[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

                              ----------                              
                                                                   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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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. 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.
---------------------------------------------------------------------------
    \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?

                                  
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