carrier receiving
CAF support to agree to a certain quality of service, carrier of last
resort obligations, and broadband speed requirements as a condition.
This way public policy goals of providing broadband to ALL Americans
are met and limited support dollars are spent wisely.
Additionally, it is critically important that rural Americans not
be left behind when it comes to broadband speeds. The NBP sets a worthy
goal of 100 mbps to 100 million homes by 2020; however, the plan calls
for the CAF to only support a floor of 4 mbps which will be the default
in rural, high-cost areas of the country--leaving rural Americans with
broadband speeds 25 times slower than their urban counterparts. This is
unacceptable and runs counter to the Communications Act, which requires
comparable services and comparable rates between urban and rural areas.
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Answer. The USF program works for serving and building
infrastructure for rural America. As rural carriers, our growing
dependence on USF has been a result of regulation over time removing
our ability to recover costs through implicit rates and moving this
cost recovery to an explicit USF mechanism. There is little doubt that
under the NBP if a rural carrier loses its ability to recover costs
that there will be a significant pressure to raise local rates--not to
mention the mere continued existence of rural carriers. In many of the
areas we serve there is no competition and in many cases never will be
because of the economic realities of sparsely populated rural areas. At
Hill Country Telephone Cooperative, our customer density is only 4.68
subscribers per square mile. These areas are high-cost and without
rate-of-return regulation and USF support these areas wouldn't be able
to support even a single carrier and consumers would never be served.
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Answer. Yes, if a carrier receives CAF support they should be
required to build out the area.
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Answer. Yes, intercarrier compensation needs to be addressed
simultaneously with USF reform. In addition to USF support, rural
carriers depend on intercarrier compensation to recover their costs of
providing high-quality service to their customers. Pressures on this
system, like phantom traffic, should be addressed by the FCC quickly.
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Answer. I contend the support based on the provider cost for both
mobile and fixed broadband service for rural America is probably in the
public interest.
I believe the NBP should encourage Americans living in rural areas
to have access to both fixed and mobile broadband service. Consumers
today rely upon the complementary nature of fixed and mobile service to
meet their communications needs. Landline broadband service can offer
much more robust broadband speeds and reliability, while mobile
broadband service can offer broadband service that is convenient and
provides accessibility and security.
Policymakers should be mindful of the past problems with the
identical support rule that caused the USF high-cost fund to grow so
quickly by allowing mostly wireless competitive carriers to receive USF
support based on the incumbent's wireline costs instead of their own
costs. This ill-advised policy should not be repeated with the CAF.
Carriers should receive support based on their own costs.
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the fund should also
provide grants for ongoing costs? If not, why not?
Answer. No, not grants, but what should be provided is a source of
operating support. Most grants only provide funding for a specific
project and are a one-time infusion of capital. When the grant funds
run out then what? Where towers will be built will obviously be in more
remote, less populated areas. It seems obvious some form of continued
support based on the carrier's cost to maintain the towers and provide
service would be appropriate and in the public interest, just as it
should be with wireline infrastructure.
As I said before, I believe wireline and wireless broadband service
to be complimentary of each other. Consumers rely upon both to meet
their broadband needs, and there should be recognition of such in
implementing the NBP.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Kyle McSlarrow
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Answer. NCTA agrees that the transition to the Connect America Fund
(CAF) should proceed as expeditiously as possible in order to bring
broadband to unserved areas and underserved populations. However, it is
also important to ensure that the transition is managed carefully to
ensure that the CAF is funded at an appropriate level and that the
overall size of the universal service program does not increase above
current levels. As recommended in the National Broadband Plan, the way
to achieve these goals is to phaseout support from existing high cost
support mechanisms and redirect it to a new broadband mechanism. These
are difficult issues that the Commission should be given ample time to
address. While we have not recommended a particular transition period
to the Commission, we believe the Commission should be able to begin
reducing support for existing mechanisms and redirecting it to the CAF
in 2011.
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs?
Answer. NCTA agrees that everyone in America, including consumers
in rural and remote areas of the country, should have high speed
broadband service. But it is important to focus on the purpose of the
USF fund--to ensure that rural consumers have service that is
comparable to what their urban and suburban counterparts have
subscribed to through the operation of market choices. The first task
is to get broadband to the areas of the country--and the roughly 5
percent of American households--that have no broadband and to make sure
rural areas have broadband that is comparable to what the rest of the
country enjoys. The FCC estimates that could cost about $24 billion.
Then, as speeds throughout the country increase, the speeds that would
be supported by the USF would increase, too. The FCC could periodically
review the speeds that have been adopted in non-rural areas and
accordingly adjust the speeds eligible for USF support.
Question 2a. Are there specifics metrics we should use to ensure
better value for the taxpayer?
Answer. See answer above.
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Answer. Rather than using the high cost fund to support a provider
in markets where there are two or more entrants, we agree with the goal
set out in the National Broadband Plan of phasing out existing support
to all providers and directing new broadband subsidies to unserved
areas.
While providers competing to serve the same area should have the
same access to subsidies in the meantime, subsidies should be
eliminated or reduced in areas where the incumbent carrier receives
support and a competitor has been able to enter the market and provide
service without support. The introduction of unsubsidized competition
in these markets strongly suggests that the incumbent no longer needs
high cost support. NCTA has proposed a mechanism by which the FCC would
review such markets and reduce or eliminate support there--enabling the
Commission to better target high cost support to areas that need it and
to at least in part repurpose these savings for the deployment of
broadband in unserved areas. While losing some of the support they
receive will require some adjustment on the part of current recipients,
the ability of an incumbent to offer multiple services over its network
provides new opportunities that should offset these reductions.
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Answer. Yes. The purpose of the CAF should be to facilitate the
extension of broadband facilities to unserved areas. Merely subsidizing
over-the-top broadband access in areas that already have broadband--
other than to low income households--will not serve the fundamental
objective of bringing broadband platforms to areas that currently have
none, nor will providing support to companies that don't actually
deploy broadband facilities, as occurs under the current high cost
support program.
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Answer. The National Broadband Plan recommended reform of the
intercarrier compensation regime and NCTA supports that recommendation.
As the FCC recognized when it started to reform the current
intercarrier compensation regime almost a decade ago, one of the main
problems Is that certain providers are allowed to impose termination
charges far in excess of their costs, which has created significant
arbitrage opportunities. In rationalizing the intercarrier compensation
regime, the FCC obviously will have to take care to move forward in a
way that does not jeopardize its goal of universal broadband access. In
areas served by unsubsidized broadband providers, this should not be an
issue. In the limited number of areas where broadband is feasible only
with government subsidies, however, the FCC may need to consider the
possibility of providing additional high cost support, subject to
appropriate accountability requirements, to offset some portion of the
revenue a provider loses due to intercarrier compensation reform.
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Answer. Given the demand on the CAF to extend just one broadband
network to unserved areas--a cost estimated by the FCC at $24 billion--
it may be unrealistic and unnecessary to support the deployment of
wireline and wireless broadband to these areas. In many unserved areas,
wireless broadband may be the more appropriate technology because of
low population density, difficult terrain, or both.
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the fund should also
provide grants for ongoing costs? If not, why not?
Answer. Subsidizing ongoing operational expenses creates a risk
that companies will become too dependent on government support, as is
the case for many providers under the existing high cost support
program. Limiting any new high cost support mechanisms to the costs of
infrastructure construction would prevent that result. That said, if
broadband deployment in a particular area is not feasible absent some
level of support for operational costs, the Commission should consider
providing such support subject to appropriate accountability
requirements.
______
Written Questions Submitted by Hon. Mark Warner to
John Gockley
[The witness did not respond to the questions below.]
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs? Are there specifics metrics we
should use to ensure better value for the taxpayer?
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the fund should also
provide grants for ongoing costs? If not, why not?
______
Written Questions Submitted by Hon. Mark Warner to
R. Paul Waits
[The witness did not respond to the questions below.]
Question 1. As an advocate for broadband funding and deployment, I
believe that the goals of universal service should extend to broadband
deployment to support buildout plans in rural American and in
underserved areas. The FCC has proposed converting the current High-
Cost Fund into a new Connect America Fund. I support the goals of the
new fund, as explained in the National Broadband Plan. However, I am
concerned that it may take a long time to transition to a new broadband
grant funding program. How long should the transition period be?
Question 2. I also believe that taxpayers should receive high-value
broadband. Knowing that the standard speeds we enjoy today may be seen
as insufficient in just a few years, I think it's important to maintain
high standards for all portions of the country, especially in rural
America. How should Congress and the FCC ensure that speed and quality
are maintained in buildout programs? Are there specifics metrics we
should use to ensure better value for the taxpayer?
Question 3. Some current providers have expressed concerns about
their dependence on USF and their fears that a single-provider system
will result in their inability to remain competitive in their
respective markets. Is there evidence to back this claim? If so, how
can smaller market providers remain competitive?
Question 4. Should broadband grant funding under the CAF be
contingent upon physical buildout requirements? If not, why not?
Question 5. Some providers have argued that the broadband plan does
not take into costs incurred through provider-to-provider transactions/
reimbursement costs. Should additional costs such as intercarrier
compensation, phantom traffic, etc. be factored into the costs of
providing broadband service? If not, why not?
Question 6. Should the CAF support both fixed and mobile broadband
services in rural America? If yes, do you think that the universal
service mechanism should have as its goal that consumers receive access
to both?
Question 7. I understand that the proposed mobility fund is a one-
time grant to build a cell site. Do you think the fund should also
provide grants for ongoing costs? If not, why not?