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



 
     DIGITAL DIVIDE: EXPANDING BROADBAND ACCESS TO SMALL BUSINESSES 

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 18, 2012

                               __________

                   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                               

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

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                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

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

                               WITNESSES

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

                                APPENDIX

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

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

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

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


     DIGITAL DIVIDE: EXPANDING BROADBAND ACCESS TO SMALL BUSINESSES

                              ----------                              


                        WEDNESDAY, JULY 18, 2012

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

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

                STATEMENT OF JULIUS GENACHOWSKI

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

                STATEMENT OF JONATHAN ADELSTEIN

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

              STATEMENT OF LAWRENCE E. STRICKLING

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

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