    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

         DIGITAL DIVIDE: EXPANDING BROADBAND ACCESS TO SMALL BUSINESSES

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

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  HEARING HELD
                                 JULY 18, 2012

                                   __________

                       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 112-079
                  Available via the GPO Website: www.fdsys.gov

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                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Hon. Sam Graves..................................................     1
    Hon. Nydia Velazquez.............................................     2

                                   WITNESSES

    The Honorable Julius Genachowski, Chairman, Federal
      Communications Commission, Washington, DC......................     3
    The Honorable Jonathan Adelstein, Administrator, Rural Utility
      Service, United States Department of Agriculture, Washington,
      DC.............................................................     6
    The Honorable Lawrence E. Strickling, Assistant Secretary,
      National Telecommunications & Information Administration, U.S.
      Department of Commerce, Washington, DC.........................     8

                                    APPENDIX

    Prepared Statements:
        The Honorable Julius Genachowski, Chairman, Federal
          Communications Commission, Washington, DC..................    30
        The Honorable Jonathan Adelstein, Administrator, Rural
          Utility Service, United States Department of Agriculture,
          Washington, DC.............................................    34
        The Honorable Lawrence E. Strickling, Assistant Secretary,
          National Telecommunications & Information Administration,
          U.S. Department of Commerce, Washington, DC................    42
    Questions for the Record:
        Rep. Peters Questions for the Record for Mr. Genachowski and
          Mr. Strickling.............................................    60
        Rep. Mulvaney Questions for the Record for Mr. Genachowski...    61
        Rep. Hahn Questions for the Record for Mr. Genachowski.......    63
        Rep. Schrader Questions for the Record for Mr. Genachowski...    64
    Answers for the Record:
        Mr. Strickling Answers for the Record........................    65
        Mr. Genachowski Answers for the Record.......................    68
    Additional Materials for the Record:
        eBay Letter for the Record...................................    77
        Statement of the American Farm Bureau Federation.............    80
                       HOUSE COMMITTEE ON SMALL BUSINESS

                         SAM GRAVES, Missouri, Chairman
                           ROSCOE BARTLETT, Maryland
                               STEVE CHABOT, Ohio
                                STEVE KING, Iowa
                             MIKE COFFMAN, Colorado
                         MICK MULVANEY, South Carolina
                             SCOTT TIPTON, Colorado
                             JEFF LANDRY, Louisiana
                       JAIME HERRERA BEUTLER, Washington
                              ALLEN WEST, Florida
                         RENEE ELLMERS, North Carolina
                              JOE WALSH, Illinois
                           LOU BARLETTA, Pennsylvania
                            RICHARD HANNA, New York
                         ROBERT T. SCHILLING, Illinois

                   NYDIA VELAZQUEZ, New York, Ranking Member
                             KURT SCHRADER, Oregon
                            MARK CRITZ, Pennsylvania
                            YVETTE CLARKE, New York
                              JUDY CHU, California
                         DAVID CICILLINE, Rhode Island
                           CEDRIC RICHMOND, Louisiana
                            JANICE HAHN, California
                             GARY PETERS, Michigan
                              BILL OWENS, New York
                          BILL KEATING, Massachusetts

                          Lori Salley, Staff Director
                        Paul Sass, Deputy Staff Director
                          Barry Pineles, Chief Counsel
                      Michael Day, Minority Staff Director

         DIGITAL DIVIDE: EXPANDING BROADBAND ACCESS TO SMALL BUSINESSES

                                  ----------

                            WEDNESDAY, JULY 18, 2012

                              House of Representatives,
                                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 1:00 p.m., in room
    2360, Rayburn House Office Building. Hon. Sam Graves (chairman
    of the Committee) presiding.
        Present: Representatives Graves, King, Mulvaney, Tipton,
    Landry, Herrera Beutler, West, Ellmers, Hanna, Schilling,
    Velazquez, Schrader, Owen, Critz, Chu, Cicilline, and Richmond.
        Chairman Graves. I call this hearing to order. I apologize
    for the delay. Obviously, we had a vote and sometimes that
    messes us up when it comes to hearings but I very much
    appreciate everybody coming out today, and particularly to our
    very distinguished panel of witnesses who are testifying today.
    And I very much appreciate your participation.
        Today we have an opportunity to hear from three key federal
    agencies on their efforts to expand broadband access to small
    businesses all across America. These agencies play an important
    role in developing the policies aimed at incentivizing
    broadband deployment by the private sector.
        Access to broadband has the potential to transform the way
    small businesses operate and compete in today's economy. It
    provides small firms the opportunity to utilize a variety of
    new tools to help reduce costs and increase productivity. E-
    mail, online marketing, video conferencing, and access to cloud
    computing are just a few examples. Moreover, access to high-
    speed Internet is a catalyst for economic growth and
    entrepreneurship, especially in rural areas.
        While it is easy to understand the benefits of broadband
    Internet, those capabilities would not be available if not for
    the contributions of private Internet providers. Earlier this
    year our Subcommittee on Healthcare and Technology, chaired by
    Ms. Ellmers, held a hearing on this subject with private
    carriers and users. The consensus response we heard, and will
    continue to hear today I am sure, is the need for regulatory
    certainty. They need to know what regulatory changes are
    coming, and when, so that they can obviously make the necessary
    adjustments to their business operations.
        This brings me to a couple of very key, important points.
    First, when agencies consider new policies, like reforming the
    Universal Service Fund, we need to ensure that these changes do
    not diminish the incentives for private sector investment to
    deploy broadband. And second, I encourage you to accelerate the
    supply of spectrum for wireless providers to keep up with the
    growing demand. The boom in wireless smartphones and tablets
    has created a new market of innovation and capabilities for
    small businesses that have to continue.
        Without private sector investment in broadband
    infrastructure, many small firms in rural areas, like my area
    in northwest Missouri, will be disconnected from one of the
    most powerful tools of our generation, which will in turn
    hamper their success, obviously.
        So again, I want to thank all of our witnesses for being
    here. I very much look forward to your testimony.
        I now yield to Ranking Member Velazquez for her opening
    statement.
        Ms. Velazquez. Thank you, Chairman Graves.
        Today's hearing will offer an opportunity to summon the
    benefits and challenges of broadband deployment, acknowledging
    telecommunication sectors as substantial contributors to the
    U.S. economy and an engine for growth. Opportunities in this
    industry are likely to expand as they build out broadband and
    new wireless networks. Collectively, investments are projected
    to generate between more than 300,000 jobs and contribute over
    $70 billion in GDP growth.
        Our nation's small firms stand ready to capture many of
    these economic gains. Innovation is leading the way in today's
    economy, and small companies are at the forefront. Not only
    does broadband facilitate innovation by small firms, it allows
    them to use the most cutting edge products available. More
    small businesses are embracing broadband than ever before, and
    it is rapidly changing the way business is conducted.
    Innovative applications and services such as videoconferencing
    are helping small companies reduce costs, increase
    productivity, and expand their businesses into new competitive
    markets. Firms can save more than $16,000 in start-up costs
    just by conducting activities from land.
        We have seen the benefits broadband technology can bring to
    our daily lives in a variety of ways. Those fortunate enough to
    have access to broadband know how it improves efficiency and
    reduces costs. Because of the lack of network infrastructure,
    rural and low income community access is being outpaced by the
    rest of the country. Unfortunately, the adoption path may
    further widen without adequate support for broadband
    deployment. Eliminating the digital divide is vital not only to
    assist distant rural and low income communities but also
    helping our nation's job creators. By making the virtual
    marketplace more accessible, more entrepreneurs can grow their
    companies and invest in hires.
        The Recovery Act loan and grant benefits are twofold. As
    disadvantaged businesses are building their networks and
    expanding their services, small businesses and communities gain
    access to high speed Internet. In the long term this results in
    attracting more businesses, lower unemployment rates, and
    skilled workers. However, this program has not done enough to
    completely overcome the cost issue small businesses face.
        As we learned during the Committee's February hearing,
    broadband availability continues to be a challenge in some
    communities, both rural and urban. We even heard how recent
    USDA and ICC reform have proven difficult for many of the
    nation's small rural carriers.
        This hearing will focus on improving broadband access in
    order to strengthen the small business economy. The insights
    gathered today will ensure that policies coming out of Congress
    are effectively supporting network deployment without burdening
    small telecom providers. This Committee will also make certain
    that the needs of small firms are taken into account in
    upcoming spectrum options and in moving forward with U.S.
    reform.
        In advance of the testimony, I want to thank all the
    witnesses for being here today. With that I yield back, Mr.
    Chairman. Thank you.
        Chairman Graves. Thank you, ranking member.
        Before I get started it gives me a great deal of pleasure
    to recognize my daughter who is in the hearing room today and
    just started--is starting law school this fall and this is the
    first time she has been in one of the Small Business Committee
    hearings and I appreciate her being here today.
        And with that I want to introduce our first witness, The
    Honorable Julius Genachowski, who is the chairman of the
    Federal Communications Commission. Chairman Genachowski was
    confirmed by the Senate in 2009 and oversees an agency of over
    1,700 employees, which is responsible for regulating the
    interstate and international communications. Thank you very
    much for being here. I appreciate it and look forward to your
    testimony.

       STATEMENTS OF THE HONORABLE JULIUS GENACHOWSKI, CHAIRMAN,
       FEDERAL COMMUNICATIONS COMMISSION; THE HONORABLE JONATHAN
    ADELSTEIN, ADMINISTRATOR, RURAL UTILITY SERVICE, UNITED STATES
         DEPARTMENT OF AGRICULTURE; THE HONORABLE LAWRENCE E.
     STRICKLING, ASSISTANT SECRETARY, NATIONAL TELECOMMUNICATIONS
      AND INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

                    STATEMENT OF JULIUS GENACHOWSKI

        Mr. Genachowski. Thank you, Chairman Graves, Ranking Member
    Velazquez, and members of the Committee. I appreciate the
    opportunity to be here today, and I am pleased to join my
    federal partners, NTIA Administrator Strickling, and RUS
    Administrator Adelstein.
        My primary focus as FCC Chairman has been promoting
    innovation, investment, competition, and consumers in the
    communications and technology sector. We have focused the
    agency on maximizing the benefits of broadband communications
    and on helping harness wired and wireless broadband to grow our
    economy, enhance U.S. competitiveness, and create jobs, as well
    as advancing important goals like improved education, health
    care, and public safety.
        A key element of our strategy has been empowering small
    businesses. As this Committee well knows, American small
    businesses are key drivers of economic growth and job creation.
    Broadband is increasingly important to the future of small
    businesses. It enables small businesses to grow and jobs to be
    created anywhere, not only in urban markets but in small rural
    towns all over the country. Broadband allows small businesses
    to market their products and reach customers in the next
    neighborhood, the next city, the next state, and even overseas,
    increasing their revenue.
        And broadband allows small businesses to lower their costs
    through cloud-based services. Increased revenue. Lower costs.
    More profits. More jobs.
        More than one million entrepreneurs, a large percentage of
    which are small businesses, are already selling products on
    EBay, Amazon, and other platforms, but of course doing so
    requires broadband access.
        Over the past three years, the FCC has taken a number of
    actions to help more small businesses seize the opportunities
    of broadband. Let us start with universal service reform.
    Today, about 18 million Americans, including many small
    business owners, live in areas where they cannot get broadband.
        The Universal Service Fund we inherited was not addressing
    that gap. It was optimized for telephone service, not
    broadband. It had become inefficient and even wasteful, sending
    money, for example, to multiple providers in one community, and
    none to other communities. And it did not have adequate
    accountability, allowing recipients to control their own
    funding spigot.
        Last December, I am proud that the FCC unanimously approved
    a once-in-a-generation overhaul of the Universal Service Fund,
    transforming this 20th century program that supported phone
    service into a 21st century, fiscally responsible Connect
    America Fund that supports broadband. These reforms put us on a
    path to connect all unserved Americans and small businesses by
    2020. Just last week, one provider, Frontier, announced that it
    will be deploying broadband to about 200,000 unserved Americans
    as part of these reforms.
        These reforms will also help ensure that consumers,
    including small businesses, paying into the fund get a fair
    bang for their buck. FCC staff estimates that roughly a quarter
    of all universal service contributions are paid by small
    businesses, over $2 billion per year. That is one reason we
    have set out to eliminate waste and inefficiency throughout
    USF.
        Our efforts to expand broadband access are complementary to
    the important work to ensure broadband availability being done
    by NTIA and RUS. These cooperative efforts with our federal
    partners are helping more small businesses seize the
    opportunities of broadband.
        The Commission is also taking a number of steps to help
    small businesses access the productivity and marketing tools of
    mobile broadband. The new Mobility Fund, which was established
    as part of our universal service reform, will spur the build-
    out of advanced mobile networks in unserved rural areas. We are
    working tirelessly to free up more spectrum for mobile
    broadband. The incentive auction legislation that Congress
    passed recently is a very important step forward. We are
    identifying other areas where we can remove regulatory barriers
    on spectrum use to free up spectrum for mobile broadband, and
    we are working closely with NTIA on new strategies to free up
    more government spectrum for commercial mobile broadband. We
    have also freed up a very significant amount of unlicensed
    spectrum on the market, which is an important platform for
    innovation for small businesses.
        And we can help small businesses not only by making sure
    they have access to broadband, but also helping ensure they
    have the basic digital skills to use online resources and
    applications. That is why the FCC, working with the Small
    Business Administration, created a public-private partnership
    to leverage SCORE, SBA's network of more than 10,000 volunteer
    business counselors to provide broadband tools, training, and
    support for small businesses.
        We are working with the industry to address the digital
    divide. Connect to Compete is a new public-private partnership
    program that will help families with children on school lunch
    programs get low cost broadband for under $10 a month.
        Working with the Small Business Administration, the Chamber
    of Commerce, the National Urban League and private companies,
    we also are addressing cyber security and public safety issues
    in this area which is important for trust and security. We
    developed a cyber security tip sheet and small business cyber
    planner, describing a number of common sense steps that small
    businesses can take to improve their security. We worked with
    ISP to develop steps, including a botnet code of conduct that
    now 90 percent of all ISPs are putting in place to address
    cyber security concerns, which have a particularly negative
    impact potentially on small businesses.
        Through our public safety responsibilities, the Commission
    also aids small businesses. The recent storm that caused
    significant power and communications outages in the Mid-
    Atlantic region cost small businesses and consumers severely
    and knocked out vital emergency communications. The FCC
    coordinated with FEMA and others to assess and respond to the
    outages, and immediately after restoration we launched an
    investigation into the Mid-Atlantic outages so that we can
    better avoid these problems in the future. We are now expanding
    that investigation to seek public comment from a broad set of
    stakeholders with the goal of identifying the necessary steps
    to make our communications and emergency services nationwide
    reliable and resilient.
        We take seriously the directives of the President and
    Congress to minimize the impact of our rules on small
    businesses. We always consider the impact on small businesses,
    and we have eliminated many regulations that are unnecessary,
    and we have exempted small businesses from many requirements
    that we do have.
        Spurred by small businesses, we have had a lot of good news
    in our broadband sector in the last three years. The chairman
    and the ranking member mentioned some of them. The apps
    economy, which is largely driven by small businesses, has
    already created nearly half a million jobs around the country.
        For all our progress, there are still real challenges
    ahead, including the spectrum crunch, which the chairman
    mentioned that threatens to stifle mobile innovation and
    commerce; the need to drive continued improvements in broadband
    speeds and capacity; and the broadband adoption gap, the
    digital divide that leaves tens of millions of customers out of
    reach of small businesses.
        I look forward to working with the members of this
    committee on all of these issues and to answering your
    questions.
        Chairman Graves. Thank you, Chairman.
        Our next witness is The Honorable Jonathan Adelstein, the
    administrator of Rural Utility Service at the United States
    Department of Agriculture. He was confirmed in July of 2009. He
    is the 17th administrator of the RUS. In his role, he oversees
    a $60 billion portfolio of rural electric, water, and
    telecommunications infrastructure lines. Thank you for being
    here, Administrator. We appreciate it.

                    STATEMENT OF JONATHAN ADELSTEIN

        Mr. Adelstein. Thank you, Mr. Chairman and Ranking Member
    Velazquez and members of the Committee. We appreciate the
    opportunity to testify on an issue of such high priority--
    expanding broadband access.
        I am especially thrilled to join my friends, Chairman
    Julius Genachowski and Administrator Larry Strickling. Over the
    last several years we have really been partners in building out
    broadband as far and wide as we can in this country to carry
    out the president's vision of connecting all Americans no
    matter where they live to next generation broadband networks. I
    congratulate the Chairman for moving on USF reform as he
    indicated. Having tried during my time on the Commission, I
    know it is no easy feat. I look forward to continuing to work
    together as that process moves forward.
        We share a common goal amongst us of maximizing Americans'
    access to broadband. This administration, including USDA, has
    made historic investments resulting in stronger rural
    communities and a stronger rural economy. In this effort, RUS
    is America's infrastructure bank, but also the first and
    longest serving, having brought rural electrification to the
    countryside and continuing to today's technology challenge,
    getting broadband out.
        The $60 billion loan portfolio represents key investments
    in the foundation of rural America's future prosperity, its
    utilities networks. The small business and cooperative models
    work very efficiently to deliver utility services. Our U.S.
    telecom programs are available to any service provider, large
    or small, but it turns out that the vast bulk of our private
    sector borrowers are, in fact, small businesses serving small
    communities. They, in turn, provide broadband to small
    businesses, and they also use a network of technology and
    service vendors who themselves are also often small businesses.
    This virtual cycle, I think, really exemplifies public program
    seeding private sector growth.
        Our U.S. borrowers are pillars of their communities. They
    lead local and regional economic development. I know you are
    familiar with them in your districts. You have seen the kind of
    work that they do. Businesses they help to spawn are often also
    financed by our sister agency, USDA's rural business service,
    which provides loans and grants for them to develop.
        A big challenge faces all of us on this panel. America's
    appetite for bandwidth and speed is exploding. As you noted,
    Mr. Chairman, in your statement, as the Internet becomes more
    mobile and more video-intensive, businesses are using the
    Internet in new and innovative ways to create jobs, markets,
    and wealth, and we have all worked very hard to try to keep up
    with the bandwidth demands that are growing and ahead of our
    foreign competitors to keep high wage jobs here at home. We
    need to meet the escalating demands for commercial and public
    safety communications.
        Bandwidth benefits rural areas in especially profound and
    many different ways. It erases the disadvantages of density and
    distance. It opens new markets for small and large businesses.
    It connects our kids to advanced education and gives everyone
    access to expert medical advice and treatment via telemedicine.
        Since 1949, my agency, RUS, has invested more than $22
    billion in rural telecom systems, and our current outstanding
    balance exceeds $4 billion and it is growing rapidly with
    Recovery Act projects as they come online. And those RUS
    Recovery Act projects will provide broadband to nearly 7
    million people; 364,000 businesses, many of them small
    businesses; and 32,000 anchor institutions, like schools and
    libraries and hospitals. These projects are on track and on
    schedule.
        We provide affordable financing to capital-intensive
    projects, but we also provide engineering standards, careful
    scrutiny, and continuing oversight. Our U.S. programs have
    created jobs and economic opportunity and provided I think an
    excellent value to the American taxpayer. As a matter of fact,
    our largest telecommunications program operates with no federal
    budget authority. We pay back virtually every dime. Our ability
    to lend is linked to the availability of reliable sources of
    revenue, and the willingness of the private sector to invest,
    because after all, we are their partner but it is the private
    sector that makes these decisions.
        And those revenues come from three sources: customer
    charges, payments among service providers, and universal
    service support. Private sector investment depends on the
    predictability and sufficiency of those revenues. And while the
    FCC's USF reform effort remains a work in progress, we are
    pleased the FCC is trying new approaches to further close rural
    coverage gaps in areas served by larger carriers that have not
    had the benefit of universal service and RUS in the past. Much
    like our considerably smaller Community Connect program and
    elements of the Recovery Act, the FCC's new Connect America
    Fund infuses new capital to support broadband expansion.
        As we move to reform the system, we face the challenge of
    preserving and advancing the gains already achieved. RUS is the
    most successful role model in charting investments that have
    delivered real and significant gains and real broadband
    expansion. Each loan or grant is highly scrutinized by RUS
    staff, both in Washington and in the field and across the
    country. Each delivers broadband as promised.
        Every RUS dollar has a name and address on it. We know
    where the dollars are invested, and we do not want to spend a
    penny more than necessary. Our approach is long-term and
    focused on building it right the first time.
        Broadband not only improves the quality of life for rural
    Americans; it lifts the entire U.S. economy and spurs
    unparalleled economic development opportunities. It allows us
    to in-source jobs, rather than outsource them. Expanding
    broadband service makes our nation stronger, more connected,
    and truly more united.
        Thank you for your leadership on promoting broadband in
    small businesses, and I look forward to any questions you might
    have.
        Chairman Graves. Thank you, Administrator.
        Our final witness is The Honorable Lawrence Strickling, the
    assistant secretary of the National Telecommunications and
    Information Administration and the Department of Commerce. He
    was confirmed in June of 2009 and directs the agency
    responsible for advising the president and executive branch on
    telecommunication and information policy. Thank you for being
    here.

                  STATEMENT OF LAWRENCE E. STRICKLING

        Mr. Strickling. Thank you, Mr. Chairman. And I would also
    like to acknowledge Ranking Member Velazquez and other members
    of the Committee. And I thank you for the invitation to testify
    today regarding NTIA's work to expand and strengthen broadband
    access to small businesses. I also am pleased to be here with
    Chairman Genachowski and Administrator Adelstein, who have been
    long-term partners with us as we move toward accomplishing
    these goals.
        Expanding the availability and adoption of broadband in
    America is a key element of building the innovation economy of
    the future. In the near term, investments and broadband
    infrastructure help create jobs and grow businesses through the
    construction of fiber optic networks, wireless towers, and
    other high-tech components. And our Recovery Act funded public
    computer centers and sustainable broadband adoption initiatives
    provide much needed job training for out-of-work Americans.
        In the longer term, expanding broadband access and adoption
    facilitates economic growth and innovation, especially for
    small businesses, and lays a foundation for long-term economic
    development in communities throughout the country. The positive
    impact of broadband on the economic health of small business is
    clear. A 2010 report by the Small Business Administration found
    that Internet plays an integral role in helping small
    businesses achieve their strategic goals, improve
    competitiveness and efficiency, and interact with customers and
    vendors.
        Surveys of small businesses confirm that they find high
    speed Internet as essential to their business as other basic
    services, such as water and electricity. The research firm
    Strategic Networks Group has collected data from more than
    15,000 U.S. businesses and found that while broadband accounts
    for approximately 20 percent of new jobs across all businesses,
    it is responsible for 30 percent of new jobs in small
    businesses.
        Our most important initiative at NTIA to improve broadband
    capabilities for small businesses is the broadband grant
    program created by the Recovery Act. We have provided $4
    billion in grants to 230 recipients to expand broadband
    availability and adoption in the United States. About 20
    percent of our grant recipients, representing nearly 800
    million in grant dollars, are small businesses. To date, all of
    our grantees have deployed or upgraded more than 57,000 miles
    of broadband infrastructure. They have connected more than
    8,000 community anchor institutions to high speed broadband
    service. They have installed more than 33,000 workstations in
    public computer centers. They have provided more than 7 million
    hours of technology training to approximately 2 million users.
    And they have funded more than 4,000 jobs in the second quarter
    of fiscal year 2012.
        To give you an example of how a small business is serving
    its community through one of our grants, let me describe Show
    Me technologies in Missouri. Show Me is using nearly $27
    million of Recovery Act funds to deploy 500 miles of new fiber,
    completing a 1,400 mile network across 30 counties in the south
    and central parts of the state. It is already providing new or
    upgraded service to 48 community anchor institutions in
    Missouri, such as schools, libraries, and courthouses. In Ohio,
    another small business, Com Net, is using its $30 million of
    Recovery Act funds to install about 700 miles of high capacity
    fiber in its network in 28 western counties of the state. And
    this project hopes to serve more than 800 community anchor
    institutions.
        Our requirement of open access to Recovery Act funded
    networks is helping to prime the pump for additional investment
    by public and private entities, including many small
    businesses. Recipients have already entered into nearly 400
    interconnection agreements with third-party providers, which
    will reduce their costs of bringing last mile service directly
    to homes and businesses. For example, the Massachusetts
    Broadband Institute has already signed agreements with several
    last mile providers, including Crocker Communications, a small
    women-owned telecommunications provider in Greenfield,
    Massachusetts. And the town of Leverett says it wants to invest
    $3.6 million in the last mile fiber-to-the-home network that
    will utilize the middle mile facilities funded by NTIA.
        NTIA is also helping small businesses by expanding public
    computer centers, which provide training that can help
    individuals find jobs, create new businesses, and impact their
    local economies. For example, public computer centers in West
    Virginia and Missouri report that people are using their NTIA-
    funded centers to start and manage their own small businesses,
    and the job training provided by the California Emerging
    Technology Fund has helped over 1,000 people find jobs.
        These examples are just a few of the small businesses that
    are benefitting from our broadband investments, and as we
    perform our mission to expand broadband access and adoption, we
    expect small businesses, the engine of our economy, to be a
    particular beneficiary of the innovation economy of the future
    and the new and better jobs it will create for all Americans.
        So I thank you for the opportunity to testify before you
    today, and I look forward to your questions. Thank you.
        Chairman Graves. Thank you very much, Mr. Strickling. And
    we will start with questions today, and I am going to lead off
    with Mr. Tipton.
        Mr. Tipton. Thank you, Mr. Chairman.
        Last November, the FCC reported the 7th Broadband Progress
    Report and Order on Reconsideration that about 100 million
    Americans still do not have broadband in their homes. This is
    about a third of our population and it is extremely troubling,
    especially in light of the fact that the U.S. is now competing
    in a global economy.
        In Colorado, the state legislature commissioned the state's
    first-ever broadband mapping project and concluded that while
    almost every household in metro Denver can subscribe to
    broadband service, in the 50 most rural counties, most of which
    happen to be in my district, broadband availability is less
    than 80 percent. In the same report, Custer County in my
    district had the lowest rate, 56 percent. This is unacceptable.
        The Census Bureau has reported that from 1998 to 2009,
    online annual sales grew from $4.9 billion to $145 billion. In
    his testimony, Chairman Genachowski cited a study that pointed
    out that having a broadband connection makes $200,000 a year
    difference in meeting annual revenues for businesses.
    Unfortunately, in Colorado, many of the areas where
    unemployment is at the highest also have the least amount of
    broadband connectivity.
        This is more than just a coincidence. We must now ensure
    that resources are made available outside of the suburban areas
    so that we can get this broadband access into rural American
    communities, thereby increasing opportunities for small
    businesses and to be able to create jobs.
        Given some of the budgetary limitations that we have in
    order to accomplish this, I believe we must think outside the
    box. And to that end, Chairman, I would like to encourage you
    to enact guidelines that provide for private investments into
    expanding the rural broadband access, in conjunction with more
    efficiently using some of the taxpayer funds that we currently
    have through the FCC to better serve some of these broadband
    needs.
        Chairman, thank you for being here. I would like to ask you
    a couple of questions in regards to actually being able to
    deliver service. In La Plata County and Montezuma County in my
    district they are known as orphan counties and part of the
    Albuquerque designated markets, which falls under the FCC.
    Because of their location and distance, we are not able to
    receive Colorado Television. Do you think it is important for
    residents of the state to also receive weather emergency and
    sporting programs from the same state that they reside in? And
    if so, would you pledge to be able to work with me today to be
    able to assist bringing these Colorado communities in their
    entirety into that spectrum?
        Mr. Genachowski. Yes, first of all, thank you for the focus
    in your initial comments on both the important needs to address
    broadband deployment gaps and broadband adoption gaps. I agree
    with what you said. We are focused on it.
        With respect to broadcast television, I think we saw
    recently in the weather situation that we had in this area that
    all forms of communications to consumers are incredibly
    important. In any disaster, some will go down; others will stay
    up. And so making sure that whether it is by TV, radio, the
    Internet, a mobile broadband, consumers are connected. Both for
    our economy and for public safety it is vitally important, and
    I look forward to working with you on the issue.
        Mr. Tipton. Great. I certainly appreciate that. And, you
    know, you did speak to public safety. Recent legislation was
    put in place and we had several test markets. In the state of
    Colorado we had in Adams County where they were putting in
    their own public safety broadband systems. And as you know, the
    FCC granted waivers for these systems to use 700 megahertz
    spectrum. There now appears to be some question as to whether
    this early deployment of the public safety broadband networks
    will be allowed to be able to move forward. And I understand
    that NTIA has asked that you terminate these thinning waiver
    applications. Do you continue to believe the state and the FCC
    order granting public safety waivers that these projects serve
    as test beds and can provide valuable lessons as we work toward
    deploying this national network? And additionally, do you
    believe that the interoperability commitments made by the
    waiver guarantees can be leveraged to be able to ensure that
    these systems will be interoperable and integrated into the
    national network?
        Mr. Genachowski. We are working closely with NTIA on these
    issues. Congress, of course, in its incentive option law also,
    to its credit, finally funded a national interoperable mobile
    broadband public safety network for first responders. It is a
    very important thing. It directed the creation of a single
    network and so now we are implementing that law. We are working
    closely with NTIA on the waiver situations to make sure that we
    support the goals of the legislation and get one network up and
    running, while also recognizing circumstances in particular
    areas. Of course, we are looking at the one that you mentioned
    to make sure that we act in an appropriate way, consistent with
    the public interests and consistent with the law.
        Mr. Tipton. Mr. Adelstein, real quickly, you mentioned the
    ARRA program and 3.5 billion in broadband loans, grants, and
    guarantees had gone out. Can you tell us how much of that
    actually went into rural America?
        Mr. Adelstein. Yes. Virtually all of it went into rural
    America. We have 2 billion under contract and the law permitted
    up to 75 percent to be rural, 25 percent nonrural, but
    virtually all of our projects were in rural areas.
        Mr. Tipton. Thank you, Mr. Chairman. I yield back.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Mr. Genachowski, the FCC has provided the U.S.F. waiver
    process for small carriers but many carriers believe the
    process is burdensome and too restrictive. Could you please
    walk us through the waiver process and the documents required
    of applicants and also have you taken the concerns of these
    providers? Did you consider them when you were considering how
    the waiver was designed?
        Mr. Genachowski. Yes. And thank you for that question. It
    has been widely recognized for some time that the Universal
    Service Fund needed to be reformed from telephone to broadband,
    from inefficient to efficient. As we were doing those reforms
    we had three goals in mind. One was finally getting broadband
    to unserved areas. A second was being fiscally responsible and
    cognizant of the consumers and small businesses paying money
    into the fund. And the third is recognizing business realities
    on the ground. And we created the waiver process because we
    recognize that reform is challenging and that specific
    situations would come up. And of course, we are paying close
    attention to those waiver requests.
        In general, what is required in the waiver request is the
    basic financial information that we would need, similar to what
    Administrator Adelstein said to evaluate a waiver request to
    make sure that money is going where it should be going; that
    money is not being wasted. We have 8 waiver requests now. We
    are taking those very seriously, but we are also focusing on
    the consumers and small businesses paying into the fund.
        Ms. Velazquez. Did you hear those concerns from small
    carrier?
        Mr. Genachowski. Yes.
        Ms. Velazquez. That were restricted?
        Mr. Genachowski. The concerns are what led us to create the
    waiver process, and now we are working very closely with the
    carriers to make sure that we have a waiver process that is
    both efficient and least burdensome as possible. We are also
    making sure that we are protecting the money that is in the
    fund.
        Ms. Velazquez. Okay, I have to share with you that we have
    been contacted by a lot of those small carriers expressing
    concerns that the process is quite burdensome.
        Mr. Adelstein, RUS generally will not award a loan to an
    entity to compete with an existing RUS borrower, mainly to
    protect that borrower and to protect their ability to repay the
    loan. So my question is, is it fair for RUS to subsidize a
    competitor to an existing provider?
        Mr. Adelstein. We do our best to focus on our funding where
    there is not an existing provider. As a matter of fact,
    Congress provided in the Farm Bill 2008 some very clear
    guidelines to limit any overlap. Occasionally, broadband does
    not follow neat lines and there are times when in order to have
    adequate revenues in order to repay a loan, a network will go
    through an area that may be partially covered, but that is in
    order to enable them to finance to those areas that do not have
    broadband, the more rural areas. Some providers will stop at
    the town line and will not make it out to rural areas and as
    they are building out their network with our loan they may
    include the town in order to make that work financially.
        Ms. Velazquez. You know, this is an issue that has been
    raised by the inspector general where it shows that almost 31
    percent of the agency loans served to foster competition in
    some areas that are already being served.
        Mr. Adelstein. The inspector general report concerned
    statutory requirements from 2002. Actually, we have closed out
    all of the concerns that were raised by the IG. Under this
    administration we put the program on hiatus while we evaluated
    to ensure that it was going to the most rural parts of the
    country. During the pendency of the Recovery Act, we did not do
    any loans under it, and so far we have not done a number of
    loans, and none of them came under the IG's purview. So we have
    actually closed out that IG audit and have addressed each of
    the concerns that were raised by the IG back in 2005.
        Ms. Velazquez. Okay. Mr. Strickling and Mr. Adelstein, is
    it not only fair that before awarding any broadband loan or
    grant money, RUS and NTIA should provide a reasonable
    opportunity for existing providers to present data to
    demonstrate that in the areas already served?
        Mr. Strickling. Absolutely. In the two rounds of funding
    that we did in 2009 and 2010, we provided carriers or anyone
    else exactly that opportunity.
        Ms. Velazquez. So you do that now?
        Mr. Strickling. We have not given a grant since September
    30, 2010. That was the deadline under the Recovery Act to make
    all grants.
        Mr. Adelstein. And we also gave all carriers the
    opportunity to publicly announce where they were providing
    service, if there was any overlap. We did not just take their
    word for it though. We sent our general field representatives
    and our field staff in to double check to make sure there was
    not broadband there.
        Ms. Velazquez. And this is the process for anyone?
        Mr. Adelstein. Yes. Yes, and going forward we have adopted
    that model for our broadband program that I talked about. We
    had a hiatus so that we have now the opportunity for
    individuals to contact us regarding any potential overlapping
    service areas.
        Ms. Velazquez. Mr. Genachowski, special access remains an
    issue important to small carriers. It is also one that the FCC
    hesitates--if I can describe it that plain--to take action on.
    So a March 2011 report found that special action pricing--if
    special access is provided, prices come down and it will
    stimulate the economy and create close to 100,000 jobs. Can you
    tell me why the FCC is not overhauling the rules governing
    special access?
        Mr. Genachowski. Well, this is an important area.
        Ms. Velazquez. It is important. The process started in 2005
    and still has not gone anywhere.
        Mr. Genachowski. It has been going somewhere. We initiated
    a voluntary data request some time ago. That data is in. We are
    moving forward together with our colleagues now on the next
    level of understanding the situation and moving forward. What
    drives us is exactly what you said and I agree with it. For
    small businesses, where a lack of competition is leading to
    increased prices, that has real negative effects on our
    economy. The challenge is distinguishing between the areas
    where there is competition and the areas where there are not,
    and that is the work we need to do in terms of compiling data
    and then acting.
        Ms. Velazquez. And so in terms of the foreseeable future,
    when do you think you are going to be acting on special access?
        Mr. Genachowski. We expect to take the next step in the
    next weeks. We are working hard at it and it is toward the top
    of our agenda.
        Ms. Velazquez. Special weeks?
        Mr. Genachowski. Several weeks.
        Ms. Velazquez. Several weeks? Okay.
        Thank you, Mr. Chairman.
        Chairman Graves. Mr. Landry.
        Mr. Landry. Thank you, Mr. Chairman.
        Chairman Genachowski, I am really concerned about the
    impact of USF reforms on small carriers. In making these
    reforms, is it possible that investments by some of these small
    carriers that were made in 2010 or before under the prior rules
    are not--that those investments that they made in 2010 or
    prior, could they be penalized for those investments today?
        Mr. Genachowski. The challenge we have relates to the
    discussion topic before. Historically, the program we inherited
    did provide funding in areas where there were a number of
    different companies receiving federal subsidies or provided
    subsidies to a company where there was an unsubsidized
    competitor. And it was an element of our reform to reduce that
    by phasing it out over time so that we could use that money.
        Mr. Landry. So it is possible that some of the investments
    that they made under the prior rules, now that you changed the
    rules could affect their investment now?
        Mr. Genachowski. It is possible.
        Mr. Landry. Could it put them out of business?
        Mr. Genachowski. I do not think so, and we are working with
    the carriers on this transition.
        Mr. Landry. And like which way are you working with them?
        Mr. Genachowski. We set up a waiver process that was
    mentioned before. We are being cognizant of business realities
    on the ground, and we are working very hard to get the balance
    right between being trustees of the public money that is being
    spent and recognizing the business realities on the ground.
        Mr. Landry. Well, let me ask you this question. This waiver
    process that you spoke about earlier, what do you think it
    would cost a small carrier to go through the process?
        Mr. Genachowski. I would not estimate--I could not estimate
    the cost. I would be happy to follow up with you.
        Mr. Landry. I mean, $10, $20, $30? Or thousands of dollars?
    Or tens of thousands of dollars? Or hundreds of thousands of
    dollars?
        Mr. Genachowski. I hesitate to make that recommendation.
    These are companies that----
        Mr. Landry. Do you think it would cost in excess of
    $100,000?
        Mr. Genachowski. I think it would cost a very small
    fraction of the millions of dollars of public money that they
    are receiving, and so making sure that we are insisting on
    accountability----
        Mr. Landry. Have you designed this waiver process so it is
    simplistic and streamlined? I mean, do you know how many pages
    it consists of?
        Mr. Genachowski. That is our goal. That is what we are
    trying to do. In many cases, the filings are large because they
    include pre-existing documents, like financial reports and
    other information.
        Mr. Landry. This is the waiver process, Mr. Chairman. I
    have a company in my district that has already spent over
    $124,000. They still have not been able to complete the
    process. They are telling me that if they do not get the waiver
    they are going out of business. That affects my rural residents
    down in south Louisiana, some of whom live on a very
    challenging part of our country out in coastal areas where
    communication is necessary, especially during hurricane season.
    I am trying to understand how sometimes this administration
    comes here and says, oh, we are for small businesses. Oh, we
    are doing everything we can to help them. Oh, I am telling you,
    it is going to be okay. Leave us with this warm and fuzzy
    feeling that it is being taken care of, but yet this does not
    look like a waiver process that is simple. And $124,000 is not
    chump change. I mean, can you not do--and this is going to
    affect these carriers today.
        Mr. Genachowski. In my experience, most of the documents
    that are submitted to us are documents that have already been
    prepared--financial reports, other things that we need to
    enforce fiscal responsibility and accountability.
        Mr. Landry. Does the exemption--does the waiver process--is
    it a one-year exemption? A two-year exemption? I mean, it seems
    to me there is not a lot of clarification between the FCC and
    those small rural carriers. I have spoken to not just the one
    in my district but there is one up in Wyoming, I believe, and
    some in other parts of the country that are having a problem
    with this.
        Mr. Genachowski. And I recognize this is important. We have
    received 8 waiver requests. In each case, the companies that
    are seeking waiver requests want federal subsidies equivalent
    to between $250 per month per customer to $1,300. And we do
    need to work with the companies to make sure that that level of
    spending can be justified.
        Mr. Landry. It is my understanding that your model--you
    used a model in order to implement these reforms. Do you know
    what the accuracy of that model is?
        Mr. Genachowski. We are committed to having it be accurate.
    That is why we have an ongoing----
        Mr. Landry. But do you know what the accuracy of that model
    is? Because according to what--according to you all, the
    accuracy of that model is 62.34 percent. I did not make real
    good grades in school--I am going to tell you--I did a little
    better than 62 percent. And so my concern again is that you
    have put a model out there that basically would fail a student
    in high school. Okay? And then you created a waiver process
    that is unduly burdensome on these small carriers. Can you give
    us a commitment that you are all going to work with those small
    carriers to try to reduce the cost in the waiver process and
    ensure that those carriers continue to be able to provide
    services in rural areas?
        Mr. Genachowski. Absolutely. Making sure that consumers do
    not lose existing service and that the 18 million unserved
    Americans get service is the fundamental purpose.
        Mr. Landry. If they go out of business they will not get
    it.
        Thank you, Mr. Chairman.
        Chairman Graves. Mr. Schrader.
        Mr. Schrader. Thank you, Mr. Chairman. I appreciate the
    panel for being here, pretty vast panel for Small Business
    Committee, and I appreciate everyone's testimony today.
        I would like to thank all of you for your deployment of the
    American Recovery and Reinvestment Act. The money has made a
    huge difference in my district. In the rural parts of my
    district, a small town in Gervais was able to connect up the
    fire station and rural school thanks to the stimulus money, and
    I really appreciate--I have got one county that is trying to
    connect a lot of the public providers and in a thoughtful way
    drive down costs. Working through the tough things. Working
    with our local franchise potential provider, too, so it has
    made a huge difference in a lot of Americans' lives, keeping
    people alive, keeping people connected, and creating jobs. So I
    want to start with that.
        And in 2003, it is my understanding--I was not here at the
    time--it was a pretty bipartisan FCC. It was able to develop a
    pretty hands-off, but thoughtful approach to fiber, very pro
    investment, pro deployment view of fiber and resulted almost
    four times the amount of fiber being laid than was out there
    before. And I think it takes a while to connect. That middle
    mile and last mile is always going to be the tough issues, and
    I know you are struggling through in order to respond to the IG
    report of 2002. That is really welcomed news. So I appreciate
    all that.
        I was curious, Mr. Chairman, if the FCC was going to have
    any new regulations coming down the road for fiber and you have
    been relatively hands-off but with thoughtful supervision,
    where do you see that changing? Or what are the next steps?
        Mr. Genachowski. Ensuring that we preserve and indeed
    increase the incentives to invest in fiber, invest in mobile,
    invest in advanced communications infrastructure is a central
    priority of ours. Over the last few years that has been
    successful. Investment, both in networks and in applications
    and services, is up, and so the light touch approach is
    something that we are committed to as we also look at
    competition issues that exist that the ranking member mentioned
    and make sure that small businesses are not harmed in areas
    where there is a lack of competition.
        Mr. Schrader. To follow up on that, I guess from each of
    the panelists here, ways to avoid interagency conflicts. I
    mean, where does NTIA stop? The RUS begin? Cable telephone back
    in my district begin? I mean, how are you working through those
    potential conflicts at this stage to encourage private
    enterprise?
        Mr. Strickling. So in our case it relates to the grants
    that we issued back in 2009 and 2010, and, including one in
    your district, Clackamas County I know is one that I think you
    referred to a minute ago. And so throughout the grant-giving
    part of the program we were pretty much joined at the hip with
    USDA. In fact, the first round of applications were reviewed
    jointly by both agencies and we agreed to fund some and RUS
    took some to fund. Since then, in round two, we went our
    separate ways, but in that situation we focused on funding
    middle mile applications; RUS focused more on the last mile
    applications, again, as a way to make sure that we were not, in
    effect, duplicating our efforts on the same types of projects.
    Since then, there have been instances where an RUS recipient
    and a BTOP recipient, have been building in the same areas, and
    we have had a couple--I am not sure of the exact number--but
    there have been some incidents where there have been some
    questions raised as to whether or not we were getting into an
    area of duplication. In every one of those cases we have sat
    down with the parties and with RUS and have worked out those
    issues. And I am confident that if any of those appear in the
    future we will do the same.
        Mr. Adelstein. We do coordinate very closely. I think all
    three of us have a responsibility in different areas for
    getting broadband built out, including fiber. Ninety-two
    percent of what we do is fiber build, and we are thrilled to
    have done over $13 million in your district on the Recovery
    Act. It really was in urgent need of broadband in many places
    through Monroe, Cascade, Gervais, City of Sandy. We are happy
    to be your partners on that.
        Larry and I talk all the time as we coordinate. We were
    just talking in the hall a few minutes ago, as a matter of
    fact, about one of the projects, and whenever we need to we see
    each other online. With the FCC, we regularly discuss issues
    that come up so long as they are within the scope of what the
    administration can do vis-a-vis an independent agency. We have
    a great relationship with the FCC and we have been their
    partners long before our tenure in building out broadband in
    rural America. Universal service enables our loans to be repaid
    and enables those builds that otherwise would not be possible.
        Mr. Schrader. Thank you. Thank you very much.
        Well, just a quick comment, a short answer if it is at all
    possible, even though the lines are there, there are some small
    businesses in some of the rural communities as we have heard
    from the ranking member and some of the others on the panel
    that are not able to access or do not access. What are the
    barriers to those small businesses and individuals?
        Mr. Adelstein. Well, the biggest barriers--one of the
    biggest barriers is access to actual broadband networks. We
    find it is very expensive in certain rural areas to do that.
    Without support it is not possible.
        Mr. Schrader. They have the access is my point, but they
    are not hooking up. Why are they not hooking up?
        Mr. Genachowski. I would be happy to field that. We found a
    number of different reasons that work together. In some cases
    it is cost, too expensive, and that is why we did this Connect
    to Compete program to find a low cost tier where that is an
    issue. In some cases it is digital literacy. Not everyone knows
    how to use a computer, upload information, so we need to
    address that. In some cases it is a lack of appreciation of the
    benefits. Oh, you mean my small business can actually reach
    customers around the country if I do that? And so we have
    adopted measures on that. And in some cases it is trust, which
    is why the security and privacy issues are important because
    that keeps some people away.
        Mr. Schrader. Thank you. And I yield back.
        Chairman Graves. Mr. West.
        Mr. West. Thank you, Mr. Chairman, and ranking member. And
    thanks to the panel for being here.
        I want to go back to the regression analysis model for
    capping the USF support because on the 25th of April, an
    implementation order that was sent out, it was acknowledged
    that there were some errors still with that model. So my first
    question is does it concern you that we have implemented a
    model that we know has some errors as far as the cost, you
    know, capping recovery methods?
        Mr. Genachowski. That is a good question. We used the best
    available data, and sometimes that data is not perfect. In
    areas where errors are brought to attention, we act quickly.
    And so there were two instances where companies said, ``Hey,
    wait a minute. This is wrong.'' And we fixed that within two
    weeks. We understand that this does require cooperation from
    the companies to do that. But I also worry about the other
    side--the small businesses and customers paying into the fund,
    the public money that is being used. These are very important
    questions. It is our responsibility to get this balance right
    and insist on accountability without driving businesses crazy.
        Mr. West. And that is what I talked--I talked to Jeff
    Leslie, who is the president and CEO of Indiantown
    Telecommunications down in Martin County, and he is very
    concerned about what you just talked about; is, you know, how
    do they make sure that they are operating with the best
    possible model out there? Are we working toward eliminating
    more of these errors? Because obviously they are somewhat
    behind on the eight ball and we do not want to see all of a
    sudden businesses that are, you know, chasing this moving
    target because we really have not solidified the errors in this
    model.
        Mr. Genachowski. Yes, it is important to us. We are working
    with the industries, with the principles that I laid out.
        Mr. West. Okay. The other concern that Jeff gave to me is
    that it seems that the caps change every year. Is that correct?
        Mr. Genachowski. Well, we have --
        Mr. West. Yes or no?
        Mr. Genachowski. Not every year. We put the benchmarks in
    place. They are settled until 2014 and we are working to
    determine the best method for the future to provide certainty
    and predictability while protecting --
        Mr. West. That is a key word--certainty and predictability.
    I think that is a big thing that we are not providing to anyone
    out there in the private sector. So, you know, when you are a
    small business owner, I mean, you need to have a method by
    which you can come up with your business plan. So is it
    troubling for you and also Mr. Adelstein? We are not providing
    that certainty and predictability out there for them to know
    these caps year to year so they can plan out properly?
        Mr. Genachowski. Respectfully, I'll make two points. One
    is, as the administrator mentioned, for years it was widely
    though that reform was necessary. It did not happen, and there
    was a shadow, a cloud of uncertainty and unpredictability, much
    of which we have eliminated by moving forward with reform.
    There is more work to do. There are people who argue that these
    programs should be eliminated completely, that the simplest way
    to have predictability and certainty is not to have the
    government in this business of helping private companies roll
    out broadband to rural America. I disagree with that, but it
    does raise these challenges of how to do this in an efficient,
    market-oriented way that gets the money out to companies in
    areas that need it while protecting the companies and the
    people who are putting money into the program.
        Mr. West. Do you feel confident with your lending practices
    when you look at this, you know, uncertainty out there, Mr.
    Adelstein, as far as, you know, the errors that are in this
    model and also the year-by-year? Does that provide you some
    sense of comfort?
        Mr. Adelstein. Well, certainty is essential for a lender. I
    mean, we are basically a financial institution, so we do fairly
    long-term loans. These projects are very capital intensive, and
    as a result we have long amortization periods, up to 20 years.
    We will give a loan for the life of it to enable a small
    business to do a large capital build. In order to do long-term
    loans, in planning we do need visibility going forward as far
    into the future as we possibly can as any private lender would.
        Mr. West. And that brings me back to doing a hearing on May
    9th at the Senate Financial Services Appropriation
    Subcommittee. Mr. Genachowski, you stated that Congress may
    have to provide a capital infusion to help the rural utilities
    cover losses that may be incurred when borrowers default on RUS
    loans due to the impact of your USF and ICC reforms. I mean,
    are we talking about a bailout here?
        Mr. Genachowski. No, no, not at all. In our broadband plan
    several years ago we suggested that one way to accelerate the
    transition to broadband would be a one-time capital infusion
    from Congress. Congress elected not to act and I completely
    understand the fiscal responsibility pressures.
        Mr. West. Yeah, we are broke.
        Mr. Genachowski. Totally understand. The funding for
    broadband that we are providing to unserved communities in your
    state and in all the states here is coming from the program
    itself. So for the first time we put this program on a budget.
    We did it on a bipartisan basis. It does create challenging
    implementation issues as we honor fiscal responsibility, and I
    think all these questions are perfectly appropriate. We are
    working hard to address them. If money grew on trees it would
    be a lot easier. We are wrestling with the reality of the fact
    that it does not.
        Mr. West. I would be a tree farmer.
        Thank you, Mr. Chairman. I yield back.
        Chairman Graves. Mr. Cicillini.
        Mr. Cicilline. Thank you, Mr. Chairman. And thank you
    distinguished members of the panel for being here today.
        Chairman Genachowski, the FCC has highlighted the
    importance of fiber technologies and has stated on several
    different occasions that fiber technology offers substantially
    more capacity than copper-based technologies. And according to
    a 2011 study by Pando Networks as reported in The New York
    Times, Rhode Island, my home state, is the state with the
    fastest average Internet speed in the country and broadband is
    available to 97 percent of Rhode Island residents. So part of
    the reason that my Rhode Island constituents have access to
    fast, very high quality Internet is due to the fiber optic
    network that spans our whole state, and there has been
    obviously an explosion of the fiber deployment and the number
    of fiber providers. And I am wondering whether you can talk a
    little bit about whether or not the FCC's hands-off framework
    has really helped to incentivize this deployment and investment
    across the country or has it presented a challenge in any
    particular way?
        Mr. Genachowski. I think the light touch approach has been
    very helpful in triggering the investment that you mentioned,
    which is very important. Competition does that as well.
    Companies invest when they know they have to approve their
    product and their speeds and capacity. And we are charged by
    Congress to make sure that these markets remain competitive,
    but our approach is very consistent with the one you laid out,
    which is let the market and let competition drive investment we
    recognize that this is a global issue. All the topics we are
    discussing relate to our global competitiveness.
        Mr. Cicilline. Thank you. And Assistant Secretary
    Strickling, thank you for being here as well. I have a grantee
    in my district that benefitted from the Recovery Act broadband
    grants, the Ocean State Higher Education Economic Development
    and Administrative Network, OSHEAN, and it is using $21.7
    million in the American Recovery and Reinvestment broadband
    funds administered by NTIA to build a fiber optic network that
    will span out over 350 miles in length. And this obviously has
    huge value and benefits in the creation of the network, but I
    wondered if you would talk a little bit about what you see as
    the long term positive impact in communities of this kind of
    investment, which is maybe not immediately apparent to
    everybody when we make these announcements.
        Mr. Strickling. Sure. So our philosophy in making that
    grant and it is a good example of what we call the
    comprehensive community type of grant that we made in primarily
    our second round of funding in 2010, where we focused on middle
    mile build out. We expressly did not look to fund the mass
    market last mile provision of services but instead focused it
    on getting the fiber built from the Internet exchange points
    into communities where then private enterprise could step in
    and build out and serve the homes and businesses in those
    communities. It was part of the project in Rhode Island because
    of the high speed demands of educational institutions we are
    also connecting a number of those anchor institutions directly
    off of the project that is being built in Rhode Island.
        In terms of how we see this playing out, and I mentioned
    this in my opening remarks, we really think this is priming the
    pump for private investment in the sense that the government
    has provided funding to build the middle mile. It has open
    network requirements so that any provider, whether it is a
    large incumbent or a small new entrant, can get access to that
    capacity to offer their own services. And so if we have a
    wireless Internet service provider that wants to put up a tower
    and serve a community, they can do it very cheaply, very
    effectively, because one of the major barriers to entry of a
    company like that is getting the transport back to an Internet
    exchange point, and our projects provide that.
        So we are already seeing that. As I mentioned, I think over
    400 interconnection agreements have been signed already across
    the country with our projects and every one of those gives an
    opportunity to private business to step up, take advantage of
    this investment, and use it to provide services on their own
    within their community. So we see this, you know, multiplying
    over time as other companies are able to take advantage of this
    investment.
        Mr. Cicilline. That is precisely what happened in Rhode
    Island, was this public investment led to a great public-
    private partnership and a substantial leverage of that
    investment which I think is helping in other places around the
    country.
        Thank you, and I yield back, Mr. Chairman.
        Chairman Graves. Ms. Ellmers.
        Ms. Ellmers. Thank you, Mr. Chairman. And thank you to our
    panel for being here today.
        Mr. Genachowski, my questions are for you. We had a Small
    Business, Health and Technology Subcommittee--I chair that
    committee--back in February in regard to this issue because of
    the importance of trying to provide the broadband for small
    businesses in the rural areas. I am hearing consistently from
    my constituents back in North Carolina, they have many concerns
    on the Universal Service Fund and how that plan went forward.
    Can you explain to us--I know we have already touched on a lot
    of the small carriers and small businesses--can you again
    extend a little bit more on how much input you received from
    some of the small rural carriers on putting together that plan?
        Mr. Genachowski. Yes. We ran a multi-month open process
    which consisted not only of asking for written comments from
    all stakeholders, but workshops, including workshops all over
    the country, in Nebraska and other states, where we went out
    and talked directly to carriers and consumers and small
    businesses. So it is a very important part of our process, and
    we continue that effort to make sure that we get full input
    from all stakeholders.
        Ms. Ellmers. So when you say full input from all
    stakeholders, are there instances where the agency treats
    different companies differently based on size? Have some
    companies been given more of a lengthy transition period? What
    kind of transition period have you provided? And I know you
    mentioned a few moments ago, you know, that you based these on
    your principles. Can you give us just a little bit of an
    outline of the principles that you are following when doing so?
        Mr. Genachowski. Sure. The three core principles behind our
    reforms are, one, finally getting broadband to the 18 million
    Americans who live in areas that do not have it. Many of those
    people are not represented effectively because they are not on
    broadband, but if we can get broadband to those people we will
    spur our economy, help save small communities in rural areas
    around the country who without broadband, as you know, really
    have a challenge. That's number one. Number two, fiscal
    responsibility. Making sure that we do not grow the overall
    size of the fund as we do it.
        And then third, being cognizant of business realities.
        And so I think everyone would agree that where the fund is
    supporting, subsidizing one company and there is an
    unsubsidized competitor, we need to do something about that.
    Now, of course, that is hard for that company and so we have an
    obligation to say, well, what is the transition? How do we do
    it in a fair way? But indefinitely, spending that money in a
    way that we cannot defend and not spending it in areas in North
    Carolina and other states where there are unserved people and
    small businesses, that does not make sense. So those are the
    principles that we follow.
        Ms. Ellmers. My next question really has more to do with
    regulation, that by far being the biggest issue that my telecom
    providers and small--and the like are faced with and, you know,
    with what we have seen the explosion of business, you know,
    with entrepreneurs and the Internet, you know, at this point I
    know there is consideration for significant regulation. Why at
    this point when we have seen such growth, such job creation in
    this area of the economy, why would we be wanting to stifle
    that with regulation?
        Mr. Genachowski. Well, of course, we would not. And in
    fact, consistent with the question we got before, the light
    touch approach is the one we are committed to. Across the
    broadband sector, investment is up. Innovation is up. Job
    creation up. So the story is a good one. We do have situations
    in the USF area like the one you mentioned. It is a challenge
    when a company says give us public money but do not have any
    rules around accountability. That is not acceptable. If a
    company is going to ask for public money, it does have to make
    sure that the system is accountable and that they are spending
    it wisely. But in general, your philosophy is one that I think
    is on target.
        Ms. Ellmers. Okay, well, thank you very much. I yield back
    the remainder of my time.
        Chairman Graves. Next, Ms. Chu. And I apologize for taking
    you out of order.
        Ms. Chu. Well, this question is for both Commissioner
    Genachowski and Secretary Strickling.
        There has been a great deal of discussion about how we
    address the current spectrum crunch as the demand for wireless
    services continues to grow each year. Recently, a May 2012
    Cisco report found that wireless will account for 61 percent of
    global Internet traffic by 2006 up from 45 percent in 2011--in
    2016 that is. Someone suggested that spectrum clearing should
    be the more preferable means for demand while others think that
    spectrum sharing is a more realistic approach given the high
    cost in time needed to clear federal agency users. What are
    your thoughts on this debate and what would create more
    opportunities for small business?
        Mr. Strickling. We obviously manage the government use of
    spectrum; the FCC handles the commercial use. And we, since
    2010, with the president's executive memorandum directing us to
    work with the FCC to find 500 megahertz of additional spectrum
    to make available for commercial broadband uses, we have been
    doing a very exhaustive study of government spectrum. Early on,
    we found about 115 megahertz of spectrum that we thought
    largely could be cleared and made available, and that was
    passed on to the FCC and they are working on that spectrum
    right now.
        Most recently, a few months ago, we issued a report on the
    last real piece of beachfront property in terms of government
    spectrum that the commercial industry would like to use. It is
    the 1755 to 1850 band, 95 megahertz of very important spectrum.
    What we found was because of the increased number of missions
    that government agencies are performing these days using
    wireless technologies, we have in that band over 30 separate
    agencies with over 3,000 separate allocations of spectrum. And
    we looked at the question of what would be involved in clearing
    them out entirely, which requires, of course, finding other
    spectrum to move them into which is a challenge in and of
    itself. But also involves a tremendous amount of cost and a
    tremendous amount of time. And what we found in our reviews
    that were released a few months ago was that to do it the
    traditional way of clearing all of that band of all of the
    existing services, it would take over 10 years and it would
    cost probably about $18 billion. We felt in our role as
    stewards of this spectrum that that was too much money and it
    was too long. And plus, as I said, this is the last remaining
    bit of beachfront property, and we know that the spectrum needs
    of this nation go far beyond just another 95 megahertz that we
    might be able to put on the table out of this particular band.
        So out of that report we have recommended, and we have
    already put in process, a mechanism to evaluate are there
    federal systems that can stay in place in this band and still
    allow commercial providers to come in and enter the band. We
    are going system by system, agency by agency, in a work effort
    that we expect will conclude by January. And what will come out
    of that will be a mix. There will certainly be services that we
    know we can move without a lot of difficulty and move the
    existing service into a spectrum band that probably would not
    be in question by the commercial industry in any near term. And
    by this I am talking about point-to-point microwave services.
        On the other hand, we have some very large scale Department
    of Defense systems that are very difficult to move but are also
    operating intermittently. And the question would be, well,
    rather than spending the $5 billion to move the air combat
    training system, is there a way industry can operate in and
    around that system so we leave the system in place and allow
    commercial entry? That is what we are trying to focus on in a
    very engaged dialogue between industry and the agency. So these
    working groups we have meeting involve both agencies, as well
    as private industry, to try to see if we can find an
    accommodation. Long term, I have to tell you that sharing has
    got to be the path on which we go if we are going to meet the
    kinds of demands that are being bandied about by companies and
    by the press as we see this continued explosion of demand for
    spectrum. We have to find a way to do this.
        Mr. Genachowski. I would just add briefly a few points.
    One, the premise of your question that we have a spectrum
    crunch that needs to be addressed for innovation in small
    businesses is completely correct and we both agree on that. And
    I agree with Larry's remarks. The reason we have it is
    something that we should be proud of. The U.S. is now leading
    the world in mobile. We are the first country in the world to
    get to scale at 4G, the next generation of wireless
    infrastructure. On the innovation side, we are booming. The
    number of smartphones around the world that have American
    operating systems in the last three years has gone from under
    20 percent to 80 percent, and around the world people are using
    American apps.
        So the spectrum crunch is being driven by huge increases in
    demand. In some respects it is the kind of problem we want to
    have because more demand is better than less. But it does raise
    these issues that the Assistant Secretary addressed. I think
    that we will need both of the solutions that you mentioned,
    clearing and sharing. It is not an either or. I agree with
    Administrator Strickling that there are enormous opportunities
    around sharing that are good for our commercial sector. Also
    good for federal users as it can be part of a strategy to
    reduce the gap between the cost and functionality of military
    communications equipment and commercial equipment. So I share
    the Administrator's view and the Assistant Secretary's view
    that this could be a win-win for everyone, but we also need to
    look at the clearing approach as well.
        Ms. Chu. So the bottom line is, we are not going to wait
    for 10 years before we operate on this?
        Mr. Genachowski. Absolutely not.
        Ms. Chu. Okay. Thank you. I yield back.
        Chairman Graves. Ms. Herrera Beutler.
        Ms. Herrera Beutler. Thank you, Mr. Chairman. And I am
    going to follow up on some questions, comments that Mr. West
    made about the regression analysis. And this is both for Mr.
    Adelstein and Mr. Genachowski. Am I saying it right? I
    apologize.
        And I have to belabor this because I think folks in my
    district--I think of Dale Merten, who is the COO of Toledo
    Telephone, and some of the challenges they are facing with
    regard to certainty on the regression analysis.
        So Mr. Adelstein is sitting right--a couple seats down from
    you, Mr. Genachowski. How would you advise him and other lender
    companies in this--who are in this space about how to forecast
    the risk of long-term loans in the face of caps that change
    almost annually and ways that really have not been made clear?
    And that is kind of the guts of that 650 signatory letter that
    went to you last week.
        Mr. Genachowski. And I would say it is to continue to work
    with us, and we are working together to increase certainty and
    predictability so we can get broadband to unserved areas,
    ensure continued service in existing areas, and honor fiscal
    responsibility. And importantly, preserve the program. This is
    a program that some would eliminate. And for some people it is
    hard to understand why public money would be used to support
    private companies.
        Ms. Herrera Beutler. And let me jump in on that because I
    think you are right. In terms of mission, yeah, we all want to
    get there. It is how we do it and making sure we do no harm in
    the process. I am talking about small telephone companies who
    are doing this currently or who have received USDA loans to put
    infrastructure in who now are saying we will not be able to
    survive. And it is not profitable. No one is going to cover
    this area, right? And that is what we are talking about. Who is
    going to cover those areas that are unsearchable?
        I guess I would also, ask to Mr. Adelstein, are you
    comfortable sitting here today that you know how to project the
    FCC's caps? How the FCC's caps may change each year? And if
    not, Mr. Genachowski, are you going to make sure that Mr.
    Adelstein has that capability ASAP? So I guess it is a two-
    parter.
        Mr. Adelstein. Well, as I mentioned to Mr. West, we do
    long-term analysis in terms of the revenues in order to justify
    a loan. Generally, we do a five-year analysis so we need to
    take into account what the regression impacts would be. We do
    have visibility in 2014 but not beyond. I think it is helpful
    for borrowers to have some kind of a stop-loss consistent with
    the no flash approach the chairman has talked about. He has
    already made a change in the regression analysis to phase it in
    more slowly. I think some type of way of making sure that we
    knew going forward what those changes might be so that we could
    loan into them would give us additional visibility.
        Ms. Herrera Beutler. So you are saying you are comfortable
    then projecting out, even if these accounts are changing year
    to year, you are comfortable with that?
        Mr. Adelstein. Well, we are working with the FCC on it now.
        Ms. Herrera Beutler. So you are not quite there yet?
        Mr. Adelstein. Well, we are still in the process of
    figuring out exactly what the long-term revenues would be in
    order to make a loan. I mean, we are going through a number of
    loan packages right now that were pending when the FCC order
    came out, and we asked those borrowers, those potential
    borrowers to resubmit their loan materials based on what the
    FCC order was. So we are working through those now.
        Ms. Herrera Beutler. It is interesting you say that because
    the more I think about it, it was not a grant; it was a loan
    that this company got. And they are considering not cashing the
    check in all honesty because here on one hand they are being
    told go for it. Let us do it. Here is the build out. On the
    other hand, they are looking at this new proposal saying do you
    want us to just go bankrupt on this loan? I mean, how are we
    supposed to manage?
        Mr. Adelstein. We have 36 million in loans we have done in
    your district alone since I have become administrator, and it
    is I think an enormous amount to build out broadband to every
    corner of your district, and that is what our mutual goal is.
    So we are working with the FCC to make sure that we can
    continue to build out those projects consistent with the fiscal
    responsibility that the chairman talked about.
        Ms. Herrera Beutler. Thank you. And I yield back.
        Chairman Graves. Mr. Richmond.
        Mr. Richmond. Thank you, Mr. Chairman and ranking member,
    and the distinguished panel.
        Mr. Strickling, I will start with you and maybe you can
    help me with something, especially as my friend and colleague
    from Louisiana raised issues about his rural district and the
    lack of broadband access and how it affects education and small
    businesses and the rural areas. Our governor returned $80
    million to the federal government that would have provided over
    900 miles of cable and linked our universities, and I think the
    question was whether that would compete with private companies.
    And I would like to get your opinion on that and anyone who
    would offer an opinion on how we are potentially competing with
    private businesses.
        Mr. Strickling. Yes. So the grant you are referring to in
    Louisiana was a grant that we felt was a very important one
    that we awarded at the time we did it based on the showing that
    was made to us of the lack of broadband facilities in vast
    parts of Louisiana. The grant applicant, which was the Board of
    Regents of Louisiana State University, made a very compelling
    case that this would add infrastructure and connections to
    schools and libraries and anchor institutions in parts of the
    state where we understood they had only received dial-up, you
    know, regular telephone service in recent years. So the showing
    of need was demonstrably there. There was no question about it.
        What happened with the project was that after the grant was
    awarded the state chose to try to change the project in a way
    that was not going to deliver the benefits on which we had
    decided to award the grant. And as a result of that we felt the
    grant had to be terminated at that point in time. So it is not
    something we are happy about. We would have liked to have seen
    the project proceed as it had been proposed to us and submitted
    to us, but that was the choice of the state not to do it that
    way.
        Mr. Richmond. In your recollection--in the Board of Regents
    application, did they give an impact on how many people it
    would actually increase or provide first-time access to
    broadband or the impact to the state? And I will tell you as a
    former legislator and congressman, the entire legislature,
    Public Service Commission and people in the state were very
    alarmed about the application and the fact that the governor
    wanted to change the scope of the application. But do you
    remember the impact of the numbers on what it would do for
    Louisiana?
        Mr. Strickling. I do not recall, but that is an absolute
    pivotal showing that has to be made in the applications, the
    showing of need. And there was no question that the state of
    Louisiana needed this investment and would have benefitted from
    it. Again, as I mentioned earlier, our projects tend to focus
    on middle mile and then we depend on private industry to build
    out the last mile facilities. But again, this would have put a
    tremendous amount of middle mile infrastructure into very
    remote parts of Louisiana where there then would have been an
    opportunity for private industry to build off of that and offer
    service. I believe the potential affected population was quite
    large. It was quite a large part of the state that was affected
    by this project.
        Mr. Richmond. Oh, I thought you wanted to add something.
        Mr. Genachowski. No.
        Mr. Richmond. I will not stay on it too long but I
    absolutely agree with you. I think it was absolutely critical
    and gave us great opportunity in a state that ranks at the
    bottom in education, the bottom in access to health care, and a
    bunch of other areas where access to broadband would certainly
    help us. To return $80 million to the federal government when
    you have a state like that troubles us considerably.
        Let me move on to a different question and anyone who wants
    to answer this one can. But how do you envision women-owned and
    minority-owned businesses participating in the build out of the
    broadband infrastructure in rural areas?
        Mr. Adelstein. We think it is very important. We did a
    number of outreach efforts before the applications were open so
    we ensured that folks were aware of many diverse backgrounds of
    the opportunity to apply and we continue to work with them. We
    really believe it is important that the kind of companies that
    are taking advantage of these programs reflect the diversity of
    the United States and we have been fairly successful. We have
    been able to get to a lot of remote parts of the country. We
    are serving 125 persistent poverty counties, which is a large
    portion of them in the country, and we have been able to get to
    school children, a million school children that are in areas
    that have school lunch assistance. So we really have targeted
    those areas I think that are hardest to reach. And we hope that
    those who build out our networks as well also reflect that
    diversity.
        Mr. Richmond. I see my time has expired. Mr. Chairman,
    thank you. And I yield back.
        Chairman Graves. Mr. Wells.
        Mr. Wells. Thank you, Mr. Chairman.
        Chairman Genachowski, welcome. I am sure you have discussed
    darn near everything I was going to ask you but let me just
    highlight a couple things.
        This impressive fiber explosion that we have been
    discussing would not be available without investment from small
    businesses. The private sector has invested billions to upgrade
    the networks and we obviously still have a long way to go
    particularly in our rural areas. For the past decade, the FCC's
    commitment not to regulate fiber services has yielded real
    results. Following up on the earlier questions, do you plan on
    regulating fiber optic technology or hybrid technology?
        Mr. Genachowski. No, we do not plan on changing our
    approach in this area.
        Mr. Wells. Okay. So it is safe to assume that this less
    obtrusive approach on fiber does send the right message to the
    private sector to keep doing what they are doing?
        Mr. Genachowski. Yes. And in fact, in the last three years,
    investment in infrastructure, wired and wireless in the U.S.
    and fiber, which supports both wired and wireless, is up very
    significantly even in a troubling economy. So the approach is
    working.
        Mr. Wells. Great. Thank you.
        Chairman Adelstein, the Farm Bill broadband loan program's
    new interim final rules that were released last March in 2011
    still allow loans to be made in areas that are 100 percent
    served. Why right now, especially in this environment, are we
    spending money in areas that already have broadband when
    Congress has repeatedly instructed you to focus on communities
    that lack broadband?
        Mr. Adelstein. We absolutely focus on communities that lack
    broadband. Congress, in the Farm Bill, directed us to implement
    new metrics to limit eligibility to areas that have three or
    fewer broadband providers. So Congress in the act recognized
    that there might be some broadband there but they wanted to
    bring the broadband up to a higher standard. As you indicated
    in your fiber question, of course, fiber is key, and we want to
    make sure that the level of quality of service that is going to
    rural areas is very high, but also giving highest priority to
    projects in areas with no broadband at all. We did that in the
    regulation but we also have to make sure that the projects are
    financially feasible. In order to do that I think it is
    difficult to do that with no broadband there, but it is also
    difficult for a project to demonstrate financial feasibility if
    there is already broadband availability there. So naturally,
    our program does militate towards places that have less
    service. If it is already well served, we are not going to do a
    loan there because there will not be a business case to repay
    it. And that is how we have kept our default rates very low.
        Mr. Wells. In your estimation, does the program require
    overbuilding in certain areas?
        Mr. Adelstein. It does not require it. It does----
        Mr. Wells. Does it lead to it? Has it led to it?
        Mr. Adelstein. Well, it permits some overlap because,
    again, broadband does not always follow neat lines. In order to
    build a business case it does not always make sense. Just go
    there. That is the most remote, difficult to serve, absolutely
    nobody has been there because there is no revenue. It would be
    enormously expensive, and there are not enough customers there
    to be able to pay that freight. So what networks tend to do is
    they build over a broader network and sometimes there will be
    broadband in parts of that network that enables it to build out
    to the rural areas, the most remote areas by having essentially
    a broader network in which to recover the expensive costs that
    were incurred in building out the network.
        Mr. Wells. Are there more efficient ways to target funding
    at the areas in most need?
        Mr. Adelstein. Well, the most efficient way is grant
    funding frankly, but that is very difficult to come by given
    the fiscal situation we find ourselves in. During the Recovery
    Act, we did have substantial grant money. I think we were able
    to get to places that otherwise would not be gotten to and
    create jobs in the process. But at this point I think that
    Congress is considering whether to expand grant programs and
    the Farm Bill is being debated. And there is a difficulty, as
    you know, in getting real budget authority to do that in a
    significant way.
        Mr. Wells. Thank you. Thank you, Mr. Chairman.
        Chairman Graves. Mr. Critz.
        Mr. Critz. Thank you, Mr. Chairman. Thanks to our witnesses
    for being here. I think it looks like I am last in line so I am
    going to throw you some softballs here. You can let me know if
    that is true.
        Chairman Genachowski, the Universal Service Fund was
    originally designed to ensure telecom services for all
    Americans--and I represent a very rural district--including
    those rural and high cost areas at reasonable rates. So how
    does phasing the high cost program into the Connect America
    Fund and the Mobility Fund advance the objectives of the
    Universal Service Fund?
        Mr. Genachowski. It is right at the core of updating the
    Universal Service Fund for the 21st century, moving from
    telephone to broadband, and then making sure that about 18
    million Americans who live in areas without broadband
    infrastructure finally get access to broadband.
        Mr. Critz. And this is for you, again, Chairman, and Mr.
    Adelstein. Rural carriers have complained that the FCC's USF
    award will cause them to default on RUS--and I think you said
    something about this earlier, Mr. Adelstein--to default on RUS
    loans and impact their investments. Are you aware of this? And
    am I wrong in this statement?
        Mr. Adelstein. We are aware that a number of our borrowers
    have come to us and indicated that they could be put in default
    situation. Some have applied for waivers and have indicated in
    their public filings that if they did not receive the waiver
    they would default. So we have heard those concerns raised.
        Mr. Critz. What is the solution? The waiver?
        Mr. Adelstein. Well, the waiver is certainly something that
    we had requested of and the chairman included in a certain
    version in his order, so that is certainly the way that we are
    working with the FCC on these cases to prevent those kind of
    defaults so that we can protect the taxpayer funding at the
    same time that we are, as he indicated, reforming the program
    and moving it into a new direction.
        Mr. Critz. Well, speaking of the waiver process, reforms to
    the universal service high cost program, the FCC contends there
    is a simple $8,000 fee. Now, some of my small carriers argue
    that besides the fee, extra costs are incurred in order to
    compile the data. And actually, the cost could range upwards of
    $300,000. Is that true? I mean, is this something that is going
    to put these small carriers at a real disadvantage?
        Mr. Genachowski. Well, we are committed to making sure that
    our waiver process is as streamlined as it possibly can be.
    When we are talking about annual funding in the millions and
    millions of dollars, we do have an obligation to make sure that
    the waivers are appropriate and that working with the carriers
    to make sure we have the information we need is very important.
        Mr. Critz. Okay. As I stated earlier, I represent a rural
    district and obviously there is a lot of discussion going on
    now about Verizon Wireless and the talks with Comcast, Time
    Warner and all that. My concern always is making sure that
    rural America is not left behind and that they are given access
    and there is some ongoing concern on this discussion. Can you
    comment on how the discussions are going with this marketing
    agreement, or whatever it is, and how it impacts what we are
    talking about here?
        Mr. Genachowski. Respectfully, I cannot because talking
    about a specific pending transaction is something that I cannot
    do, but at the higher level I will tell you that certainly we
    run an open process and the concerns that have been raised are
    ones we are taking very seriously.
        Mr. Critz. So are you saying that as things move forward
    there is going to be a chance for public comment, public review
    of the agreements that are taking place?
        Mr. Genachowski. That is happening right now.
        Mr. Critz. Okay, wonderfully. Thank you, Mr. Chairman. I
    yield back.
        Chairman Graves. With that, I want to thank all of our
    witnesses for being here today. This Committee is going to be
    closely following the actions of obviously the program and when
    it comes to expanding broadband to small businesses. And I look
    forward to working with my colleagues to ensure that their
    policies do not obstruct the private sector investment and
    broadband infrastructure. Obviously, this is usually an adverse
    impact on small businesses and their ability to grow.
        So with that, again, I want to thank all of our witnesses
    for being here very much, taking time out of your schedule. And
    I would ask unanimous consent that all the members have five
    legislative days to submit statements and supporting materials
    for the record. Without objection that is so ordered. And with
    that, this hearing is adjourned.
        [Whereupon, at 3:11 p.m., the Committee was adjourned.]

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