[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
DIGITAL DIVIDE: EXPANDING BROADBAND ACCESS TO SMALL BUSINESSES
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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
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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
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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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