    [Senate Hearing 112-432]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-432

         UNIVERSAL SERVICE REFORM--BRINGING BROADBAND TO ALL AMERICANS

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

                                    HEARING

                                   before the

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 12, 2011

                                   __________

        Printed for the use of the Committee on Commerce, Science, and
                                 Transportation

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           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                JOHN D. ROCKEFELLER IV, West Virginia, Chairman
    DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas,
    JOHN F. KERRY, Massachusetts             Ranking
    BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
    BILL NELSON, Florida                 JIM DeMINT, South Carolina
    MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
    FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
    MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
    CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
    AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
    TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
    MARK WARNER, Virginia                MARCO RUBIO, Florida
    MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                         DEAN HELLER, Nevada
                        Ellen L. Doneski, Staff Director
                       James Reid, Deputy Staff Director
                       Bruce H. Andrews, General Counsel
                    Todd Bertoson, Republican Staff Director
               Jarrod Thompson, Republican Deputy Staff Director
       Rebecca Seidel, Republican General Counsel and Chief Investigator

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on October 12, 2011.................................     1
    Statement of Senator Rockefeller.................................     1
    Statement of Senator Kerry.......................................     1
    Statement of Senator Inouye......................................     2
    Statement of Senator Hutchison...................................     6
    Statement of Senator Warner......................................     7
    Statement of Senator Cantwell....................................     8
        Prepared statement...........................................     8
    Statement of Senator Wicker......................................     8
        Prepared statement...........................................     8
    Statement of Senator Pryor.......................................    52
    Statement of Senator Ayotte......................................    55
    Statement of Senator Begich......................................    57
        Prepared statement of ViaSat, Inc............................    74
    Statement of Senator Thune.......................................    60
    Statement of Senator Klobuchar...................................    63
    Statement of Senator Boozman.....................................    65

                                   Witnesses

    Hon. Kathleen Q. Abernathy, Chief Legal Officer and Executive
      Vice President, Regulatory Affairs, Frontier Communications;
      former Commissioner, Federal Communications Commission (FCC)...     9
        Prepared statement...........................................    11
    Mary N. Dillon, President and Chief Executive Officer, United
      States Cellular Corporation....................................    14
        Prepared statement...........................................    15
    Michael K. Powell, President and Chief Executive Officer,
      National Cable & Telecommunications Association................    19
        Prepared statement...........................................    21
    Shirley Bloomfield, Chief Executive Officer, National
      Telecommunications Cooperative Association.....................    24
        Prepared statement...........................................    26
    Philip B. Jones, Commissioner, Washington Utilities and
      Transportation Commission......................................    31
        Prepared statement...........................................    33

                                    Appendix

    Hon. Frank R. Lautenberg, U.S. Senator from New Jersey, prepared
      statement......................................................    77
    Response to written questions submitted to Hon. Kathleen Q.
      Abernathy by:
        Hon. Claire McCaskill........................................    77
        Hon. Mark Pryor..............................................    78
        Hon. Olympia J. Snowe........................................    78
    Response to written questions submitted to Mary N. Dillon by:
        Hon. Claire McCaskill........................................    81
        Hon. Olympia J. Snowe........................................    84
        Hon. Roger F. Wicker.........................................    86
    Response to written questions submitted to Michael K. Powell by:
        Hon. Claire McCaskill........................................    88
        Hon. Olympia J. Snowe........................................    88
    Response to written questions submitted to Shirley Bloomfield by:
        Hon. Claire McCaskill........................................    90
        Hon. Mark Pryor..............................................    92
        Hon. Olympia J. Snowe........................................    94
    Response to written questions submitted to Philip B. Jones by:
        Hon. Claire McCaskill........................................    96
        Hon. Olympia J. Snowe........................................    97
    Letter dated October 18, 2011 to Hon. John D. Rockefeller IV from
      Mary N. Dillon.................................................   102
    Letter dated October 19, 2011 to Hon. Jay Rockefeller IV and Hon.
      Kay Bailey Hutchison from Philip Jones, Commissioner,
      Washington Utilities and Transportation Commission.............   104
    E-mail dated October 25, 2011 from Charles Bubnis................   106
    E-mail dated October 21, 2011 from Melissa Chalmers..............   107
    E-mail dated October 20, 2011 from Cynthia Price.................   108
    E-mail dated October 19, 2011 from Evelyn Savarin................   109

         UNIVERSAL SERVICE REFORM--BRINGING BROADBAND TO ALL AMERICANS

                                  ----------

                          WEDNESDAY, OCTOBER 12, 2011

                                           U.S. Senate,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Committee met, pursuant to notice, 2:34 p.m. in room
    SR-253, Russell Senate Office Building, Hon. John D.
    Rockefeller IV, Chairman of the Committee, presiding.

          OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV.,
                    U.S. SENATOR FROM WEST VIRGINIA

        The Chairman. Ladies and gentlemen, this hearing will come
    to order. And it's going to be a very interesting hearing.
        And it's not going to be started off by me, but it's going
    to be started off by John Kerry, who has to leave immediately
    for that wonderful thing called the ``super committee,'' which
    is solving all the problems of all the eastern, western, and
    north, south countries. Plus, he's a subcommittee chairman.
        Go ahead, Mr. Kerry, Senator Kerry.

                   STATEMENT OF HON. JOHN F. KERRY,
                    U.S. SENATOR FROM MASSACHUSETTS

        Senator Kerry. Mr. Chairman, thank you. I didn't realize
    you were going to put me ahead of yourself. I appreciate it
    very much--and my colleagues, and especially Senator Warner,
    who made extra efforts to get here before me, I know.
        Mr. Chairman, an article that appeared in my state's papers
    recently on the Universal Service Fund was titled,
    ``Massachusetts Phone Charges Fuel Communications Investments
    Around the Country.'' The article's point was to highlight a
    dramatic inequity.
        Massachusetts telephone customers pay $1.47 billion in
    surcharges into the Universal Service Fund, but draw only $415
    million in benefits in return. Put another way, at a time when
    household budgets are squeezed and middle class and working
    families in Boston and throughout the state are subsidizing
    phone customers in other states in very large amounts, people
    are obviously very concerned about why the inequity between my
    state and others might be OK if you had a USF that you could
    say was really efficient and targeting only those communities
    that need it the most, and you can make an argument for that.
        But that's not what's happening. It might be OK if
    Massachusetts didn't have large pockets of geography without
    access to broadband and with spotty wireless service, but we
    do.
        Now, we need to start getting a fair share of the fund, and
    the fund needs to target areas of need in a financially
    responsible way.
        In a speech last week, Chairman Genachowski said this:
    ``The Universal Service Fund is outdated. It still focuses on
    the telephone, while high-speed Internet is rapidly becoming
    our essential communications platform. USF is wasteful and
    inefficient. The fund pays some companies almost $2,000 a
    month. That's more than $20,000 a year for a single home phone
    line. USF is unfair. Some parts of rural community are
    connected to state-of-the-art broadband, while other parts of
    rural America are entirely left behind, because the program
    doesn't direct money where it's most needed. USF is broken. And
    the related Intercarrier Compensation System--a complex system
    of payments phone companies make to each other when they
    connect calls--doesn't work anymore either.''
        Those are all Chairman Genachowski's words.
        Well, I agree with that assessment. And I don't want my
    constituents' money to continue to be spent this way any
    longer. The specific details of the FCC Chairman's proposal for
    reform are on circulation at the FCC and are not yet public, so
    none of us can judge them yet. But I support the Chairman's
    intent.
        I have written two letters over the last year to the FCC on
    this; and one was with Senator Warner, asking the FCC to focus
    on efficiency and broadband deployment where it's most needed.
    And then another one we sent with Senators Lautenberg and
    Nelson, focusing on providing for greater equity in
    distribution.
        So today's hearing is focused on the potential for these
    reforms at the FCC of the most costly of the Universal Service
    Fund programs, the High Cost program.
        I support universal service as a concept. I remember, Mr.
    Chairman, you and I on this committee, when we were struggling
    with it in the incipient days--I remember in 1996, when we
    wrote the Telecommunications Act, which we all learned within 6
    months was completely outdated almost before the ink was dry--
    because all we did was talk about telephony, when the entire
    system was moving to data transmittal.
        So, we have a huge opportunity here to learn the lessons,
    to recognize that modern communications systems pose new
    challenges in a time of fiscal constraints. And I think we have
    to make sure we fund services with the end user in mind.
        And I thank you very, very much, Mr. Chairman, for letting
    me make this statement.
        The Chairman. Thank you, Senator Kerry. And thank you for
    the work you not only do here, but what you're doing all day,
    every day.
        With the permission of the Ranking Member, of the getting-
    redder-and-redder Mark Warner, I would like to ask if Dan
    Inouye would like to say something.

                  STATEMENT OF HON. DANIEL K. INOUYE,
                        U.S. SENATOR FROM HAWAII

        Senator Inouye. I appreciate this very much.
        I wish to commend the FCC for its efforts to reform the
    Universal Service Fund and Intercarrier Compensation programs
    to support broadband growth and implement the goals of a
    National Broadband Plan.
        The draft order circulated by FCC, based on the scarce
    details available, appears to be a very concrete step forward
    in the effort to help sustain the investments that have already
    been made and will encourage new investment in broadband
    infrastructure in un-served areas.
        Furthermore, I'm pleased the proposal recognizes the
    adjustments must be made to recognize unique needs. But I am
    concerned the proposal will not go far enough to help native
    communities and remote, insular areas.
        For example, although the FCC Chairman's proposal would
    dedicate special funds for tribal areas, the amounts, I
    believe, appears inadequate. Further, the Native American,
    Native Alaskan and Native Hawaiian communities face similar
    hardships and challenges when it comes to deploying broadband
    services and should all be eligible for any funds dedicated to
    assisting native communities.
        With respect to remote, insular areas, many of my
    colleagues have heard me speak over the years about the unique
    challenges facing these communities and the need to target
    assistance to ensure the availability of affordable, advanced
    communications services comparable to the services available in
    urban areas.
        To this end, during deliberation on the Telecommunications
    Act of 1996, I advocated the inclusion of a provision to
    specifically recognize the needs of remote, insular areas,
    including the state of Hawaii and the American territories.
        There is no question that there are severe geographic and
    economic obstacles to providing broadband technology in these
    areas, including geographic isolation, volcanic activity,
    difficult terrain, severe weather, and high transportation
    costs. In addition, these areas are further challenged by the
    limited availability and capacity of fiber and microwave links
    and the need for inter-island distribution facilities.
        While I've been disappointed that the FCC never completed
    its early efforts to identify how to give meaning to the term
    insular, I appreciate the fact that the FCC Chairman's proposal
    recognizes the need to target remote areas. However, I question
    whether sufficient resources will be dedicated to meet these
    needs.
        Further, for many of us in the Pacific, satellite is not a
    viable option; and Hawaii has routinely been subject to
    discrimination in its access to direct broadcast satellite
    video services and direct-to-home broadband satellite services,
    resulting in services that are substantially inferior to those
    available to the rest of the United States.
        USF reform is indeed a difficult task. And I wish to thank
    all the witnesses for being here today to share their thoughts
    with the members of this committee on how best to reform this
    vital program.
        And it's my hope that at the end of the day, reforms to the
    USF program will, in fact, result in the promised benefits to
    consumers throughout this land.
        And Mr. Chairman and members, I thank you very much for
    this consideration.
        The Chairman. Thank you, Mr. Chairman. Haven't you chaired
    every committee?
        Senator Inouye. I try not to.
        The Chairman. You try not to, but you do.
        I want to make a statement, and then we'll go to the
    distinguished senator from Texas and then to the most
    distinguished senator from Virginia. And I'll repeat some of
    what's been said, but it needs to be said again and again and
    again.
        As far back as the Communications Act of 1934, this country
    had a proud history of making sure that all of us have the
    opportunity to access modern communications networks. That is
    why universal service is a cherished principle. In years past,
    universal service has meant that we connect every community
    with basic telephone service. In the years ahead, it means that
    we connect our communities with something called broadband.
        Let me start by saying that I wholeheartedly applaud--and
    have told him so in a meeting in my office--FCC Chairman
    Genachowski for his efforts to reform this system. It is huge,
    the effort, and it is complicated to help bring broadband, both
    wired and wireless, to all Americans. He wants to do this. And
    he's working assiduously at it. And he's good at it.
        We've been talking about reform for more than a decade. I
    think it's time really to do something about it.
        This committee understands that this challenge is not an
    easy one. It's going to pit sector against sector; how much do
    I get paid, as opposed to how much do you get paid. I have a
    little speech I'm going to give about that at some point.
        Reform almost always means that some vested stakeholders
    will be unhappy because they prefer the status quo. And that is
    the definition of reform. That is the definition of reform.
    There are going to be unhappy people, unhappy companies,
    unhappy senators, unhappy constituents, or not as happy as they
    might be otherwise.
        Our nation's communications infrastructure is the backbone
    of everything that we do in this economy, and we just simply
    can't keep putting this off until we get everybody happy,
    because we never will.
        So, this Chairman wants to move ahead. Let me tell you why
    I think this is so important, and indulge me an extra minute.
        For too long, our universal service has focused upon
    communication challenges of the last century. We are analogs.
    We eat analogs; we wake up to analogs; we do analogs for our
    telecommunications.
        Obviously, it's a digital age. We have not made the switch.
    And to the extent that it has been made, it has not been made
    psychologically or formally.
        Broadband is not just a technology. It's a platform for
    opportunity. It's the essential infrastructure of our day. I
    say that again: the essential infrastructure of our day. It is
    how we will grow in America, expand businesses, foster
    innovation, increase access to education, et cetera, et cetera,
    et cetera--even transform entertainment.
        There's no doubt about it: Having widespread access to
    high-speed service is what this country requires to compete
    internationally--something we do rather poorly. And if we get
    this right, we can close the digital divide in rural America,
    or in all parts of America; and we can provide the broadband
    and wireless access that is essential for every community to
    have a fair shot at prosperity in this century.
        Reform will require some very hard choices. But the fact
    is, there are big sections of this country that universal
    service policy barely benefits today. The fact of the matter is
    that, in some places, reimbursement is based upon the company
    rather than the constituency.
        The fact is that most people are pretty unhappy about what
    they're getting--especially the size of their bills. That can
    come during questioning.
        We have to start targeting universal service support to
    areas of the country without service that truly need it--but
    not just them. This is not just about West Virginia that you're
    about to hear. It's not just them.
        Some states are underpaying. Some states are overpaying. As
    long as those people hold onto the status quo, we will not
    progress an inch, because they can block it from getting out of
    this committee, much less getting it onto the floor--such a
    complicated subject, with so little time left.
        The American people deserve better than an inefficient
    system that was designed to support the technologies--analog--
    of another era. Many members of this Committee have first-hand
    experience; they know it very well. So, making hard choices
    means developing a universal service system that works for the
    entire nation--and, if not equally for all parts of the entire
    nation, a movement in that direction.
        Senator Inouye, Chairman Inouye mentioned insular--a very
    important word for Alaska and for Hawaii. That's in our public
    safety spectrum bill. That can be taken seriously. He said
    there won't be enough money. Yes, probably true, the way things
    are these days. Does that mean, therefore, we don't make
    changes; we don't bite the bullet; we don't set the framework?
    No, it doesn't--not to this person.
        There is no one right reform plan. There isn't any perfect
    one. More work needs to be done and is being done. I know there
    are serious questions about how to provide sufficient support
    for wireless networks in areas of the country where towers are
    too few and reliable signals are scarce. Actually, West
    Virginia is among those.
        I know there are serious questions about the impact of
    reform on consumer bills. I look at mine very, very closely
    these days. Very interesting, actually. Consumers need to get
    more value for what they pay for--not less value.
        I know there are serious questions about state commissions
    and the important role that they play, how they fit into
    reforms. I know that more accountability at the universal
    service system is critical. I know that deployment is the focus
    of this reform effort. Deployment. Yet we would be remiss if we
    do not also consider efforts to promote broadband adoption.
    That is an essential part of our broadband mission.
        And I also know this: We have an opportunity now that we
    better seize. People get tired of this stuff. People get weary.
    And that cannot happen.
        Companies will lobby as they will lobby. Senators will
    lobby as they will lobby. But somewhere, there has to be a
    breakdown in this, so that we can reach a common purpose and
    pass something called a bill out of here, and out of there or
    whichever way the House is. Waiting only relegates too many
    communities to the wrong side of the digital divide. And I say,
    heavens, we've waited long enough.
        So, this is not just my clarion call. Comparable services
    at comparable rates--which is the going phrase--is a matter of
    law.
        I look forward to hearing the witnesses, and I turn now to
    my esteemed Co-Chairman, Senator Kay Bailey Hutchison.

                STATEMENT OF HON. KAY BAILEY HUTCHISON,
                        U.S. SENATOR FROM TEXAS

        Senator Hutchison. Thank you very much, Mr. Chairman. Thank
    you for calling this hearing, because clearly so much good has
    happened since we established the Universal Service Fund in
    1996. I think just about every area of our country is covered
    with telephone service. Now is the time, with all of the
    options available, for a clear reform of the program.
        The FCC has recognized the problem, and I am pleased that
    their reform effort seems to be beginning to move forward. I
    don't know what's in their proposal, but I'm glad that they are
    seeing this issue as something that needs reform.
        I'm just going to lay out the things that I hope are in the
    FCC reform proposal.
        I believe that we need to ensure that the fund does not
    keep growing unsustainably. Consumers can't afford the
    constantly increasing fees, and I hope that we will be able to
    fully utilize what is there without further raising the rates.
        The High-Cost program needs to focus on supporting carriers
    only where no one else is providing unsubsidized services. I
    think it should be clear that we don't want to get in the way
    of free enterprise.
        While we've been subsidizing broadband indirectly through
    the USF for years, it's time for the Universal Service Fund to
    officially become a broadband-centric program. As the chairman
    said, we're in a digital age now, no longer in an analog age,
    and we need to adapt to that. This will lead to more efficient
    and effective use of USF dollars.
        Americans get broadband from a variety of technologies--
    telephone lines, cable TV wires, wireless communications, and
    satellites. The USF needs to be technology-neutral so it
    reflects today's broadband marketplace.
        And last, the rates telephone companies charge each other
    needs to be rationalized; but the transition has to be done in
    a gradual manner. Providers who have made investments under the
    current system must have adequate time to plan for and adapt to
    a new system, and use what they have invested in. Otherwise
    consumers could get a disruption during the transition.
        I hope that the FCC will stay on course, and I hope they
    will be measured in the reforms that they put forward. And I am
    looking forward to working with you--our experts--but also with
    the FCC to try to address this problem in the right way.
        Thank you Mr. Chairman.
        The Chairman. Thank you very much.
        This is such an important hearing that I'm torn--but not
    for long.
        Senator Warner just came up to me and said, look, let me
    just put mine in the record. Now that's an amazing thing for
    Senator Warner to say----
        [Laughter.]
        The Chairman.--because he has very strong ideas, for very
    good reasons, about everything that we're discussing here.
        So, what I would like to do--and I think Senator Wicker
    wants to make his statement--what we should do here--we don't
    have all that many people--is those who want to say something,
    let them so do, and those who want to put it in the record, let
    them so do.
        Senator Warner, you are not in the record.

                    STATEMENT OF HON. MARK WARNER,
                       U.S. SENATOR FROM VIRGINIA

        Senator Warner. I'm not?
        The Chairman. You will be when you finish.
        Senator Warner. Well, can I keep my time for some extra
    questions? I've got some questions for these folks. But I just
    want to commend the Chairman and the Ranking Member for doing
    this.
        You know, we kind of know where we're at. The National
    Broadband Plan says we need $23 billion to build, at a minimum,
    a broadband system--$55 billion if we've got to do fiber to the
    home. We got a $4 billion a year high cost fund that we've got
    to figure out a smarter way, that is competitively neutral and
    technology-neutral, to get us there in a timely fashion.
        And, you know, my concern, and why I'm so anxious for this
    hearing and anxious to get to the questioning phase, is there
    have been some I think good faith efforts put together by
    industry already. I've got some very specific questions about
    some of those efforts.
        I, like I think all of our members, want to see this USF
    reform take place, take place in a timely way, and in a way
    where our communities who are still under-served, in terms of
    broadband access, get that, as I agree with the Chairman,
    absolutely critical 21st Century infrastructure.
        And I would simply add--and something that I'll come back
    to in the question period--our minimal standards we're thinking
    about right now--for example, four megabits per second--sounds
    fast now. That isn't going to sound very fast a few years from
    now. We need to lock in on standards that can move with
    technology.
        So, thank you, Mr. Chairman. I hope I'll get my extra 2
    minutes on questions.
        The Chairman. Thank you.
        So that I can be updated and humiliated, I would point out
    to the Committee that the FCC can do a USF thing without even
    consulting us. They just put it out.
        Senator Cantwell, Senator Pryor, Senator Klobuchar, Senator
    Wicker?

                   STATEMENT OF HON. MARIA CANTWELL,
                      U.S. SENATOR FROM WASHINGTON

        Senator Cantwell. Mr. Chairman, I just want to welcome
    Commissioner Phil Jones from the Washington Utilities and
    Transportation Commission. And I'll submit my statement for the
    record.
        [The prepared statement of Senator Cantwell follows:]

    Prepared Statement of Hon. Maria Cantwell, U.S. Senator from Washington
        Thank you Mr. Chairman for calling this important hearing.
        I want to welcome Washington Utilities and Transportation
    Commissioner Phil Jones to what I call the other Washington. Thank you
    for making the trip and for testifying at this hearing.
        Phil has served on the WUTC since 2005. He is very involved in
    telecom policy at the national level through the National Association
    of Regulatory Utility Commissioners. I know earlier in your career, you
    worked for Senator Dan Evans here in this Washington a number of years
    ago. Thank you for your public service in both Washingtons.
        There is broad agreement that reform of the universal service fund
    high cost support mechanism and the inter-carrier compensation system
    is long overdue. These programs were put in place years ago. They have
    served us well but have not kept pace with changes in technology and
    the competitive landscape. For one thing, the change from circuit
    switched networks to IP networks is accelerating. The cost to complete
    a call should be going down. While universal broadband is a policy
    imperative it should not be seen as a blank check. Ultimately funding
    for Universal Service Fund comes out of the pockets of consumers.
        I understand that fundamental change to long standing business
    models seem to present more challenges than opportunities. For that
    reason there have been several attempts at USF and inter-carrier
    compensation reform that have fallen short. I applaud Chairman
    Genachowski for taking on the issue and the various stakeholders for
    weighing in. I look forward to hearing from the panel.

        The Chairman. All right. Thank you very much.
        Senator Wicker?

                  STATEMENT OF HON. ROGER F. WICKER,
                     U.S. SENATOR FROM MISSISSIPPI

        Senator Wicker. Well, I'll put my one-page statement in the
    record if I can make two points, Mr. Chairman.
        A reformed USF needs to adequately be responsive to the
    unique needs of rural America. And that's one of the main
    points that needs to be made here today. The Commission needs
    to make sure it does not embrace one technology over the other.
    And I think our Ranking Member stressed that also. Rather, they
    need to ensure that the best technology for each geographic
    region receives support.
        Further, it's important that carriers willing to invest in
    rural broadband infrastructure--a primary goal of 21st Century
    USF--are not impeded by anti-competitive regulatory framework.
        Having made those two points, I thank you, Mr. Chairman.
    Thank you for this hearing. And I'll put my statement in the
    record as a whole.
        [The prepared statement of Senator Wicker follows:]

         Prepared Statement of Hon. Roger F. Wicker, U.S. Senator from
                                  Mississippi
        The issue of Universal Service and Intercarrier Compensation reform
    is an important and challenging one. With the FCC's circulation of a
    draft order last week and an expected vote at month's end, this process
    is well underway. But this hearing, with this broad cross-section of
    witnesses, can provide a good forum to underscore the fact that there
    are many moving parts surrounding this issue, all of which need to be
    considered.
        As we transition the Universal Service Fund (USF) to focus on
    broadband availability, it is imperative that we rein in costs, making
    it more efficient and effective. At the same time, a reformed USF needs
    to be adequately responsive to the unique needs of rural America.
        The Commission needs to assure that our Nation's vast rural areas,
    including significant portions of my home state of Mississippi, have
    access to the vital economic benefits of broadband.
        USF and ICC reform has been under consideration for over a decade.
    Now that we have reached critical mass, with an adoptable draft order
    on hand, the Commission needs to make sure it does not embrace one
    technology over another, but rather ensure that the best technology for
    each geographic region receives support. Further, it is important that
    the carriers willing to invest in rural broadband infrastructure--a
    primary goal of a 21st century USF--are not impeded by an
    anticompetitive regulatory framework.
        To proceed otherwise is to risk having a severe adverse impact on
    private sector investment and technological growth and in some cases
    may represent a step backward through reduced broadband availability.
        I applaud the efforts taken by the FCC to act on this important
    issue. I look forward to hearing our witnesses' perspectives,
    suggestions and concerns as reform becomes a reality.

        The Chairman. It's so ordered, and I thank you.
        Our witnesses today are Ms. Kathleen Abernathy. She's the
    Chief Legal Officer and V.P. of Frontier Communications; and
    Ms. Mary Dillon, President and CEO, U.S. Cellular; Mr. Michael
    Powell, President and CEO, National Cable and
    Telecommunications Association--I think this is your first
    appearance here in that capacity. Ms. Shirley Bloomfield, CEO,
    National Telecommunications Cooperative Association; and, as
    has been noted, Mr. Philip Jones, Commissioner, Washington
    Utilities and Transportation Commission.
        I'll just go down this list as it is and start with Ms.
    Abernathy.

                STATEMENT OF HON. KATHLEEN Q. ABERNATHY,

           CHIEF LEGAL OFFICER AND EXECUTIVE VICE PRESIDENT,

              REGULATORY AFFAIRS, FRONTIER COMMUNICATIONS;

      FORMER COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION (FCC)

        Ms. Abernathy. Thank you very much. Good afternoon,
    Chairman Rockefeller, Ranking Member Hutchison, and members of
    the Committee. It is a privilege to appear before you with my
    fellow panelists to discuss proposed reforms to universal
    service that will further promote broadband deployment to all
    Americans.
        Universal service reform, intercarrier compensation reform,
    broadband deployment--they're all issues that I have worked on
    for a long time, first in the private sector, later on as an
    attorney in private practice, and then as a commissioner at the
    FCC, and now as an executive with Frontier Communications.
        Frontier is the largest provider of broadband, voice and
    video services focusing on rural America, and the fourth
    largest incumbent local exchange carrier in the country.
        During the last century, Frontier's mission was ensuring
    that everyone in our area had access to reliable telephone
    voice service. That was the main means of communication.
        While Frontier continues to provide quality voice service,
    we agree with all of you that broadband has become the
    essential communications technology of the 21st Century; and
    we've redefined our mission to provide reliable broadband
    service throughout our footprint.
        Frontier is committed to deploying broadband to some of the
    hardest-to-serve areas of the nation--areas where the
    population is scattered and the terrain challenges are
    significant.
        But despite these obstacles, we've been aggressively
    deploying broadband across our rural footprint. As of 15 months
    ago, prior to our most recent acquisition, we had high-speed
    Internet in 91 percent of the population in our footprint. And
    when we extended our commitment through the purchase of
    wireline operations from Verizon, we reaffirmed that
    commitment. We're now in 27 states.
        And I'm happy to say, Mr. Chairman, we're the largest
    service provider in West Virginia.
        We've made clear that our focus is on deploying broadband
    in these newly acquired markets, many of which had only 60
    percent broadband penetration when we finalized the
    acquisition. We've invested heavily in the network, with the
    goal of extending broadband reach to 85 percent of the
    households in the newly acquired markets by the end of 2013.
    So, we are well aware of the challenges of delivering service
    to all of our customers and particularly the last 10 to 15
    percent of the population that remains un-served, even with our
    aggressive deployment.
        The cost of deploying to these customers is exponentially
    higher than in the most densely populated areas, and the base
    of customers to absorb these costs is limited. Even given
    Frontier's existing phone network in these low-density, high-
    cost areas, upgrading the existing facilities to make them
    broadband-capable is fundamentally uneconomic, absent
    government support.
        The FCC's National Broadband Plan recognized this challenge
    and proposed transitioning the current Universal Service Fund
    to a broadband fund that would also reform the outdated
    intercarrier compensation scheme, and Chairman Genachowski, as
    you noted, announced last week that the FCC is moving ahead
    with this proposal.
        So, we've been working with our other wireline carriers--
    AT&T, CenturyLink, FairPoint, Verizon and Windstream--in
    support of what we call America's Broadband Connectivity Plan,
    or the ABC Plan.
        The ABC Plan, in conjunction with the reform proposal of
    the rate-of-return carriers, is a consensus framework for
    reforming key areas of universal service and intercarrier
    competition--compensation to provide greater accountability,
    and to better direct the resources to the high-cost parts of
    the country.
        I want to stress that reform of intercarrier compensation
    is necessarily linked to USF reform. The intercarrier
    compensation system, which dictates how much carriers pay each
    other to complete calls, has always been a critical component
    of how rural carrier recover their costs. But it has become
    outdated, as technology has shifted from legacy voice networks
    over to broadband networks.
        So, the ABC Plan offers up a carefully constructed solution
    that combines a phase down of access charges with replacement
    revenue streams, and greater targeting to more accurately fund
    high cost parts of the country. This reform will also eliminate
    arbitrage opportunities, which, frankly, make no sense and
    simply undermine the goals of universal service funding.
        Finally, the plan meets the four principles articulated by
    Chairman Genachowski: First, the ABC plan transitions the
    current voice support mechanism to one for broadband. Second,
    it is fiscally responsible. It does not increase the size of
    the High Cost Fund, and more precisely and more accurately
    targets support to the most expensive, hardest- to-reach parts
    of the country. Third, the plan requires accountability:
    funding recipients are required to document and provide defined
    results. And fourth, the plan has market-driven policies and
    uses a forward-looking model to distribute funds.
        So, in closing, the ABC Plan reflects a compromise and
    consensus, and is carefully balanced to provide ongoing
    stability and funding necessary to support broadband investment
    and deployment.
        Thank you.
        [The prepared statement of Ms. Abernathy follows:]

     Prepared Statement of Hon. Kathleen Q. Abernathy, Chief Legal Officer
          and Executive Vice President, Regulatory Affairs, Frontier
          Communications; former Commissioner, Federal Communications
                                Commission (FCC)

        Good afternoon Chairman Rockefeller, Ranking Member Hutchison, and
    members of the Committee. It is a privilege to appear before you this
    afternoon to discuss proposed reforms to universal service that will
    further promote broadband deployment to all Americans. Universal
    Service Fund (USF) reform, intercarrier compensation (ICC) reform, and
    broadband deployment are all issues I have been working on for a long
    time--as a telecommunications attorney in private practice, as a
    commissioner at the FCC, and now as Chief Legal Officer and Executive
    Vice President of Regulatory Affairs at Frontier Communications.
        Frontier is the largest provider of broadband, voice and video
    services focusing on rural America and the fourth largest incumbent
    local exchange carrier in the Nation. During the last century,
    Frontier's mission was ensuring that everyone in its service area had
    access to reliable voice telephone service--the main means of
    communication. While Frontier continues to provide quality voice
    service, broadband has become the communications technology of the 21st
    Century, and Frontier has redefined its mission to provide reliable
    broadband service throughout its footprint.
        At Frontier, we embrace the position expressed by this Committee,
    Congress, the Administration and the FCC that broadband is the
    essential infrastructure of our time, capable of advancing job creation
    and economic growth, ensuring public safety, providing access to
    improved healthcare, enhancing education, and opening the doors of
    opportunity for all. But, to achieve these benefits, broadband should
    be available to all. Frontier is committed to deploying broadband to
    some of the hardest-to-serve areas in the Nation--areas where the
    population is scattered and the terrain challenges are hard to manage.
        Despite these challenges, Frontier has been aggressively deploying
    broadband throughout rural America. As of 15 months ago, Frontier had
    deployed high speed Internet to 91 percent of the households in its
    footprint. In July 2010, Frontier extended its commitment to serving
    rural America when we purchased the rural wireline operations of
    Verizon in 14 states. As a result, Frontier now has a coast-to-coast
    rural footprint in 27 states and is the largest service provider in
    West Virginia. Frontier made clear that it would focus on deploying
    broadband in these newly acquired areas. Over the past year, Frontier
    has invested heavily in the network with the goal of bringing broadband
    access from approximately 60 percent availability up to 85 percent in
    the newly acquired markets by the end of 2013. Additionally, over the
    same period, Frontier has invested more than $750 million in capital
    expenditures. And, our commitment to the rural markets we serve is
    demonstrated by our 100 percent U.S. workforce.
        Frontier's mission of providing high speed Internet to rural
    America is directly aligned with the Committee's objective of
    ubiquitous broadband. At the same time, we are well aware of the
    challenges of delivering service to the last 10 percent to 15 percent
    of the population that remain unserved. The economics of deploying
    broadband to this hardest-to-serve segment of the population with
    private capital alone are daunting. The cost of deployment is
    exponentially higher than in the more densely populated areas and the
    base of customers is limited, which in turn limits potential return on
    investment. Even given Frontier's existing infrastructure, which
    provides traditional phone service to these areas, the cost of
    upgrading the existing facilities to make them broadband-capable dwarfs
    any potential revenues. Simply stated, there is no business model for
    providing broadband service in these areas without an effective
    government support program to bridge the gap.
        The National Broadband Plan accurately concluded that serving most
    of the currently unserved areas of the country would be a money-losing
    proposition. To address this, the National Broadband Plan recommended
    transitioning the current Universal Service Fund for voice to a
    broadband fund while also reforming the arcane and outdated
    intercarrier compensation system. After reviewing various proposals,
    FCC Chairman Julius Genachowski announced last week that the FCC would
    act on a recommendation later this month. Frontier has been active in
    the FCC proceeding and joined with AT&T, CenturyLink, FairPoint,
    Verizon and Windstream in support of the America's Broadband
    Connectivity Plan, or ABC Plan. The ABC Plan, in conjunction with the
    reform proposal for rate-of-return providers offered by the rural local
    exchange carrier associations NTCA, OPASTCO and WTA, provides a
    consensus framework for key areas of universal service and intercarrier
    compensation reform.
        It was no small task to find common ground among the six largest
    incumbent local exchange carriers. All of the companies have
    historically had varying and adverse positions on how to reform the
    existing system. But after several months of deliberations,
    negotiations and compromises, we were able to agree on a proposal that
    meets the principles articulated by Chairman Genachowski: a transition
    to broadband, fiscal responsibility, accountability and market-driven
    policies.

       The ABC Plan transitions the current voice support mechanism
            to one that supports broadband. The newly created broadband
            fund will provide millions of Americans in high-cost areas with
            broadband access.

       The ABC Plan is fiscally responsible. It does not increase
            the size of the current High Cost Fund.

       The ABC Plan requires accountability. Funding recipients are
            required to provide defined results.

       The ABC Plan has market-driven policies. It uses a forward-
            looking model to distribute funds quickly and efficiently,
            where applicable.
    Transition to broadband with limited funds.
        It is a complex project to transition the fund that currently
    supports voice service to one that supports deployment and operation of
    broadband service, all while maintaining the size of the fund. The ABC
    Plan meets these goals by more precisely targeting support for
    broadband to the most expensive and hardest-to-reach areas of the
    country on a granular, census block level. In addition, no support will
    be available where an unsubsidized broadband provider such as cable
    already offers service.
    Funding framework provides for quick and efficient deployment.
        In addition, the ABC Plan leverages existing broadband investment
    in certain areas to achieve rapid build-out to adjoining unserved
    areas. In particular, where an existing provider has already built out
    broadband to 35 percent of an area, the proposal offers that provider
    the opportunity to speedily complete build-out to the entire area with
    support calculated by the approved cost model. Some oppose this aspect
    of the proposal and recommend instead a lengthy, complex and burdensome
    reverse auction process to determine how new broadband support should
    be distributed. Before even getting to the ``race to the bottom'' with
    a reverse auction, the FCC will have to develop the ground rules for
    this cumbersome approach to funding the 900,000 census blocks in play.
    The initial result will be to delay broadband build-out for several
    years. Yet, incumbent carriers such as Frontier have been providing
    voice service under Title II, as well as under state regulations such
    as Carrier of Last Resort requirements, to these areas for some time.
    With incremental investment, the existing voice infrastructure can be
    upgraded to provide broadband. It is unlikely that a new provider would
    have both existing infrastructure and experience in the area to produce
    similar efficiencies within the same timeframe. Given the need for
    rapid deployment of broadband service to these high cost, unserved
    areas, and the fact that these areas are already served by traditional
    phone service, the ABC proposal best accomplishes the FCC's goals.
    Ubiquitous broadband benefits all.
        Clearly, this Committee recognizes the great benefits that
    broadband will bring to Americans--in both rural and urban areas. While
    Frontier chiefly serves rural America and focuses on the benefits that
    broadband will bring to its residents, urban and suburban residents
    will benefit from this Plan as well. On a very basic level, the Plan
    maintains the size of the fund, which means that the FCC will not
    require increased contributions from urban and suburban ratepayers.
    Most importantly, the entire country benefits from having access to
    21st Century technology; friends, relatives, businesses and potential
    customers can connect with each other--whether in urban or rural
    markets.
    Intercarrier compensation reform is inextricably linked to
            modernization of USF.
        I hesitate to discuss intercarrier compensation because it can make
    USF reform seem like a walk in the park. But I must stress that reform
    of ICC is inextricably linked to USF reform. The intercarrier
    compensation system--which dictates how much carriers pay each other to
    complete calls over each other's networks--grows more outdated as
    communications technology shifts from legacy voice networks to
    broadband. The ABC Plan proposes a five year transition of the many
    intercarrier compensation rates to a much lower uniform rate, and gives
    carriers options to try to make up revenue lost to mandated rate cuts.
    In particular, the proposed uniform intercarrier compensation rate for
    the termination of voice traffic will go from as much as 36 cents/
    minute for some intrastate rates, to .07 centscent. That means that
    long distance and wireless providers will be paying significantly less
    to have their customers' calls terminated on the public switched
    telephone network (PSTN), and we believe that benefit--which has been
    estimated to translate to $9 billion per year nationwide in consumer
    benefits--will get passed on to consumers in numerous forms including
    long distance rate reductions and increased investment and innovation.
    In addition, a unified terminating rate will eliminate arbitrage
    opportunities such as phantom traffic and traffic pumping, which have
    resulted in significant administrative costs, lost revenues and
    uncertainty for providers.
    Revenue Replacement For Losses In Access Revenues
        With this significant decrease in intercarrier compensation rates,
    many providers will lose revenues used to maintain and upgrade networks
    in high cost areas. Incumbent local exchange carriers' monthly basic
    service rates for consumers are generally regulated by state public
    utility commissions and range from under $10 to $30 or more, depending
    on the state. In addition to the state component of the basic service
    rate, the Federal government permits carriers to apply a limited
    subscriber line charge (SLC). Under the ABC Plan, in areas where local
    telephone rates plus the SLC and all taxes are below a benchmark of
    $30, carriers may raise their subscriber line charges by 50 cents to
    75 cents per year to help compensate for some revenue losses that
    result from intercarrier compensation reform. These potential increases
    are optional, and in some places carriers will not be able to raise
    their SLCs because their rates already hit the benchmark, while in
    other markets the companies will need to forego the opportunity to
    recover the revenue as competitive or other factors will not enable an
    increase in local voice rates. Frontier takes any rate increase very
    seriously, as do our customers, but we note that our voice competitors,
    such as competitive local exchange carriers, wireless providers and
    cable through voice over Internet protocol (VoIP), have no similar rate
    regulation or service area requirements.
        In closing, we believe the time to act on comprehensive reform of
    universal service and intercarrier compensation is now. As the senior
    Members of this Committee and the panelists sitting with me here know
    well, updating universal service and intercarrier compensation is
    difficult. The ABC Plan along with the rate-of-return proposal provides
    a framework for comprehensive reform of the existing systems while
    observing the key principles laid out by FCC Chairman Genachowski and
    providing significant benefits to consumers. It is a carefully
    negotiated proposal among the carriers with the most history and
    involvement in universal service and intercarrier compensation. We urge
    the FCC to take momentous action later this month by implementing as
    closely as possible, our comprehensive proposal. And we hope you will
    support us in this process. Thank you.

        The Chairman. Thank you.
        Let me see. Ms. Dillon.

              STATEMENT OF MARY N. DILLON, PRESIDENT AND
            CHIEF EXECUTIVE OFFICER, UNITED STATES CELLULAR

        Ms. Dillon. OK. Thank you, Mr. Chairman and members of the
    Committee. Thank you very much for inviting me here today on
    this issue of great importance to all Americans, and including
    those living in rural communities.
        As you know, the FCC is working hard to reform and re-
    purpose the Universal Service Fund to support high speed
    broadband. We support reform, and believe that the goal should
    be to invest funds efficiently to deliver affordable access to
    both wireline and wireless high speed broadband to all
    Americans.
        What concerns me is that the Commission's current proposal
    appears to favor wireline service over wireless. Wireless,
    which is currently capped at $1.2 billion in the fund, would be
    reduced to only $300 to $400 million, while wireline carriers
    would see their support increase from approximately $3 billion
    to $4.2 billion. So, that just doesn't make sense for a couple
    of reasons.
        First, as we all know, consumers are moving very rapidly to
    wireless services, and that trend is accelerating. Today,
    roughly one-third of households are wireless only, and the
    array of wireless services that facilitate consumer lifestyles
    and business productivity, they are rapidly expanding.
        Second, the job of providing coverage throughout America--
    particularly in the rural areas, as has been noted here today--
    it's not complete. And as you know, when you travel throughout
    your state, everybody experiences dead zones today.
        So, here's what we think makes more sense for consumers. A
    recent study estimated that it will take up to $20 billion to
    build high-quality, mobile broadband networks across the rest
    of rural America. So, at a minimum, $1 billion a year, or less
    than 25 percent of the available funding, is what's required to
    make a significant progress and difference in the next decade.
        Given the importance of wireless in public safety and
    economic development, the proposed $300 million, or 7 percent
    of the fund, is simply just not enough.
        There's additional benefits to providing adequate funding
    for mobile broadband: investing in wireless drives economic
    growth. In fact, Deloitte recently published a study that
    indicates and shows that for every billion dollars invested in
    mobile infrastructure, 15,000 jobs are created.
        In addition, mobile broadband can deliver high speeds even
    faster than what was recommended in the National Broadband
    Plan.
        So, let me offer two final observations. First, there needs
    to be a focus on the transition from the old program to the
    new. The FCC may be beginning to plan a phase down of the
    existing wireless funding while they consider a new
    distribution method and another proceeding. It's risky, because
    if the FCC action on a new replacement approach is delayed,
    investments in rural networks that we and others have planned
    today would also be, likewise, delayed or canceled. So, we
    therefore ask you to ensure a smooth transition from the old to
    the new approach.
        And second, I want to be clear that I strongly believe that
    every participant in this program should be held accountable
    for how they use the support that they receive. Today, we keep
    track of our investments; we report on our progress to
    regulators often. And we believe proper accountability is a
    critical element of reform.
        So, in closing, decisions that the FCC makes today will
    affect the development of broadband for a decade or more.
    Properly allocating universal service funding is probably the
    most important thing the FCC will do for a long time.
        So, reform must put the interests of consumers first and
    recognize the undeniable trend in the industry that wireless
    continues to grow, while wireline continues to shrink. Mobile
    broadband is absolutely critical to our Nation's ability to
    compete in the global marketplace. And therefore, the FCC needs
    to ensure sufficient funding to ensure that our citizens have
    access to the tools that they need to be successful.
        So, thank you very much for the opportunity today.
        [The prepared statement of Ms. Dillon follows:]

                Prepared Statement of Mary N. Dillon, President
        and Chief Executive Officer, United States Cellular Corporation

        Chairman Rockefeller, Ranking Member Hutchison, members of the
    Committee, my name is Mary Dillon, and I am President and Chief
    Executive Officer of United States Cellular Corporation. Thank you for
    the opportunity to discuss the FCC's imminent action to reform the
    universal service and intercarrier compensation mechanisms.
    Introduction
        U.S. Cellular provides wireless service in nearly 200 markets
    across 26 states located in regional clusters across the country,
    including many of the states represented on this Committee such as
    Maine, Missouri, New Hampshire, Virginia, West Virginia and Washington.
    The overwhelming majority of the geography we serve is rural in
    character. Our opinions and perspectives on the Universal Service Fund
    are informed by our experience as an eligible telecommunications
    carrier (``ETC'') serving rural America.
        Fifteen years ago, Congress declared that rural citizens should
    have access to telecommunications and information services that are
    reasonably comparable to those available in urban areas. Last week,
    Chairman Genachowski announced that his vision of universal service
    reform includes the creation of a mobility fund, recognizing the
    critical role that mobile broadband plays in public safety and economic
    development in rural and high-cost areas. We thank him for his
    leadership in recognizing the important role of mobile broadband in
    enriching the lives of all of our citizens. What we hope to see in the
    upcoming order is a mobile broadband program that is sufficiently
    funded so that we can effectively expand and deploy mobile broadband
    networks in rural America.
        From our perspective, mobility and broadband are the two ``must
    have'' applications to enable our citizens and businesses to be
    competitive with other developed countries. Our country is stronger
    when citizens living in both urban and rural areas have access to the
    tools needed to participate in the world economy. As you know, mobile
    broadband uptake is exploding, and roughly one in three households is
    now wireless-only.
        We use federal universal service support to build new cell sites
    and operate facilities in many high-cost rural areas that would not
    otherwise have access, and we see first-hand the profound effect that
    access to advanced wireless service has on jobs and the quality of life
    of the consumers in rural America that we serve. In furtherance of the
    mission you gave them, to both ``preserve and advance'' universal
    service, the Federal Communications Commission must include funding to
    build, maintain and upgrade state of the art and high-quality broadband
    networks throughout those areas of the country that would not otherwise
    attract sufficient private capital.
        Between 1999 and 2010, over $34 billion of universal service
    support has been invested in fixed voice service while less than $8
    billion has funded mobile voice service.\1\ In the wireless industry,
    support has been integral to our ability to extend new cell towers into
    rural areas, beyond the major towns and highways. Included with my
    statement as Exhibit 1, are a series of maps that demonstrate two
    things. First, we've made tremendous progress in improving coverage for
    rural Americans thanks to USF support, and second, that significant
    coverage gaps remain.
    ---------------------------------------------------------------------------
        \1\ 2010 Federal-State Joint Board Monitoring Report at Table 3.2;
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-303886A5.pdf.
    ---------------------------------------------------------------------------
        These maps are instructive, because it is readily apparent that
    building new towers and providing high-quality coverage is the
    essential building block in delivering future mobile broadband
    services. That is, support is needed to build new towers, and overlay
    new 4G broadband technology in order to provide rural areas with high-
    quality mobile broadband service that they can depend on.
        Here is one small example of what is happening in the marketplace.
    Amazon recently announced that its new Kindle Fire device includes free
    cloud storage for all Amazon content. Consumers are discovering the
    convenience of cloud storage for their digital content, including
    books, music, video and periodicals. As this transition commences,
    demand for mobile broadband will increase exponentially, as consumers
    will access this content any place that network quality is good. They
    do not intend to plug these devices into a wire in order to access
    their content.
        As a carrier that invests in rural communities and wants to deliver
    these services to our customers, we offer the following views on the
    Commission's upcoming action and the role of universal service in
    helping all Americans access broadband services:
    1. High-Quality Mobile Service is Critical to Rural Americans
        As we've previously testified before this Committee, our research
    indicates that, given an either/or choice, most rural citizens would
    give up their home connection to the Internet because they view mobile
    access as a critical communications tool. Traveling in remote rural
    areas without a wireless device capable of dialing 911 or communicating
    with family is just not done in today's world. This is not to suggest
    that rural areas don't deserve access to both fixed and mobile
    broadband, but it highlights how important our rural citizens believe
    mobile services are in today's world.
        Many of our new customers tell us that the reason for choosing our
    service is superior coverage in rural areas, much of which has been
    made possible by the FCC's current universal service mechanism. In
    addition, policy makers often tell us they personally experience dead
    zones, or that their constituents have identified a lack of coverage in
    areas they live, work and travel. The symptoms include an inability to
    receive e-mail messages or access the Internet, inability to use smart
    phone functionalities, and batteries that die quickly because the
    device is constantly searching for a network.
        I would like to address up front the well-worn assertion that
    almost everyone has access to two or more mobile carriers. While
    technically that statement could be true it is misleading at best
    because it says absolutely nothing about the quality of that access
    experienced by citizens living in rural areas. For us, universal
    service is the difference between some mobile service in some areas
    (think ``one bar'' that flickers in and out) and high-quality service
    (think ``five bars'' that remain steady as you move) everywhere that
    rural citizens live, work and travel. A robust and ongoing program is
    needed to enable mobile carriers to fill in coverage gaps that continue
    to plague rural areas, otherwise citizens will be forced to settle for
    service quality that is inferior to that which is available in urban
    areas. And, as I mentioned above, coverage delivered by building towers
    is the gateway to high-quality broadband.
        Further evidence that more investment is needed in rural America to
    deliver high-quality mobile services can be found in a recent poll we
    commissioned. We have included a copy of this data as Exhibit 2.
    Currently, the Federal high-cost mechanism disburses approximately $4.5
    billion per year. When asked how that amount should be divided going
    forward between fixed and mobile services, the great majority of
    Americans surveyed would invest approximately 50 percent in each
    category.
        This indicates a clear understanding that mobility plays a critical
    role and that more needs to be done. The idea that over 90 percent of
    universal service funds should be invested in either technology polled
    at 14 percent approval. Yet, the wireline-sponsored industry proposals
    that the FCC is considering would invest 93 percent of available funds
    to landline technology and it would reduce existing funding for mobile
    broadband by 75 percent, or perhaps more, depending upon whether
    wireline carriers choose to take 100 percent of the funds which under
    their proposal they have the ability to do so.
        If you look forward a decade under the wireline industry proposal,
    $42-45 billion would be invested in fixed services, while $0-3 billion
    would be invested in mobile services. At this time, when smart phones
    now place enormous computing power in an average person's hands, when
    tablets are on the verge of revolutionizing industry and education, and
    when demand for mobile broadband is exploding in our urban centers,
    this is not an investment mix that will provide rural Americans with
    the opportunities they need to compete. It will fail to provide rural
    Americans with access to reasonably comparable services, which is what
    Congress mandated that the FCC do.
        I note that South Korea has set a goal to connect every one of its
    citizens at a speed of one gigabit per second by the end of 2012,\2\
    while here in the U.S., wireline carriers propose to connect most of
    our citizens at 4 megabits per second, ten years from now. This is
    hardly the kind of big thinking that has been the hallmark of this
    country from its inception.
    ---------------------------------------------------------------------------
        \2\ http://www.nytimes.com/2011/02/22/technology/22iht-
    broadband22.html.
    ---------------------------------------------------------------------------
        In areas where population density and geographic challenges make it
    too expensive to string fiber to homes, mobile broadband can today
    provide speeds far greater than 4 megabits, and next generation LTE
    technology promises significant increases in speed, in addition to
    mobility.
        It is absolutely essential to provide enough support for mobile
    broadband to ``move the needle'' and bring meaningful infrastructure
    development to rural areas. We are prepared to build new towers that
    provide coverage and will be broadband-ready on day one. Accordingly,
    it is essential that at least $1 billion per year be invested in
    expanding our mobile broadband networks. That is less than 25 percent
    of the high cost fund to support the technology that rural consumers
    are demanding.\3\ Given that consumers of mobile services now
    contribute over $3 billion per year into the fund each year, they
    should not have to subsidizing networks they have abandoned to the
    exclusion of the networks they have chosen and be denied access to
    reasonably comparable services that Congress intended they receive.
    ---------------------------------------------------------------------------
        \3\ The FCC's Technological Advisory Council recently estimated
    that by 2018, only 8 percent of the population will subscribe to
    residential telephone service on the public switched network. See,
    http://transition.fcc.gov/oet/tac/TACJune2011mtgfullpresentation.pdf.
    ---------------------------------------------------------------------------
        We thank FCC Chairman Genachowski for announcing last week that the
    FCC will adopt an FCC plan, not an industry plan, and we ask this
    Committee to insist that the FCC reject the plan for our rural areas
    that the wireline industry has included in its recent proposals.
        Access to high-quality mobile broadband service that is reasonably
    comparable to that which is available in urban areas must be a core
    component of universal service reform.
    2. Universal Service is a Driver of Jobs and Economic Development
        The high-cost fund can be a powerful engine of economic
    development, especially with respect to mobile broadband. When carriers
    use support to build infrastructure, it has a substantial multiplier
    effect in the economy. Jobs are created in construction, and more are
    created when mobile broadband enables people to build businesses.
        Deloitte recently released a study indicating that every one
    billion dollars of investment in mobile infrastructure creates 15,000
    jobs.\4\ Accordingly, at this critical time, when jobs and growth are
    foremost in every government decision, if you want program funds to go
    farther, to deliver faster speed in a shorter time, while creating
    thousands of jobs and accelerating economic opportunities for rural
    Americans, more funding should be directed toward mobile broadband
    services.
    ---------------------------------------------------------------------------
        \4\ http://www.deloitte.com/assets/Dcom-UnitedStates/
    Local%20Assets/Documents/TMT_us
    _tmt/us_tmt_impactof4g_081911.pdf.
    ---------------------------------------------------------------------------
        When a business decides whether to move to a rural area, or move
    out of it, high-quality mobile wireless coverage is a factor. Each
    year, it will be more of a factor, especially as new 4G networks
    continue to proliferate. At a time when our economy is struggling, and
    millions of people are unemployed, we have urged the FCC to reject any
    proposal that would constrain funding to mobile wireless carriers, an
    industry that continues to buck national trends by investing in
    infrastructure and hiring new workers.
        Yet, as I understand the wireline industry plans, they propose to
    cut funding for mobile wireless, perhaps to zero. Today we're using
    those funds to build towers, and related infrastructure. Every time we
    turn on a tower, all of the consumer and economic development benefits
    we've talked about are made available. Nobody has adequately explained
    to me why, at this moment, reducing infrastructure investment in our
    economy is being seriously considered.
        A one billion dollar investment in mobile broadband infrastructure
    each year would create 15,000 jobs and stimulate economic growth in
    rural America. We believe that an investment of that order of
    magnitude--although less than what is being invested today--is needed
    to keep rural America from falling further behind.
    3. Improving Mobile Coverage and Enabling Mobile Broadband Will Deliver

            Enormous Public Safety Benefits to Rural Americans
        As you know, a mobile phone has become the single most important
    safety tool that a person can have. Seemingly every day you can find a
    story on the web about someone who has been helped, including an
    incredible one a few weeks ago where a severely injured man trapped in
    a ravine in a remote area of California was rescued with the help of
    mobile wireless technology.
        Anyone who travels throughout rural areas knows there remain dead
    zones that need to be filled in, and that mobile phones do not work on
    all mobile wireless networks. That problem will continue in the coming
    4G world, because there remain significant challenges in developing
    interoperable networks in both commercial and public safety networks.
    Accordingly, as mentioned above, funding mobile technology so that
    carriers can continue to fill in dead zones in rural areas has critical
    public safety benefits for all Americans.
        The FCC is now moving forward on a proceeding to enable people to
    contact 911 operators and first responders through text messaging and
    other media devices, such as a tablet, a book reader, or any device
    with a web connection, enabling people to not only speak to first
    responders, but to send pictures or video that can assist them. These
    tools have incredible potential, but at their core they are meaningless
    without towers and the coverage they provide which enable these
    devices.
        Senator Rockefeller, you and others on this committee have
    championed the cause of public safety by advocating that they receive
    additional spectrum so they can have an interoperable broadband
    network. When the time comes to build that network, its cost and the
    time it takes to build it can be greatly reduced, while coverage can be
    improved if commercial carriers have towers in place on which public
    safety can hang their radios, rather than building a new cell site.
        For years, we have advocated that support be targeted more
    accurately to the high-cost areas that need investment, including those
    with ``some service in some areas'' so that carriers become more
    accountable for the funding they receive and that rural consumers see
    meaningful improvement in network quality. Properly targeting support
    increases program accountability and accelerates benefits to rural
    communities.
        Accordingly, the best thing you can do for your rural constituents
    is to see that the FCC creates a robust mobile broadband fund with
    proper accountability, so that rural citizens have the benefit of high-
    quality mobile wireless coverage--and mobile broadband.
    4. The Transition to New Support Mechanisms Must be Measured and
            Orderly
        The Broadband Plan and the Commission have said that reform should
    be done without ``flash cuts,'' so that carriers can make appropriate
    adjustments and prepare for significant changes as reform is
    implemented. We agree with that approach. Yet, our understanding is
    that a phase down of support to wireless carriers under the existing
    mechanism would begin immediately, even though a new mobility fund
    mechanism may not be in place for several years.
        It is critically important that the timing of a phase-out of
    existing support coincides with the phase-in of new mechanisms. First,
    if support to wireless carriers is reduced without a replacement
    mechanism, cell sites built in remote areas will be immediately at
    risk, especially those where revenues are not covering cell site
    operating costs.
        Second, it is counterproductive to rapidly reduce funding to rural
    areas that still require significant capital investment to be brought
    up to par with urban areas. Third, as a part of how we are accountable
    for the funds we receive, we have submitted build plans to many states,
    the accomplishment of which depend on high-cost support. Cutting
    funding will undermine the regulatory promises we have made to state
    commissions and deny many communities the benefit of new cell sites
    that we have committed to deliver.
        A new mobility fund that provides sufficient funding for rural
    America must be phased in coincident to the phasing out of the current
    support mechanism.
    Concluding Thoughts
        We are likely to get a reform order within weeks. This Committee's
    oversight responsibility must include direction that a new broadband
    fund that does not include sufficient funding to meaningfully improve
    the lives of rural Americans is not acceptable. All four Commissioners
    have made clear how important it is to reform this program, and all
    share the goal of investing funds more efficiently and directing more
    funds to the services that consumers are actually using.
        Unfortunately, last minute proposals from the wireline industry
    maintain the status quo for them, while gutting investment in mobile
    broadband. To date, the Chairman has made clear that he will not be
    adopting such proposals.
        I urge you to continue to monitor the process, as there is no more
    important mission for the FCC at this time than to ensure that public
    funds are invested efficiently, targeted toward areas that need them,
    that companies who receive funds are accountable, and that universal
    service is used to accelerate both fixed and mobile broadband service
    throughout our Nation.

        The Chairman. Thanks very much.
        Michael Powell?

             STATEMENT OF MICHAEL K. POWELL, PRESIDENT AND

               CHIEF EXECUTIVE OFFICER, NATIONAL CABLE &

                     TELECOMMUNICATIONS ASSOCIATION

        Mr. Powell. Chairman Rockefeller, thank you very much.
        It's a privilege to be sitting at this table again,
    particularly at the maiden voyage in my new capacity as
    President and CEO of the National Cable and Telecommunications
    Association.
        And Senator Hutchison, thank you as well for hosting this
    hearing today, as well as other distinguished members of the
    Committee.
        As you've no doubt ascertained, USF can be a complex,
    arcane, downright mind-numbing subject. The subject is
    important, however. Getting it right will advance our
    communications goals. Getting it wrong will retard competition
    and innovation for the better part of the next decade--
    something the United States can ill afford.
        I would submit that, despite the depth of detail, there is
    one overarching principle that can guide Congress and the FCC
    to the right place: Focus on the American consumer, and not the
    financial interests of corporations.
        The USF program is not designed to maximize profit, protect
    any one particular business model, or federally guarantee
    loans. It is meant to get service to consumers at affordable
    rates.
        Focusing on the consumer brings a number of the complex
    issues into clearer relief: first, because it is the public
    interest that is paramount, the FCC has to write the plan, and
    not any group of self-interested, even if well-meaning,
    companies. Consensus or not, you should not be surprised that a
    draft principally developed by a subset of telephone companies
    favors their private interests in meaningful respects. I would
    probably do the same. And, though I concede that they have been
    valuable starting points--and we agree with many of the
    supposed consensus plans--it cannot be treated as ``take it or
    leave it'' if we hope to get reform right.
        But more importantly, we cannot forget that, while
    companies get the money, it's consumers that write the check.
    And while all communications consumers share the burden, not
    all directly share in the benefits. A bloating fund will
    jeopardize public support for this critical program.
        We accept, as we should, that the universal service goals
    of ubiquity and affordability are critical to the national
    welfare. But it becomes clear when you understand that
    consumers bear the costs that we should have a clear fiduciary
    responsibility to: one--do not collect or spend any more money
    than is absolutely necessary; two: demand accountability and
    efficiency; and target subsidies not to classes of companies,
    but to areas clearly in need of support where our citizens
    live. For this reason, NCTA has pressed vigorously for a cap,
    or financial controls, on the fund to require targeting in un-
    served areas in large measure, recognizing the danger of an
    ever-ballooning fund.
        Consumer contributions in the first quarter of 2011 hit
    record levels. $15.50 of every $100 spent by an American
    consumer goes to this $8 billion program.
        Competition is what favors consumers. For the better part
    of the last century, policymakers accepted that the
    communications market was best served by a government-supported
    monopoly. In fact, the term ``universal service'' was actually
    coined by Theodore Vail in 1907, the CEO of AT&T, as a basis
    for justifying the efficiencies in his claim for the need for
    monopoly. The government accepted that compact at a time when
    only 35 percent of American homes had phone service; and
    indeed, it abided by that for nearly 80 years, until
    divestiture--and not without regret, I might add.
        Today, 98 percent of homes have telephone service. And in
    the 1996 Act, Congress wisely came to recognize that
    competition is the key to bringing consumers more choice,
    promoting efficiency, driving technological innovation, and
    encouraging fresh investment.
        Competition is not a risky experiment. It is more proven
    than a monopoly business model, or government computer models,
    in bringing the highest value to consumers.
        NCTA is the leading competitive industry in the United
    States in telephone, and the leading provider of broadband. It
    has built broadband infrastructure to 93 percent of American
    homes without government subsidies or benefits.
        We want universal service reform to give us a fair chance
    to compete to bring broadband to those remaining areas where,
    by all admission, it is economically difficult to do so. This
    is why we press for targeting--so that we're not competing with
    companies with private risk capital that have the advantages of
    government-subsidized capital. If there is to be competition,
    it should be fair.
        It's also why we strenuously reject proposed ideas of
    rights of first refusal. Why should it be that only an
    incumbent, by virtue of having been in an area first, be
    exclusively allowed to receive Federal subsidy programs, and
    others not?
        Finally, consumers want broadband. As we've mourned the
    passing of Steve Jobs and paid homage to his notable career, I
    would note that all the devices he developed only became
    magical when he put an ``I'' front of them. IPads and iPods
    became fantastic when they became Internet devices.
        Consumers who have no access to that are being left out of
    the information age. And in these kinds of networks, a bit is a
    bit--no matter how or what type of service that can be
    transferred efficiently over data networks. And the regulatory
    regime should treat all technologies, including Voice over IP,
    equally. And if there are funds to be collected, they should be
    able to share equally in them.
        Finally, I would conclude by saying we recognize this stuff
    is hard and it's complex. I have every faith, having run the
    agency myself, that the FCC has the expertise to complete this
    process.
        But over a decade, we've worked to get reform right and on
    the right passage. It will likely be another decade before it
    is fundamentally reformed again. Any reform that is not
    fiscally responsible, competitively friendly or technologically
    neutral, will be a travesty and a lost opportunity; it will be
    an expensive government program that does not drive America
    toward the future, but instead just pays expensive homage to
    our past--and, unfortunately, paid for by cash-strapped
    consumers.
        Mr. Chairman, thank you for your time. I look forward to
    your questions.
        [The prepared statement of Mr. Powell follows:]

    Prepared Statement of Michael K. Powell, President and Chief Executive
            Officer, National Cable & Telecommunications Association

        Good morning, Chairman Rockefeller, Ranking Member Hutchison, and
    members of the Committee. My name is Michael Powell and I am the
    President and Chief Executive Officer of the National Cable &
    Telecommunications Association. Thank you for inviting me today to
    testify on universal service and intercarrier compensation reform.
        NCTA represents cable operators serving more than 90 percent of the
    Nation's cable television households and more than 200 cable program
    networks. The cable industry is the Nation's largest provider of
    residential high-speed Internet service, having invested more than $173
    billion since 1996 to build two-way, interactive networks with fiber
    optic technology.
        Relying almost solely on private risk capital, the cable industry
    has made broadband available to more than 123 million American
    households. Using efficient, advanced IP technology, cable companies
    also provide state-of-the-art digital telephone service to more than 22
    million American consumers in urban, suburban, and rural markets--
    almost wholly without any universal service support. Cable operators
    are committed to expanding access to quality voice and Internet
    services, and the dramatic growth in cable broadband subscribers is
    evidence of their success in doing so.
        For at least a decade, policymakers have agreed that our system of
    subsidizing the operation and maintenance of rural communications
    networks is in critical need of reform. Our current support
    mechanisms--the high-cost support portion of the Federal Universal
    Service Fund (``USF'') and intercarrier compensation (``ICC'')--were
    first established decades ago to ensure that every American had access
    to basic telephone service. That national priority has long been met,
    but these programs are still propelled by past history rather than any
    vision for the future.
        As Committee members are aware, earlier this year the Federal
    Communications Commission opened a rulemaking proceeding for the
    purpose of fundamentally reforming the existing USF and ICC programs.
    We share the goal of all of the Commissioners to put these programs on
    a ``fiscally responsible path that provides incentives for efficient
    operations and accountability for every dollar spent.'' It is important
    to remember that consumers, not companies, are the intended
    beneficiaries of universal service funding, and it is also consumers
    who ultimately pay for the USF program. If the Commission fails to
    meaningfully constrain the USF program, consumers will inevitably see
    their bills rise. In these depressed economic times, government should
    do everything it can to limit the economic burden of government
    programs on consumers, even programs like USF that serve worthy goals.
        Cable companies strongly support and appreciate efforts to
    modernize the universal service program and to rationalize the
    intercarrier compensation regime. As competitors to the incumbent
    telephone companies, in both rural and non-rural areas, cable companies
    are directly and significantly affected by the FCC's universal service
    and intercarrier compensation rules. While our cable companies operate
    in rural areas largely without subsidies, they compete directly with
    incumbent carriers that collectively receive billions of dollars
    annually in USF subsidies. Carriers have also refused to pay the
    appropriate intercarrier compensation on VoIP traffic we exchange with
    them. ICC reform must treat VoIP in a competitively neutral manner that
    encourages rather than penalizes investments in IP technology. The
    pending proceeding offers the opportunity to transform these programs
    into ones that can help accomplish our Nation's telecommunications
    goals of tomorrow while limiting further taxpayer exposure.

    Principles to Guide Effective Universal Service and Intercarrier
            Compensation Reform
        The goal of Universal Service Fund reform should be to provide
    support, on a fiscally responsible and competitively neutral basis, for
    broadband services in those areas of the country where there is no
    business case for providing broadband without government subsidy. The
    goal of reform of the intercarrier compensation regime should be
    regulatory certainty that ensures fair treatment of competitors and
    encourages the migration from circuit-switched to IP technology. These
    goals can be achieved within a framework that embodies the following
    principles.
        Intercarrier Compensation Reform Must Ensure Competitive and
    Technological Neutrality. The intercarrier compensation system must be
    reformed so that it treats voice over Internet protocol (VoIP) calls
    the same as ``circuit-switched'' calls. The FCC must provide regulatory
    certainty by making sure that carriers are able to collect and pay for
    VoIP calls under the same rules that apply to traditional circuit-
    switched calls. Adopting different intercarrier compensation rules for
    circuit-switched and IP calls will continue the arbitrage inherent in
    the existing system today. In making reforms, the FCC must also
    maintain the interconnection and transport rules adopted in 1996 that
    ensure continued growth of competition in the voice market.
        Target USF Broadband Support to Unserved Areas. The FCC should
    focus its reform efforts on bringing broadband to areas that do not
    have broadband today. Its policies should reward efficiency and make
    the best use of each taxpayer dollar of USF support. A common sense
    reform would be to prioritize support to providers that will bring
    broadband service to areas that lack such service today. We agree with
    members of Congress from both sides of the aisle that reform should end
    subsidies to providers that face competition from unsubsidized
    providers, whose presence in a market demonstrates that no subsidy is
    necessary.
        Cap USF High-Cost Fund at $4.5 Billion. High-cost support has more
    than doubled since 2000, and consumers currently contribute $4.5
    billion per year that is disbursed in high-cost program support. The
    Commission should cap high-cost support for broadband and voice
    services at this amount. Limiting the growth of USF is important for
    one reason above all; consumers ultimately pay for subsidizing this
    program. In these challenging economic conditions, policy-makers should
    do everything possible to limit the economic burden of government
    programs on consumers, even programs that serve worthy goals, as does
    USF.
        Promote Competitive Neutrality and the Most Efficient Use of
    Subsidies. The FCC has acknowledged that it must modernize a 20th
    century program to serve 21st century needs. The USF high-cost support
    mechanisms that we have today were created in an era when wireline
    telephone service was provided on a monopoly basis, and are out of
    place in the modern, competitive communications marketplace. There is
    no justification for using subsidy funds simply to preserve incumbent
    phone companies' existing revenue streams. Real USF reform must be
    fiscally responsible and competitively-and technologically-neutral, and
    should recognize and encourage the continued growth of voice and
    broadband competition rather than serving as a mechanism to further
    entrench incumbent phone companies. The FCC should put in place support
    mechanisms that harness marketplace competition, like competitive
    bidding or reverse auctions, to award subsidies to the most efficient
    provider, regardless of what type of technology that provider uses. At
    that point, legacy high-cost support should end.

    Improving Telephone Company Reform Proposals
        Recently, much of the reform discussion at the FCC has centered on
    proposals made by two groups of incumbent telephone companies. One
    proposal, put forward by a group of larger incumbents, including
    Verizon, AT&T, and CenturyLink, has been labeled the ABC Plan. The
    other, made by a group of smaller rural incumbents, has been dubbed the
    RLEC Plan. While these plans have been represented by their proponents
    as a consensus proposal put forward by all providers, that is not the
    case. The plans were created by, and are endorsed by, the incumbent
    phone companies and include many provisions designed to benefit those
    companies to the detriment of their competitors.
        In spite of these flaws, there are some positive components of the
    ABC Plan that could serve as a basis for real reform that benefits
    consumers in all areas of the Nation. Consequently, rather than
    encouraging the Commission to reject these plans entirely, the cable
    industry has encouraged the Commission to eliminate or fix those
    elements of that plan that run counter to the reform principles set out
    by the FCC earlier this year, particularly in terms of fiscal
    responsibility and competitive neutrality.
        To assist the FCC in achieving reform that genuinely meets its
    goals of modernization, fiscal responsibility, accountability, and
    market-driven policies, NCTA has proposed an ``Amended ABC Plan'' that
    addresses weaknesses in the phone companies' USF and ICC proposals and
    promises to yield a modern Universal Service Fund and intercarrier
    compensation regime that is more consistent with a competitive
    marketplace and the FCC's reform principles.

    USF Reform
        Our Amended ABC Plan embodies several major improvements to the
    proposals put forward by the incumbent carriers. Our proposals are
    aimed at ensuring true fiscal responsibility for the USF program,
    taking full advantage of competition in the marketplace to eliminate
    the need for subsidies in areas where they are not necessary and to
    ensure the greatest possible efficiency in areas where they are.
        Instituting Enforceable Fiscal Controls. NCTA's Amended ABC Plan
    proposal ensures that consumers will contribute no more than they do
    today for high-cost funding by establishing an enforceable cap on the
    size of the high-cost support program, with the possibility of limited
    waivers where the Commission determines that such exceptions are
    necessary. The phone companies' proposal professes to be tied to an
    estimated ``budget,'' but it contains no meaningful mechanism for
    constraining--or reducing--the size of the fund.
        In particular, the phone companies propose no meaningful
    constraints on rural phone companies' receipt of support. Instead,
    their suggested ``limits'' on fund size would be enacted by eliminating
    the very reforms that are the goal of this proceeding, e.g., by
    delaying the availability of support in areas with significant unserved
    populations and deferring the reduction in excessive access charges
    that is an important aspect of intercarrier compensation reform. NCTA
    also has explained that caps or other mechanisms to limit the overall
    amount of support should not preclude the Commission from taking any
    necessary steps to ensure adequate support in areas that have been
    historically challenged, such as Alaska.
        Targeting Government Subsidies to Areas Where Support is Necessary
    for Service. NCTA's Amended ABC Plan proposal would also target support
    only to those areas of the country where there is no business case for
    providing broadband without a subsidy. The presence of a cable operator
    offering broadband service in a given geographic area without subsidy
    shows that the area can be served without government support. While the
    ABC Plan put forward by the phone companies also targets support
    consistent with NCTA's proposal in areas served by the larger, price
    cap companies, it does not do the same for areas served by small and
    rural rate-of-return phone companies, allowing those companies to
    continue to receive subsidies even if the area is already served by
    cable companies or other broadband providers. This approach unfairly
    advantages one provider over another and discourages the investment of
    private risk capital that could make subsidies unnecessary.
        Promoting Savings through Technological Neutrality. NCTA's Amended
    ABC Plan proposal relies on marketplace approaches like competitive
    bidding to target the most efficient provider for support in an
    unserved area. By ensuring that subsidies go to the most efficient
    provider, these mechanisms would keep costs in check and possibly lead
    to overall reductions in the size of the fund. Consistent with this
    goal, USF should not be structured to favor incumbents by giving them a
    ``right of first refusal'' for USF support. By granting incumbents a
    preference over more efficient competitors, a right of first refusal
    would violate the principle of competitive neutrality and increase the
    size of the high cost program by denying support to a competing
    provider that could provide the same or better service at a lower cost.
        Modernizing Outdated and Inefficient Regulatory Regimes. NCTA's
    Amended ABC Plan proposal would establish a clear sunset date for
    outmoded and inefficient rate-of-return regulation applied to small and
    rural telephone companies and ask the Federal-State Joint Board on
    Universal Service to develop a transition plan to eliminate this out-
    of-date regulatory regime. In contrast, the phone companies' plans make
    only minimal changes to rate-of-return regulation.

    ICC Reform
        Of equal importance are our proposed changes to the ABC Plan's ICC
    proposal. Getting ICC reform right is essential to promoting full and
    fair competition and encouraging investment in IP networks. The goal of
    ICC reform must be a unified compensation system, not one in which a
    new disparity between traditional voice and IP technology is allowed to
    take root.
        Reaffirming Reciprocal Obligations to Collect and Pay Access
    Charges. Through its reform efforts the FCC must provide regulatory
    certainty that carriers will be able to collect and pay intercarrier
    compensation for VoIP traffic under the new rules. The FCC should
    affirmatively resolve issues surrounding compensation for carriers
    exchanging VoIP traffic that have been the source of many disputes and
    litigation, providing needed certainty and incentives for providers to
    transition from the legacy phone networks of the past to the forward-
    looking IP networks of the future.
        Preserving Existing Regulatory Authority over Interconnection and
    Transport Charges. The NCTA's Amended ABC Plan proposal preserves
    interconnection and transport policies enacted as part of the
    Telecommunications Act of 1996 that have been the foundation for
    competition to the voice market. The FCC should ensure that these
    critical services remain available and affordable to competitors,
    rather than allowing incumbent phone companies to hinder competition
    either by increasing the prices competitors must pay or by using
    strong-arm negotiating tactics to prevent competitors from using state
    commission-approved interconnection agreements as provided in the
    Telecommunications Act of 1996.
        Restricting Access Charge Replacement Funding Based on Need. The
    phone companies' plans propose to create significant new transitional
    funding allowing telephone companies to obtain Universal Service Fund
    subsidies to replace access charge revenues lost through intercarrier
    compensation reform. Price cap carriers are generally large,
    financially-healthy companies that do not need ``access replacement''
    funding to weather the transition to a new regime. The NCTA's Amended
    ABC Plan proposal demonstrates fiscal discipline by making clear that
    such funding should not be available to these incumbent phone
    companies, and should be provided to other carriers only upon a
    demonstrated showing of need.

    Conclusion
        These issues are not easy and many of them are not new. NCTA
    welcomes the Committee's continuing interest in USF and ICC reform.
    After a lengthy and considered review, the FCC appears poised to
    undertake major and welcome reform to universal service programs and
    the related intercarrier compensation regime. We remain committed to
    working cooperatively and constructively with Members of this
    Committee, the FCC, and with other stakeholders, including the
    incumbent telephone companies, to address remaining issues and achieve
    reforms that best meet the needs of the American public.
        We appreciate the opportunity to share our views with you and thank
    you again for the opportunity to appear today.

        The Chairman. And I thank you very much.
        We come now to Ms. Shirley Bloomfield. Would you please go
    ahead?

       STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE OFFICER,
          NATIONAL TELECOMMUNICATIONS COOPERATIVE ASSOCIATION

        Ms. Bloomfield. Mr. Chairman, thank you to you and your
    colleagues for allowing us to participate in this discussion
    today.
        My remarks today are on behalf of NTCA, OPASTCO and WTA.
    And collectively, we represent the vast majority of the small
    rural communication providers and broadband providers across
    this country.
        As community-based providers, our members hold a very deep
    commitment to their community and to their consumers. These are
    small businesses who create jobs; they create economic growth;
    they feed our nation; and they connect rural America to the
    rest of the world.
        Recent studies have shown that rural carrier investments in
    operations have a significant multiplier effect on jobs and
    wages in these areas; and they contribute over $14.5 billion to
    state economies in 2009, of which $9.5 billion was a direct
    benefit to urban economies. So, when we speak of universal
    service, we really need to view these support programs in the
    context of a universal economy.
        So, with that backdrop, in terms of USF, we're very eager
    for reforms in USF and intercarrier comp mechanisms, because
    USF enables providers to deploy and operate the most advanced
    networks possible, in places where density and distance,
    frankly, deter even the most optimistic business case that
    could be imagined.
        Our members have leveraged the existing investments that
    they have made amazingly well and amazingly efficiently.
    They've taken their broadband speeds, which are at basic
    broadband speeds, as well as higher speeds, and they've got
    them available to over 92 percent of their customers within
    their service territory, with only a very small 3 percent
    compounded growth rate in High-Cost USF over the past 5 years,
    even as intercarrier compensation revenues have declined.
        So, high-cost broadband for USF is also, it's also an
    adoption program. Mr. Chairman, I know you mentioned that's
    very important to you. But what USF does is, it actually keeps
    these prices affordable for Americans to be able to have these
    broadband services.
        But notwithstanding the success, the time for reform is
    certainly now. We have arbitrage that is undermining the
    intercarrier comp system. Updates are desperately needed to
    ensure that there's predictability and a predictable broadband
    future. But the reforms have to be done in a way that they are
    surgical and certainly well planned.
        So, the reform debate that has taken many turns since the
    National Broadband Plan was released--one of the things the
    broadband plan tried to really do is tried to assess the need
    for and the cost of providing broadband. And there have been a
    lot of policy discussions that have generated from that. And
    one of the things that it has done is really created a great
    deal of uncertainty. And as we all know, nothing stills
    investment like uncertainty. And we have certainly seen that in
    our sector of the industry.
        So, our association and our membership are hearing the call
    for reform, to modernize USF, intercarrier comp, ensure fiscal
    responsibility and promote accountability. We also want to meet
    the statutory mandate for universal service, and the ultimate
    objective of providing broadband on a sustainable basis
    throughout these high cost areas.
        So, with these principles in mind, our associations, and
    over three dozen other organizations, submitted a very detailed
    proposal to redefine today's cost recovery systems. This ``RLEC
    Plan'' would transition to a new ``Connect America Plan'' that
    encourages even greater efficiency and promotes budgetary
    goals.
        We've also made very good faith efforts--and with the
    support and urging policymakers--to see common ground with
    others, and to reach agreement on changes to the RELC Plan as
    part of a ``Consensus Framework'' with a number of larger and
    mid-size providers as well.
        So, while this is not perfect from our perspective, the
    Consensus Framework provides a very reasonable path forward for
    reform.
        And others recognize this, as well. Just a few days ago,
    there were 15 organizations representing different business,
    agriculture, health care and medical groups, that included the
    Grange, the Net Literacy organization, the American Tele-
    Medicine Association, that also called upon the FCC to give
    serious consideration to the plans that are included in the
    Consensus Framework.
        However, as everybody else has noted, the Devil is in the
    details. The RLEC Plan is the only detailed and practical plan
    on the record for rural consumers served by rural companies. It
    is clear, and a carefully balanced road map for reform. It also
    reflects substantial compromise and firm rejection of the
    status quo. This is as far as our sector can go before rural
    communications will certainly be in peril.
        So, this brings me to one final issue. There can be no
    doubt the severe debt crisis that our country is facing, and
    the fact that we need to really address this with due speed.
    But nonetheless, legal precedent and good policy confirm that
    privately managed and funded USF program has no place in these
    public debt discussions.
        Such a step would certainly constitute a taking and a new
    tax. And it would also undermine reforms that are currently
    under consideration, and would certainly halt broadband
    deployment.
        So, our organization and our members took up the challenge
    to develop a detailed reform plan. We took up the challenge to
    seek industry consensus. Our members took up the challenge to
    provide data to the FCC to create a reformed, informed process.
    And we hope that the FCC will now be able to enable the small
    rural carriers to meet their most important challenge--and that
    is the delivery of affordable, high quality broadband to
    millions of rural Americans.
        Thank you very much.
        [The prepared statement of Ms. Bloomfield follows:]

      Prepared Statement of Shirley Bloomfield, Chief Executive Officer,
              National Telecommunications Cooperative Association

    Introduction
        Thank you for the opportunity to participate in today's discussion
    regarding the critical and ongoing role that universal service and
    related cost recovery mechanisms will play in bringing broadband to all
    Americans.
        I am the Chief Executive Officer of the National Telecommunications
    Cooperative Association (NTCA), which represents approximately 580
    small, rural telecommunications cooperatives and commercial companies.
    However, my remarks today are also being made on behalf of the
    Organization for the Promotion and Advancement of Small
    Telecommunications Companies (OPASTCO), and the Western
    Telecommunications Alliance (WTA), which together with NTCA; represent
    the vast majority of rural rate-of-return-regulated community-based
    communications and broadband service providers around the Nation. These
    small businesses hold a deep commitment to the consumers and
    communities they serve. They are the very models of what policymakers
    are in search of and what America is in such need of today--the
    creators of rural jobs, the fuel of the rural economy, and the conduit
    between citizens and their government.

    The Benefits of Rural Carrier Investments and Operations Flow to the
            Entire Economy
        We know that a robust broadband infrastructure is critical to
    economic development. We know from a technological standpoint that all
    broadband networks, whether wireless or wired, ultimately rely upon the
    wired network. And we know that wired networks provide the capacity to
    support the type of applications that this Nation critically needs:
    telehealth, distance learning, civic participation, and interstate and
    global commerce.
        But, as we consider social and commercial impacts, can we quantify
    rural broadband's impact on the economy? The answer is, yes.
        A study undertaken by New Mexico State University reported that, in
    2012 alone, reductions in USF based upon early 2011 proposals by the
    Federal Communications Commission (FCC) could lead to a total
    employment loss of 335 jobs, with more than 260 of those jobs being
    outside the telecommunications industry. In that first year alone, New
    Mexico personal income would be reduced by $14.1 million; over ten
    years, personal income in the state would decline $200.3 million,
    leading to a loss in State tax revenue of $13.6 million.
        New Mexico is not alone: Oklahoma City University predicts 3,000
    lost jobs over five years, with lost wages of $123 million. The news
    from Kansas is no better: Wichita State University estimates that USF
    reductions proposed by the FCC in its February 2011 Notice of Proposed
    Rulemaking would cost rural Kansas 367 jobs and $51 million in wages
    over a five year period. These results are not limited to the
    telecommunications sector, but instead extend to firms that do business
    with the carriers and their employees.
        In fact, the impact of rural telecommunications on all of America
    is substantial. A study being released this week by the Hudson
    Institute indicates that rural telecommunications companies across the
    country contributed a collective $14.5 billion to the economies of the
    states in which they operated in 2009. Of this amount, $10.3 billion
    was through the carriers' own operations, while $4.2 billion arose out
    of the follow-on impact of their operations. Notably, the study also
    finds that of that $14.5 billion total, two-thirds--or $9.57 billion--
    accrues to the benefit of urban areas. We speak of universal service;
    let's talk about a universal economy. The rural telecommunications
    sector supported 70,700 jobs in 2009, both through its own employment
    and also through the employment that its purchases of goods and
    services generated.

    The USF Program is Essential to Broadband Availability, Service
            Quality, and Adoption in Rural Areas
        This level of economic activity and employment is consistent with
    the values underpinning access to advanced communications and advanced
    services in all regions of the nation, as supported by universal
    service. High-cost USF is a program that enables providers to deploy
    and operate advanced networks in places where low customer density and
    vast distances would deter even the most optimistic business cases. The
    availability of these networks, the investment in them, and the
    operation of them generates substantial economic activity to the extent
    described above. But the high-cost USF program does so much more as
    well. It is a service-quality program, requiring rate-of-return-
    regulated carriers to show how they are making good use of valuable USF
    resources to invest in and operate these essential networks for the
    benefit of their consumers. Indeed, small carriers have used the
    existing USF program to invest efficiently in advanced networks,
    increasing broadband service penetration to 92 percent of consumers
    using the FCC's current definition of broadband. This has occurred over
    the past 5 years with only a small 3 percent compound annual growth
    rate in high-cost USF support. It is also an adoption program--high-
    cost USF helps to keep rates reasonably comparable with urban areas in
    places where the costs of providing service would yield otherwise
    unaffordable prices.
        If USF support were to decline, or disappear altogether, two
    scenarios would almost certainly result. In one, companies would raise
    prices and rural users would pay substantially more for communications
    service. In the other, companies would cut investment and the networks
    would shrink, deteriorate, and possibly disappear over time. Both
    outcomes would be inconsistent with our long-standing national
    statutory universal service policy demanding that all Americans receive
    access to affordable advanced communications services that are
    comparable in price and quality. And for those who think that someone
    else would fill such a void, consider again the nature of the areas
    served and the essential nature of these networks. These areas are
    served by small rate-of-return-regulated providers precisely because no
    one else could justify a business case to serve there in the first
    instance. These networks offer the only lifeline between these rural
    communities and outlying farms and ranches on the one hand and the rest
    of America and the world on the other; even if a wireless carrier might
    happen to operate in some portion of such an area, that wireless
    carrier cannot deliver high-quality broadband without the robust
    underlying capacity of the networks provided by these small
    entrepreneurial community-based carriers. There is good reason that
    Congress mandated universal service in the Telecommunications Act of
    1996--it stimulates the rural and national economy and ensures the
    availability, affordability, and quality of communications products and
    services.
        Today, this statutory mandate is more important than ever, as all
    Americans increasingly rely upon such products and services to meet
    their social, economic, and civic needs. Rural communications providers
    throughout the country continue to respond aggressively to this
    challenge, rapidly transforming their traditional switched voice
    systems into powerful and dynamic Internet protocol (IP)-based
    broadband networks. This is a natural response for these community-
    based providers that have a long history of taking their service
    responsibilities seriously and responding to the demands of their
    consumers--their neighbors. Yet, the successful fulfillment of their
    mission of service requires predictable and sufficient support in the
    form of high-cost USF and a reliable intercarrier compensation (ICC)
    system.

    It is Time to Restore Regulatory Certainty and Promote Sustainable
            Broadband
        Universal service, intercarrier compensation, and consumer rates
    all play important delicately balanced roles in enabling rural
    providers to overcome these challenges and provide services that are
    reasonably comparable in quality and price. Each is a necessary part of
    justifying efficient network investment and operation in rural areas--
    and each has proven successful to date, promoting the kind of
    responsible and effective network deployment and service availability
    described earlier in this testimony.
        Clearly, this is a model of success, but the time has come for
    change. The intercarrier compensation system needs reform, as arbitrage
    and self-help threaten to undermine its stability. High-cost USF has
    worked very well, but we acknowledge that updates are needed to provide
    greater predictability and to promote a broadband future. Our highest
    priority in reform must be to strengthen and preserve our cost recovery
    policies in a manner that both acknowledges their value and re-
    positions them for a sustainable future.
        Small rural providers have experienced both lows and highs as
    policymakers debate reform and consider how to show their commitment to
    universal service. In the lead-up to the release of the FCC's National
    Broadband Plan (NBP) in March 2010, we had high expectations, for the
    FCC was putting in significant effort to evaluate our national
    communications landscape. We believed with all of the facts before
    them, the FCC would take advantage of the opportunity by making bold
    recommendations that would include a call for a national commitment to
    invest in and maintain state-of-the-art communications technologies
    throughout all of America. Unfortunately, while the NBP made
    substantial efforts to quantify the demands for and costs of broadband
    service, some of its policy recommendations were less specific and more
    experimental than pragmatic, leading to a substantial amount of
    uncertainty and confusion among service providers. In particular, as
    many highlighted in the wake of the NBP, the plan seemed focused upon
    delivery of broadband to the ``unserved'' without taking into account:
    (1) whether such service would be sustainable once deployed; or (2)
    what would happen if USF support or ICC revenues were slashed for those
    who were already making services available in high-cost, hard-to-serve
    rural areas.
        Our associations and hundreds of our small business members have
    had many conversations in subsequent months with the FCC, many of you
    here in Congress, and other stakeholders to help explain how the NBP
    recommendations and other FCC proposals would harm rural consumers and
    undermine network investment and operation in rural areas. We believe
    these conversations have been extremely productive in shedding light on
    how reform could proceed down an alternate path without upsetting the
    careful balance of universal service in areas served by small rural
    companies. I mentioned that this has been a period marked by both lows
    and highs, and today, I can say we are now at least cautiously
    optimistic that sensible and carefully crafted reform could be on the
    horizon.

    The ``RLEC Plan,'' the ``Consensus Framework,'' and Efforts to Pursue
            Balanced, Common-Sense Reform
        In the early wake of the NBP's release, NTCA, OPASTCO, and WTA
    recognized from conversations with policymakers that it was not enough
    to ``just say no.'' We heard the calls of FCC Chairman Genachowski for
    reforms that would modernize the USF and ICC systems and ensure fiscal
    responsibility and promote accountability in these mechanisms. We
    looked too, however, to the statutory mandates for universal service as
    a guidepost for reform, and also kept as an overriding principle of our
    own that the ultimate objective was to promote the availability and
    affordability of broadband on a sustainable basis throughout high-cost
    areas. With all of these principles firmly in mind, we set forward to
    develop a creative plan that would build upon the best aspects of the
    existing cost recovery mechanisms while re-positioning other aspects of
    them for a broadband-based, IP-enabled world. We looked to develop a
    plan that would balance the needs of those providers who had already
    invested to recover their costs in order to keep providing service with
    those providers who still needed the opportunity and support to invest
    in broadband-capable networks over time.
        NTCA, OPASTCO, WTA and approximately 40 other state, regional, and
    tribal communications oriented organizations took up this challenge,
    putting forward in April 2011 a detailed, credible, and workable
    proposal centered on redefining the USF and ICC cost recovery systems.
    In particular, our Rural Local Exchange Carrier (RLEC) plan modernizes
    USF and ICC for today's broadband era and related needs, providing a
    transition from legacy high-cost USF mechanisms to a new Connect
    America Fund that will promote broadband services in rural areas. At
    the same time, through new constraints, the plan has been calibrated to
    seek even greater efficiency and aims toward a budget over the next
    several years that seeks to accommodate policymakers' desire for fiscal
    responsibility in the USF program. The plan also demands accountability
    by requiring that USF recipients live up to the carrier-of-last-resort
    obligations that are historically the hallmark of rural rate-of-return-
    regulated providers.
        We all recognize the complexity of modernizing these systems, and
    the years of effort that have already been put into this process. We
    also recognized that no one party in this divided industry could hope
    to move a program for reform without some attempt at compromise and
    effort to seek consensus. Accordingly, earlier this year, with the
    support and urging of policymakers, we and some from other industry
    sectors made good faith attempts to seek common ground and crystallize
    differences on reform. While some industry sectors chose to hold back,
    small rural providers represented by NTCA, OPASTCO, and WTA stepped
    forward, reaching agreement on amendments to the previously filed RLEC
    Plan as part of a ``Consensus Framework'' with U.S. Telecom, Verizon,
    AT&T, CenturyLink, Windstream, Frontier, and FairPoint. This Consensus
    Framework is comprised of two distinct but complementary plans--the
    RLEC Plan that would govern USF and ICC mechanisms in areas served by
    small rate-of-return-regulated carriers, and the America's Broadband
    Connectivity Plan that would govern reform of these same mechanisms in
    areas served by the larger and mid-sized providers. In addition to
    providing a reasonable path forward on USF reform, the Consensus
    Framework would shut down many of the arbitrage and self-help problems
    that threaten to eviscerate the ICC system today and establish a more
    unified, transparent, and enforceable means of ensuring that providers
    pay one another for use of each other's network. The bottom line is
    that the Consensus Framework will restore much-needed regulatory
    certainty and more predictable cost recovery, which will ultimately
    allow the industry to refocus on investments and operations in response
    to consumer demand and community need.
        Outside of this framework, these parties have divergent interests
    and would not necessarily agree to these compromises. For example, the
    rate-of-return associations would be unlikely to support in other
    contexts any of the ICC reforms included in this framework. Similarly,
    the price cap carriers would have been unlikely to support certain
    constraints on the use of the forward-looking cost model described in
    their proposal outside of the Consensus Framework. Others still would
    have refused to reach resolution on how carriers should be compensated
    for VoIP traffic terminating onto their networks.
        For these reasons, we have emphasized to policymakers the need to
    recognize that material changes to individual components of the
    Consensus Framework could cause individual parties to withdraw their
    support for--or even oppose--other components of these proposals and/or
    the then-negated consensus framework as a whole. The parties to this
    consensus made substantial concessions in the interest of obtaining an
    industry agreement that could restore regulatory certainty and allow
    providers to focus more closely once again on the business of building
    and providing broadband.
        The Consensus Framework is aimed at balancing sustainability of
    broadband where it is today with the need to promote more widespread
    deployment of broadband over time. It has also been designed to provide
    a path to meet consumer demand over time for upgraded services and
    improved networks. Recalling that the ultimate objective of this
    exercise is to promote a better experience for the consumer and a
    better outlook for the economy, we were pleased to see that fifteen
    organizations representing rural business, agricultural, educational,
    and economic development interests--including the National Grange, the
    American Farm Bureau Federation, the American Telemedicine Association,
    the Independent Community Bankers of America, and the Rural School and
    Community Trust--sent a letter last week to FCC Chairman Genachowski
    expressing concern over certain changes to the USF and ICC mechanisms
    as previously proposed and asking for further consideration of the
    plans in the Consensus Framework.

    The Path Forward on USF and ICC Reform--and the Roadblocks Still Ahead
        The devil is now in the details as the FCC considers final steps
    forward. While others continue to make broad policy arguments and press
    high-level principles, we are diving into the details. With valuable
    USF resources, the success of the rural economy, the experience of the
    rural consumer, and the livelihood of small business telcos all at
    stake, we believe good public policy can only be made by moving past
    sweeping rhetoric and making sure that any reforms actually work to the
    benefit of the American consumer. The RLEC plan is the only detailed
    and practical plan on the record for high-cost areas in which small
    providers are the carriers of last resort. It defines a clear roadmap
    of exactly how we can get from the USF and ICC status quo to the next
    generation of cost recovery. It avoids radical and untested concepts
    such as permanent caps, ill-defined auctions, or flash-cuts in ICC rate
    reductions that would only spike end user rates or lead to retrenchment
    in service. Indeed, the FCC should not and cannot adopt such proposals
    when there is no basis in the record for them--for example, there is
    simply no definition in the record of the processes for auctions and no
    detailed examination of what more aggressively paced ICC cuts would
    mean for consumers.
        This brings me to one final concern as we approach what could be
    the culmination of a decade-long effort to achieve reform.
    Specifically, we are concerned whether the path forward on reform--or
    the successful implementation of any reforms--might be derailed through
    a ``raid'' on USF in the name of Federal debt reduction. There can be
    no doubt regarding the severe nature of the debt crisis confronting our
    nation, the interest of the public in responding to it, and the
    absolute necessity of doing so in a manner that is consistent with
    legal mandates and precedents. Nevertheless, we are extremely concerned
    to know that certain concepts may be under consideration that have no
    place in such discussions.
        Our concern first materialized upon seeing the recommendation in
    the December 1, 2010 report of the National Commission on Fiscal
    Responsibility and Reform that identified the private USF as a source
    of public debt reduction. Some months later we were further troubled to
    learn that debt negotiators were giving serious consideration to this
    concept. And in recent weeks, our unease has grown as we have learned
    that the Joint Select Committee on Deficit Reduction may also consider
    this ill-advised proposal.
        In response, our organizations sent a letter dated September 23,
    2011, to your colleagues serving on the Select Committee underscoring
    the unique nature of the federally mandated--yet privately managed and
    funded--USF program and why it has no place in these conversations. We
    have also sent a similar letter to you and your Commerce Committee
    colleagues urging you to call upon the Select Committee to refrain from
    further consideration of this idea.
        Throughout its long history, the USF has always been maintained
    outside the U.S. Treasury and managed by a non-governmental entity.
    While the Telecommunications Act of 1996 amended the previously
    existing framework of the USF, and thereafter the Office of Management
    and Budget displayed the private USF in the Federal budget, there is no
    legislative or other official indication that Congress ever intended to
    change the manner in which the fund is maintained and administered.
        Legal precedent and guidance confirm that the USF monies do not
    constitute ``public monies'' that are received for the use of the
    United States, but rather are private funds that are merely derived and
    distributed at the direction of Federal statute. This conclusion was
    embraced and underscored by both the General Counsel of the FCC and the
    General Counsel of the Office of Management and Budget in an exchange
    of official correspondence dated April 28, 2000. Thus, the raiding of
    the privately funded and administered USF as a source of debt reduction
    would constitute a ``taking'' and the imposition of a new ``tax'' on
    the American people--in addition to the unfortunate follow-on impact
    that would upset the FCC's USF and ICC reform efforts thus leaving the
    industry, and particularly its rural sector, vulnerable to ongoing
    uncertainty and revenue disruption. An unforeseen consequence of
    raiding the USF in the name of debt reduction is that it would likely
    ultimately add to the Nation's debt as carriers find themselves unable
    to repay the Federal RUS loans many of them hold. There can be no
    question that going down this road would likely curtail broadband
    deployment that is so critical to our national and economic security
    today.
        The objective of getting broadband out to rural areas and keeping
    it there is far too important to gamble on untested theories and ill-
    defined concepts. We are far too close to meaningful reform to have
    this process fall apart now, or to have this reform be for naught
    because some portion of the USF is subsequently siphoned away to
    address purposes unrelated to the reasons for which these funds are
    collected. NTCA, OPASTCO, WTA and our collective members took up the
    challenge to develop a detailed plan for USF and ICC reform. We took up
    the challenge to seek industry consensus on reform. Our members took up
    the challenge to provide detailed data to support an informed course of
    action on USF and ICC reform. We now hope the FCC will enable small
    rural carriers of last resort to meet their most important challenge--
    that of delivering affordable, high-quality broadband to millions of
    rural Americans who depend upon such access. To this end, we are
    hopeful that the FCC will give serious consideration instead to the
    RLEC Plan and pursue a common-sense, fact-based path for USF and ICC
    reform in its meeting later this month. We are also hopeful that the
    benefits of any such reform, once finally achieved after this long
    journey, will not be frustrated, undermined, or defeated by the
    siphoning of USF funds for other purposes.

    Conclusion
        We are excited to have a committee comprised of members with such
    knowledge of our industry and such a deep commitment to rural America.
    It is our sincere hope that we can count on each of you to help guide
    the FCC to adopt a well-defined and carefully developed reform
    framework that will promote sustainable and affordable broadband access
    for all Americans. Thank you again for the opportunity to testify
    today.

        The Chairman. Thank you very much, Ms. Bloomfield.
        Mr. Jones.

        STATEMENT OF PHILIP B. JONES, COMMISSIONER, WASHINGTON
                UTILITIES AND TRANSPORTATION COMMISSION

        Mr. Jones. Thank you, Mr. Chairman, Ranking Member
    Hutchison, and members of the Committee.
        I come to you today representing myself, the Washington
    Commission, and the state perspective, which I think needs to
    be represented today, and the consumer perspective that you
    mentioned, Mr. Chairman.
        I'll make a few overall remarks and then talk about a few
    specific things like VoIP traffic and ETC designations and a
    nagging issue called ``call termination.''
        Comprehensive reform is key. As you said, Mr. Chairman, the
    time to do something about this is now. We agree. Ever since
    I've been a commissioner, I've been grappling with, as the
    other panelists have said, these complex and difficult issues.
        The focus on re-targeting is good. Increased accountability
    is necessary. Elimination of multiple carriers in the study
    area is necessary. And we need to really focus these Federal
    subsidies on where they're needed.
        Having a budget of $4.6 billion is a good thing and a bad
    thing. As Senator Warner said, the needs out there for
    broadband are great. We are making a big transition from plain
    old telephone service to broadband. Let's make no mistake about
    it. It's going to be expensive. So, if we impose a budget--if
    the FCC does--at $4.6 billion--or, $4.5 billion, excuse me--
    this becomes a limiting factor. So, the whole issue of
    competitive neutrality, in my opinion, becomes less important
    than living within that budget.
        The state members of the Joint Board on USF submitted a
    plan. The rural LEC submitted a plan. And now the large
    carriers have submitted a plan called the ABC Plan. Of course,
    the states would prefer to go with the state members' plan, but
    it looks as if Chairman Genachowski's draft is based on the ABC
    Plan.
        I broke my testimony into what is called good, bad and the
    ugly. The ugly part of the FCC Chairman's proposal, as we
    understand it, is mandatory preemption of State authority in
    the Act over intrastate access rights.
        As some of you know, in the rulemaking teed up in February,
    there were two ways proposed on intercarrier compensation. One
    was voluntary, one was mandatory. And he appears to have gone
    with the mandatory approach. We would have preferred a
    voluntary approach.
        The other not so good thing about the proposal is the SLC
    increases. These are subscriber line charges. And, as the
    Chairman noted, in this economy, to impose a maximum Federal
    SLC increase of $3.50 on people who can basically hardly afford
    to pay their electric and gas bills could be a problem.
        So, the whole issue of consumer benefit cries out for an
    answer.
        Let me say a couple of things about ETC designations.
    Congress designated the states to play a role in designating
    carriers and having them be accountable for the funds. We've
    done that.
        The ABC Plan, as we understand it, wants to give us hardly
    any role in designating the ETCs, whether they be wireless,
    broadband providers or wireless. We think this is a mistake.
    So, we think if the FCC decides to preempt states' jurisdiction
    over intercarrier compensation--which is not something we would
    prefer--they need to provide us with a robust role in
    protecting consumers, providing for interconnection, and doing
    all the other things that we currently do under Section 214-E
    and 254 of the Universal Service statute.
        On VoIP, we believe that VoIP is a service that acts like a
    telephone service; it's not an information service. And if it's
    being used as an information service for intercarrier
    compensation purposes, states should have the ability to deal
    with that.
        We get consumer complaints all the time about telephone
    service. Carriers in our state have been switching from
    traditional big switches for circuit switch networks to soft
    switches. This has been going on. It's no secret.
        So, the question is--can the carrier sever the traffic,
    identify the traffic? We hear rumors that they are billing
    certain types of traffic for terminating, not originating. So,
    it appears to me, and us at the states, that they can do it.
        So, we are very wary of the FCC Chairman's appeared attempt
    to not allow us to have any jurisdiction over VoIP.
        Just let me finish with call termination, because I know
    this is an issue in our State of Washington. Calls are now not
    being terminated to rural clinics, to Washington State Patrol
    offices, because, allegedly, the terminating access rates in
    that rural area is too high. So, the carriers are using a
    system of call, which they call ``Least Cost Routing'' to use
    the best and cheapest way to terminate a call. And sometimes
    they don't terminate a call.
        And this is creating a real public safety hazard. And it
    really, I think, Mr. Chairman, gets at the basis of: What is
    the public switch telephone network? What is a broadband
    network? And what are the duties of carriers to originate and
    terminate traffic on the network?
        So, those are just a few points I would make. The rest is
    in my testimony. And I would be happy to answer your questions.
        [The prepared statement of Mr. Jones follows:]

             Prepared Statement of Philip B. Jones, Commissioner,
               Washington Utilities and Transportation Commission

    Introduction
        Chairman Rockefeller, Ranking Member Hutchison and members of the
    Committee, I appreciate the opportunity to testify today on reform of
    the Federal universal service fund (USF) program and intercarrier
    compensation (ICC) rules.
        My name is Phil Jones. I have been a Commissioner with the
    Washington Utilities and Transportation Commission since 2005.
    Currently, I am the Second Vice President of the National Association
    of Regulatory Utility Commissioners (NARUC), Co-Chair of NARUC's
    Washington Action Committee, Chair of the Board of Directors of the
    National Regulatory Research Institute, and Chair of the Federal
    Legislation subcommittee of NARUC's Committee on Telecommunications.
    During my six years as a Telecommunications Committee member, I have
    served on several task forces that have pressed hard for both
    intercarrier compensation and universal service reform, including the
    well known NARUC task force on intercarrier compensation that
    facilitated the filing of the first broad consensus on reform--the so-
    called ``Missoula Plan''-and a separate earlier task force focused upon
    ``Eligible Telecommunication Carrier'' designations.
        I am here today to testify on behalf of myself and the Washington
    Utilities and Transportation Commission (UTC).
        No one seriously disputes that reform of particular aspects of the
    existing Federal universal service scheme is long overdue. What is in
    dispute is the way to achieve that reform.
        There is no question that the Federal USF has played an integral
    role in the near ubiquitous deployment, adoption, and maintenance of
    voice service nationwide. If reformed properly I believe USF can retain
    this role in achieving the same level of deployment and adoption of
    broadband services.
        On October 6, 2011, Federal Communications Commission (FCC)
    Chairman Julius Genachowski announced circulation to his colleagues of
    a draft order that undertakes comprehensive reforms of Federal
    universal service policy and Federal rules on intercarrier
    compensation. The FCC should be applauded for finally trying to grapple
    with some of the glaring abuses in Federal policy. Based on the limited
    information released about the draft order the Chairman circulated last
    week, I certainly applaud the Chairman for following through on the
    proposed rulemaking issued in February and trying to resolve the vexing
    and long-standing challenges in these two regimes.
        However, the Washington UTC shares the concerns of many other State
    commissioners and consumer advocates about specific portions of the
    proposed reform framework that seem directly counter to Congress'
    instructions. In particular we find fault in the process that has
    resulted in the proposal to adopt specific mechanisms that lack
    adequate support in the record.
        The FCC has a difficult yet important task. This is a complex area
    where issues of law, rate design, network engineering, and social
    policy intersect and sometimes collide. As the Chairman and the agency
    deliberate, they should ensure that the final plan enhances the
    interests of consumers and provides a fair, more efficient way for
    carriers to provide service in rural, high-cost areas. It is not clear
    that all aspects of the current draft achieve these objectives.

    The Good
        On the positive side, the draft order's proposals to stop traffic
    pumping and eliminate phantom traffic are non-controversial and long
    overdue. These ``transparently abusive'' \1\ regulatory arbitrage
    schemes should have been eliminated years ago. I also personally
    believe that Congress has already given the FCC authority to eliminate
    excessive and inefficient fund disbursements by more narrowly targeting
    support. If the FCC keeps within its Congressional prescribed
    authority, such changes are long overdue. The draft order also
    apparently recognizes the crucial role reserved to the States by
    Congress with respect to carrier of last resort obligations (COLR) and
    so-called ETC designations under Sections 254 and 214(e) of the 1996
    Act.
    ---------------------------------------------------------------------------
        \1\ See, e.g., The Resolution Supporting Expeditious FCC Action on
    Traffic Pumping Schemes, http://www.naruc.org/Resolutions/
    Resolution%20Supporting%20FCC%20Action%20on%20Traffic%20Pumping.pdf,
    which I sponsored and which NARUC passed on November 17, 2010. See
    also, Letter from Sally Brown, Senior Assistant Attorney General,
    Office of the Attorney General of Washington, Utilities and
    Transportation Division to Ms. Marlene Dortch, FCC Secretary (filed
    June 17, 2011), detailing a WUTC ex parte providing data obtained from
    rural local exchange carriers in Washington State related to phantom
    traffic and possible spoofing of SS7 information needed for billing
    inter-state and intra-state calls, available online in the FCC's ECSF
    system at: http://fjallfoss.fcc.gov/ecfs/document/view?id=7021688209.
    ---------------------------------------------------------------------------
        I take comfort in some of the statements the Chairman made last
    week in his prepared remarks. He stated that the draft order does not
    ``rubber stamp or adopt wholesale'' the plan of any carrier-sponsored
    group or other stakeholders. The Chairman said he does not intend to
    eliminate the States' carrier of last resort obligations. He also said
    that the proposed draft does not eliminate the States' traditional role
    in designating ETCs and will provide for a ``vital and meaningful
    role'' in ensuring accountability for broadband investments made under
    the Connect America Fund, or CAF. Moreover, he reiterated the States'
    ``crucial role'' in protecting consumers as we move forward in the
    transition of this Federal subsidy regime from voice services (POTS) to
    broadband services.
        We take the Chairman at his word and look forward to working with
    him and his colleagues to make the pledges a reality. Yet, based on the
    sparse details released thus far, we don't have sufficient information
    to make an informed judgment, and as always in the field of ICC and USF
    issues, the devil will be in the details.\2\
    ---------------------------------------------------------------------------
        \2\ The FCC has announced it will use a competitive bidding process
    to assign funds. I do not know what the new ``designation process'' can
    look like in such a circumstance. It is certainly unclear what role
    States can play that is consistent with the tasks assigned them by
    Congress. A process that simply has States ``rubber stamp'' any carrier
    that wishes to participate in a bidding process and reduces or
    eliminates the role assigned with respect to modification of study area
    boundaries is not only a swipe at Congressional authority and judgment,
    it is also poor policy. As noted in the April 14, 2011 Comments of the
    Washington Utilities and Transportation Commission, at page 4, note 10:
    ``UTC Staff does not take ETC petitioners' general compliance
    statements at face value. Rather, Staff scrutinizes applicants'
    credentials and commitments in fulfilling universal service
    obligations. Staffs inquiries include applicants' financial condition,
    corporate structure, detailed coverage in proposed service areas,
    capital investment plans, operational performance (e.g.,
    subscribership, spectrum of services and products, consumer complaint
    records), and compliance with other state rules and regulations. In
    doing so, UTC Staff attempts to balance the potential benefits of
    designating additional ETCs (most saliently, infrastructure build out
    in rural areas, promoting market competition and benefits for low
    income households) with the need to protect the Federal Universal
    Service Fund against waste, fraud and abuse. Over the past fifteen
    years, Staff has made favorable and unfavorable recommendations to the
    UTC on various ETC petitions reflecting application of above-described
    framework and principles. See WUTC comments at: http://
    fjallfoss.fcc.gov/ecfs/document/view?id=7021238853.
    ---------------------------------------------------------------------------
    The Bad
        I and many of my State colleagues remain vigilant as to how these
    words on ETC designations and COLR obligations will actually be put in
    to practice, and how they interact with other portions of the draft
    order. For example, it appears that specifying a uniform ``interstate''
    rate for all VoIP traffic, will operate over time to undermine if not
    eliminate those obligations--along with your constituents' ability to
    seek State commission assistance with service quality issues, State
    emergency communications and disaster recover policies, and perhaps
    even existing State Universal Service programs.
        State COLR obligations, which, among other things, require carriers
    to serve consumers in their service territory, are tied to
    jurisdictional authority. Some stakeholders have pressed for a uniform
    ``interstate'' tariff for all VoIP traffic--regardless of whether the
    traffic is currently (or can be) identified as jurisdictionally
    ``intrastate.'' \3\
    ---------------------------------------------------------------------------
        \3\ It is true the WUTC FCC comments do appear to go beyond asking
    the FCC to make sure VoIP pays ``interstate'' access for ``interstate''
    transactions. See, for example, the WUTC's April 18, 2011 comments, at
    http://fjallfoss.fcc.gov/ecfs/document/view?id=7021238853 and also the
    WUTC's April 4, 2011 comments, also online at http://fjallfoss.fcc.gov/
    ecfs/document/view?id=7021236705. However, our comments also detail the
    panoply of bad policy outcomes that would accompany FCC preemption of
    State authority over VoIP services. I personally believe that a unified
    interstate tariff for VoIP traffic could well have the exact same
    jurisdictional impact as classifying it as an ``information'' service.
    ---------------------------------------------------------------------------
        Specifically, as my agency pointed out in its most recent FCC
    comments, at pages 9-10, elimination of such VoIP traffic from State
    jurisdiction will have significant consequences:

            State Commissions would be precluded from exercising any
            jurisdiction over that service or potentially the companies
            that provide that service. Consumers who use VoIP as the
            equivalent of traditional landline telephone service could no
            longer seek redress from the state commission or any other
            state agency for billing, service quality or other service-
            related issues. The result would be to shift the resolution of
            such complaints from the state agency, which is in the best
            position to address them to the FCC which has neither the
            expertise nor the resources to take them on. These concerns are
            not hypothetical. Comcast is one of the largest providers of
            voice service in Washington based on the number of subscribers,
            and that company provisions service as VoIP. Most, if not all
            regulated telecommunications companies in this state provision
            or have affiliates that provide VoIP. Verizon Northwest Inc.
            (now Frontier Northwest Inc.), the second largest incumbent
            carrier in Washington, replaced two of its circuit switches
            with IP-based switches, and other carriers are doing the same.
            Companies are increasingly converting their circuit switched
            networks to IP-based networks, and if the Commission were to
            determine that VoIP . . . (is not state jurisdictional) . . .,
            many, if not most, of them would likely seek to discontinue
            local telecommunications subject to state oversight in favor of
            FCC-regulated VoIP service. Complaints about telecommunications
            service, however, top the list of complaints consumers make to
            the WUTC. The Washington Commission received 722 customer
            complaints in 2010 against regulated telephone companies
            concerning billing disputes, disconnection threats, quality of
            service and customer service issues. Similarly, the Consumer
            Protection Division of the Washington Attorney General's Office
            received more complaints about telephone companies and service
            (both landline and wireless) than any other industry on an
            annual basis from 2001--09, and such complaints for 2009 (the
            latest year for which the WUTC has such figures) was only
            second to the number of complaints about collection agencies.
            The FCC Enforcement Bureau's backlog of cases is already
            substantial, and adding complaints that are currently filed
            with state agencies would overwhelm the system to the detriment
            of consumers.

        Any approach that allows the FCC to assume exclusive jurisdiction
    over VoIP services is short-sighted and will likely only provide yet
    another arbitrage opportunity. Moreover, long term such an approach
    could well jeopardize the funding streams for the more than 20 States
    that have adopted State-specific universal service programs, as well as
    threaten State authority over emergency calling, outage restoration,
    and, as already referenced earlier--service quality. As we noted in
    those same comments, at pages 10-11:

            The FCC should be mindful of all consequences that result from
            its actions, both intended and the unintended. The Commission
            can reform intercarrier compensation without assuming exclusive
            jurisdiction over VoIP and therefore should only make those
            determinations that are necessary to reach its goals.

        I also have real concerns about the proposals to preempt State
    intrastate access charge authority. Such an approach is directly
    contrary to the express terms of the statute and Congress' view of the
    appropriate role of the States.\4\ Indeed, the current ICC dilemma is
    far more attributable to the FCC's refusal to classify VoIP-based
    services than to States' intrastate access charge regulation.
    ---------------------------------------------------------------------------
        \4\ See, 47 U.S.C. Sec. 251(d)(3) (1996): ``Preservation of State
    Access Regulation: In prescribing and enforcing regulations to
    implement the requirements of this section, the Commission shall not
    preclude the enforcement of any regulation, order, or policy of a State
    commission that (a) establishes access and interconnection obligations
    of local exchange carriers; (b) is consistent with the requirements of
    this section ''
    ---------------------------------------------------------------------------
        States have long held that all carriers should pay according to
    State and Federal access tariffs. The market, not the regulator, should
    make such choices under a consistent federal-State regulatory regime.
    The lack of a Federal policy on the appropriate treatment of VoIP
    provides as telecommunications carriers has created a huge ambiguity
    during the last ten years that carriers have exploited to their
    advantage, resulting in the declines in intrastate access charge
    compensation that the telephone companies we regulate have experienced.
    The overwhelming majority of States, on the other hand, have already
    engaged is significant reform of intrastate ICC, and most of the
    remaining States are poised to act.\5\
    ---------------------------------------------------------------------------
        \5\ See, e.g., Oral Ex Parte Notice from NARUC General Counsel
    James Bradford Ramsay to FCC Secretary Marlene Dortch, filed September
    26, 2011, detailing the current status of State ICC reform efforts. The
    letter is available online at: http://fjallfoss.fcc.gov/ecfs/document/
    view?id=7021711173.
    ---------------------------------------------------------------------------
    The Ugly
        Chairman Genachowski has often noted that a ``fact based and data
    driven process'' is crucial to informed and efficient decision-
    making.\6\ Indeed, in one of his first statements after becoming
    Chairman, he argued that his universal broadband plan:
    ---------------------------------------------------------------------------
        \6\ See, e.g., Pham, Alex, FCC's Genachowski reinforces call for
    rules on net neutrality, LA Times (October 08, 2009) (``Genachowski
    called for a ``fact-based, data-driven'' open dialogue with the
    industry.''), available online at: http://articles.latimes.com/2009/
    oct/08/business/fi-fcc8; Prepared Remarks of Chairman Julius
    Genachowski, The Brookings Institution, Washington DC (September 21,
    2009) (``I will ensure that the rulemaking process will be fair,
    transparent, fact-based, and data-driven. Anyone will be able to
    participate in this process, and I hope everyone will.'') available
    online at: http://www.openinternet.gov/read-speech.html; Eggerton,
    John, Genachowski Addresses Broadband, Indecency and Future FCC Plans
    (Broadcasting & Cable) 6/16/2009, (``Genachowski said his would be an
    open and transparent FCC, that made data-driven policy decisions that
    kept the consumer foremost . . .'' online at: http://www.broadcas
    tingcable.com/article/294770-
    Genachowski_Addresses_Broadband_Indecency_and_Future_
    FCC_Plans.php.

        . . . will be data-driven. That means not starting with
    conclusions, but using data to develop analysis. It also means not just
    accepting data, but digging into data, to find concrete solutions that
    supersede ideology--and that can make a difference in the lives of real
    Americans.\7\
    ---------------------------------------------------------------------------
        \7\ See, Chairman Julius Genachowski, Prepared Remarks on National
    Broadband Plan Process, (July 2, 2009), at page 2, available online at:
    http://hraunfoss.fcc.gov/edocs_public/attach
    match/DOC-291884A1.pdf.

        I agree with the Chairman. The development and final version of the
    National Broadband Plan (NBP) was a good example of this: a
    comprehensive, long-term analysis of the telecommunications/broadband
    industries and related public policy purposes based on exhaustive
    analysis and large amounts of data. A decision can only be as good as
    the record it is based upon. Unfortunately, I am concerned that while
    the original NPRM issued in February was comprehensive and asked many
    good questions based on analysis and data, the process over the last
    several months used to generate the draft circulated last week did not
    measure up to this standard.
        I have attached a chart to my testimony that estimates the flow of
    Federal USF funds, by State, based on data from the FCC's 2010 USF
    Monitoring Report. For example, if you set off contributions against
    receipts from the Federal program, West Virginia is currently a net
    recipient of about $30 million dollars in Federal revenues. Washington
    State, on the other hand, is net contributor to the Federal programs
    sending about $15 million dollars to assure universal service in other
    states.\8\ Other members of the Committee can determine approximately
    from that chart the current net benefit of the Federal program to your
    respective States.
    ---------------------------------------------------------------------------
        \8\ According to this chart, Washington State residents pay about
    $155,701,000 into the Federal program but State residents only receive
    the benefits in the amount of about $140,092,000 from the fund, leaving
    us a net contributor state.
    ---------------------------------------------------------------------------
        Last week the Chairman pointed out in his speech that:

            So in the transition areas, until the shift to competitive
            bidding, the Commission will base support on a rigorous model
            estimating the costs of deploying broadband, ensuring carriers
            receive no more than necessary to enable broadband build out.
            And that cost model will be adopted only after an open and
            transparent public review process. \9\
    ---------------------------------------------------------------------------
        \9\ See, Chairman Julius Genachowski, Prepared Remarks on National
    Broadband Plan Process, (July 2, 2009), at page 9, available online at:
    http://hraunfoss.fcc.gov/edocs_public/attach
    match/DOC-291884A1.pdf.
    ---------------------------------------------------------------------------
        In other words, only after the plan is adopted can the FCC possibly
    have any realistic chance of estimating the actual costs of taking this
    approach. The FCC Commissioners--as well as other interested
    stakeholders and public officials--cannot look at the record and
    ascertain with any degree of certainty even the approximate impact on
    Federal funds flowing into and out of their States under the new
    paradigm. The only thing any interested policy maker can be sure of is
    that over the next five years the ``net'' amount of money you receive
    in your State to support universal service will change--and it is
    likely that change will be dramatic. Indeed, the FCC has expressed an
    interest in controlling the growth in the size of the fund, but current
    Federal legislation mandates reasonably comparable service. Without a
    fully vetted model, no policy maker can determine with certainty the
    likelihood that the FCC will be able to constrain the growth in fund
    size in the face of likely litigation.
        Unfortunately, the FCC appears poised to closely follow an industry
    drafted proposal at least on the timing and phase-down of intrastate
    access charges and the use of an access charge recovery mechanism. The
    so-called ``America's Broadband Connectivity'' (ABC) plan proponents
    have filed at the FCC, and no doubt circulated on Capitol Hill, a list
    of how States purportedly ``make out'' if the agency adopts their
    proposal. Significantly, that list does not show net benefit amounts
    since it does not show the change in net benefits from the status quo.
    Also, one must be skeptical of the analysis done by the industry-
    sponsored consultants since the underlying model and assumptions
    haven't been adequately vetted and tested. Verizon, AT&T, and the other
    ABC plan proponents did not file the model at the same time they filed
    the plan. Instead, they waited until all the comments responding to the
    Notice on their plan were filed. And then a week before the Chairman
    was slated to circulate his draft, they finally ``offered'' full access
    to the model and supporting documentation--but even then only to
    stakeholders who could afford, on short notice, to travel to certain
    offices in the State of Ohio and pay a minimum of $600.
        Universal service and intercarrier compensation are large and
    complex regimes the reform of which will have major impacts on the
    retail rates your constituents pay, the subsidies carriers receive, and
    the flow of these subsidies among States. Some realistic assessment of
    the impact and outcome of any proposal should--logically--occur before
    any policy maker commits to a proposed spending plan. Certainly reform
    of the Federal program is necessary and long overdue. However, without
    thorough evaluation any new system could cause as many (and perhaps
    more) problems than it solves.
        Adoption of any major USF and intercarrier compensation reforms
    prior to full vetting of the underlying cost model would be putting the
    proverbial cart before the horse. It would be bad policy and definitely
    undermine the foundation for reform.
        It also appears the FCC may be considering at least one legal
    determination that is definitely not ``data-driven'' or ``fact based.''
    To establish a unified interstate tariff to cover all (inter-and
    intrastate) traffic, the law requires a factual finding that the
    underlying traffic cannot be divided or ``severed'' into local/in-State
    and interstate calls. That poses a real obstacle. Other than self-
    serving statements by carriers looking to avoid jurisdiction, there is
    no evidence provided in this FCC reform proceeding that such traffic is
    not severable. Moreover, it is, at a minimum, counterintuitive that a
    network that has to deliver bi-directional voice traffic in real time
    is incapable of locating the end-points of that communication at least
    within existing State geographic boundaries. Claims of lack of
    severability are also completely at odds with Federal CALEA mandates
    and the unswerving FCC goal of assuring ever better and more precise
    routing of E911 emergency calls, regardless of the technology used to
    provide the underlying voice service. Such claims also cannot be
    reconciled with the undeniable fact that the majority of fixed VoIP
    providers (and wireless providers) pay into the Federal universal
    service program based on jurisdictional traffic distinctions--that is
    they actually do ``sever'' their traffic. Indeed, with respect to
    facilities-based or ``fixed'' interconnected VoIP services,
    severability is a non-issue. For them, it appears the traffic never
    touches the ``Internet'' but interfaces with the PSTN just like other
    communications systems with different dedicated protocols.\10\
    ---------------------------------------------------------------------------
        \10\ See, e.g., Lawson, Stephen, Comcast Calls on VoIP--Cable
    company announces plans to launch phone service this year, IDG News
    Service (2006) According to Comcast Chairman and Chief Executive
    Officer Brian Roberts, Cable operator Comcast VoIP service ``[w]ill not
    be an Internet telephony service, he says: Though they will use IP, the
    voice calls won't touch the Internet, running instead over Comcast's
    private data network, with priority over regular data packets to ensure
    good quality.'' Available at: http://pcworld.about.com/news/Jan112005
    id119241.htm. (Last accessed October 28, 2008) (emphasis added) See
    also, July 23,2008 Sworn Initial Testimony of James R. Burt on behalf
    of Sprint Communications Company L.P. filed before the Arkansas Public
    Service Commission, In the Matter of Petitions for Arbitration by
    Sprint Communications Company L.P. against Yelcot Telephone Company,
    DOCKET NO. 08-0764, and against Northern Arkansas Telephone Company,
    DOCKET NO. 08477-U, Exhibit JRB-1 at page 65, and at pages 29-30, where
    Mr. Burt notes: available at http://www.apscservices.info/pdf/08/08-
    076-u_14_1.pdf. (Excerpt: ``Is the proposed service an Internet
    Telephony, Internet-based VoIP or over-the-top VoIP service? No. I am
    not speaking to the regulatory treatment of these services, but rather,
    the functionality of the proposed service. . .The terms Internet
    Telephony, Internet-based VoIP and/or over-the-top VoIP services are
    used to describe voice services that utilize the public Internet. An
    example would be the service provided by Vonage. By contrast, the
    service provided by Sprint and Suddenlink does not use the public
    Internet in any manner. . . . The voice services provided by Sprint and
    Suddenlink are not nomadic; the customers only use the service in their
    homes. Internet Telephony, Internet-based VoIP service and over-the-top
    VoIP services have also struggled with providing 911 service consistent
    with customer or public safety official expectations. The voice
    services provided by Sprint and Suddenlink provide reliable 911
    service. . . . There is one factor that is sometimes used to attempt to
    create confusion between Internet Telephony, Internet-based VoIP
    service and over-the-top VoIP service and the voice service king
    provided by Sprint and Suddenlink. It is the fact that all of these
    services happen to use the Internet protocol. Since all of these
    services use the Internet protocol, there is a tendency to claim the
    services are the same. The mere fact that there is one technical
    similarity, use of the Internet protocol, should not lead one to the
    conclusion that the services are the same.) (emphasis added) Cf. June
    6, 2008 Prefiled Testimony of Corey R. Chase on Behalf of the Vermont
    Department of Public Service, State of Vermont Public Service Board
    Docket No. 7316 Investigation into regulation of Voice over Internet
    Protocol Services, at pages 12-14, 13, (Excerpt: Q. Is it true that CDV
    packets ``flow interwoven with other data packets such as e-mail or
    video along Comcast's private IP data network'' as Mr. Kowolenko stated
    on page 10 of his prefiled testimony? A. It appears to be true that at
    some points within the Comcast network, packets containing CDV data
    travel with packets containing other data types on the same IP network,
    with CDV packets marked to maintain quality. However, in the response
    to DPS Information Request 1-12, Mr. Kowolenko stated that, ``It [CDV]
    does not contend with other IP based traffic destined for the public
    Internet that flows across the Comcast access network.'' Since packets
    carrying various data types do not contend for bandwidth and thus
    cannot affect each other, they should not be considered ``interwoven''
    because CDV traffic can be identified separately from other data.
    Furthermore, as discussed above combining various traffic types on a
    single network is a function of all modern networks, not just IP
    networks. See also, July 25, 2008 Prefiled Rebuttal Testimony of David
    J. Kowolenko on behalf of Comcast of Vermont, State of Vermont Public
    Service Board Docket No. 7316 Investigation into regulation of Voice
    over Internet Protocol Services, at pages 8-9, where he points out, as
    does his CEO, supra, that Comcast's phone service ``uses IP technology
    but provides a facilities-based service that does not traverse the
    public Internet unlike `over the top' providers that do not directly
    connect via a private network to the PSTN as Comcast does. It also does
    not conflict with other IP-based traffic destined for the public
    Internet that flows across the Comcast access network.'' All 3
    documents can be downloaded from: http://www.naruc.org/Publications/
    Testimony%20filed%20in%20Vermont%20PSB%202008%20Examination%20of%20VOIP.
    pdf. See
    also, May 9, 2008 FINAL DECISION, in Public Service Commission of
    Wisconsin Docket 5911-NC-101, Application of Time Warner Cable
    Information Services (WI), LLC to Expand Certification as an
    Alternative Telecommunications Utility, at 8, Findings of Fact # 8
    ``Under the business model established by Sprint and TWCIS, Digital
    Phone uses IP technology as a transmission protocol, but does not use
    the Internet as such.'' Available at: http://www.psc.wi.gov/apps/
    erf_search/content/docdetail.aspx?docid=94163. See also, Briefing
    Memorandum in Public Service Commission of Wisconsin Docket 5911-NC-
    101, Application of Time Warner Cable Information Services (WI), LLC to
    Expand Certification as an Alternative Telecommunications Utility,
    available at: http://www.psc.wi.gov/apps/erf_search/content/
    docdetail.aspx?docid
    =84954.
    ---------------------------------------------------------------------------
        Even the FCC conceded in a June 2006 Order that fixed
    interconnected VoIP services currently contribute to the Federal
    program based on actual revenues (i.e., severed traffic).\11\ Because
    there is no question it is possible to separate intrastate non-nomadic
    facilities-based VoIP calls from interstate calls, the FCC has no
    jurisdiction over such intrastate calls. Indeed, now that the FCC has
    required both constructive severance by means of a proxy interstate
    safe harbor for nomadic VoIP providers to contribute to the Federal
    universal service programs, as well as actual severance, by requiring
    nomadic VoIP providers to have functioning 911services,\12\ it may be
    time to re-examine that FCC action. The only facts currently in the
    record support rejection of a unified Federal VoIP tariff approach. But
    if the FCC is seriously contemplating creating a factual record to
    allow it to consider granting the petition, these are precisely the
    types of issues that require the development of such a record through
    discovery, sworn testimony, and the opportunity for cross-examination
    before any final legal determination is possible--either here or in the
    broader proceeding. That examination has yet to take place.
    ---------------------------------------------------------------------------
        \11\ See Universal Service Contribution Methodology, WC Docket 06-
    122; CC Dockets 96-45, 98-171, 90-571, 92-237; CC Dockets 99-200, 95-
    116, 98-170; WC Docket 04-36, Report and Order and Notice of Proposed
    Rulemaking, 21 FCC Rcd 7518 (2006), available at: http://
    hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-06-94A1.pdf
    (Contribution Order), aff'd in part, vacated in part, Vonage Holdings
    Corp. v. FCC, 489 F.3d 1232, 1244 (D.C. Cir. 2007), at note 189
    (``Because we permit interconnected VoIP providers to report on actual
    interstate revenues, this Order does not require interconnected VoIP
    providers that are currently contributing based on actual revenues to
    revise their current practices.'').
        \12\ ``In May 2005, the FCC adopted rules requiring providers of
    interconnected VoIP services to supply 911 emergency calling
    capabilities to their customers as a mandatory feature of the service
    by November 28, 2005. ``Interconnected'' VoIP services are VoIP
    services that allow a user generally to receive calls from and make
    calls to the traditional telephone network. Under the FCC rules,
    interconnected VoIP providers must: Deliver all 911 calls to the local
    emergency call center; Deliver the customer's call back number and
    location information where the emergency call center is capable of
    receiving it.'' See: http://www.fcc.gov/pshs/services/911-services/
    voip/Welcome.html.
    ---------------------------------------------------------------------------
    Partnership, not Preemption
        The Telecommunications Act of 1996 established a federal-State
    partnership to oversee the universal service and intercarrier
    compensation regimes. In that statute, Congress specifically and
    explicitly reserved State authority over, among other things,
    intrastate access, carrier of last resort obligations, service quality,
    State universal service mechanisms, and the designation of eligible
    telecommunications carriers. This partnership you established has
    worked well and is even more important as the Nation looks to expand
    broadband penetration. Regardless of goals or reasoning, this
    partnership cannot be undone by the FCC. The FCC, and this Committee,
    are to be commended for their courage in tackling USF and intercarrier
    compensation reform. Everyone in this room knows reform is necessary
    and long overdue. However, I, and I believe my agency, joins a
    substantial number of other State commissions and many consumer groups
    in raising concerns with what we know about the currently circulating
    FCC draft order. Any reform must benefit the consumers and not the
    bottom line of carriers, assure accountability, and maintain buildout
    and service quality requirements--a role that States are best
    positioned to handle. Finally, as Chairman Genachowski has often noted,
    reform must be ``data-driven and fact based.'' Unfortunately, this is
    not the case with the actions the FCC apparently intends to take.
        I thank you again for the opportunity to testify today and I
    welcome any questions you may have.

                               Federal Universal Service Support Mechanisms by State: 2009
                                    [Annual Payments and Contributions in Thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                            High-Cost Support
                                                    ----------------------------------------------------------------
                                                       Payments from USF to     Estimated Contributions   Estimated
                 State or Jurisdiction                   Service Providers        by Carriers to USAC     Net Dollar
                                                    ----------------------------------------------------     Flow
                                                                                                        ------------
                                                        Amount     % of Total     Amount     % of Total     Amount
    ----------------------------------------------------------------------------------------------------------------
    Alabama                                             $100,061         2.3%      $68,579         1.6%      $31,482
    Alaska                                              $168,272         3.9%      $11,250         0.3%     $157,022
    American Samoa                                        $3,939         0.1%         $298         0.0%       $3,641
    Arizona                                              $67,204         1.6%      $84,352         2.0%    ($17,148)
    Arkansas                                            $148,253         3.5%      $39,246         0.9%     $109,007
    California                                          $107,508         2.5%     $474,280        11.0%   ($366,772)
    Colorado                                             $79,397         1.8%      $76,670         1.8%       $2,727
    Connecticut                                           ($390)         0.0%      $57,085         1.3%    ($57,475)
    Delaware                                                $226         0.0%      $15,761         0.4%    ($15,535)
    Dist. of Columbia                                         $0         0.0%      $19,773         0.5%    ($19,773)
    Florida                                              $70,396         1.6%     $285,907         6.7%   ($215,511)
    Georgia                                             $136,139         3.2%     $140,561         3.3%     ($4,422)
    Guam                                                 $16,650         0.4%       $2,251         0.1%      $14,399
    Hawaii                                               $58,416         1.4%      $21,298         0.5%      $37,118
    Idaho                                                $50,779         1.2%      $21,336         0.5%      $29,443
    Illinois                                             $74,939         1.7%     $177,462         4.1%   ($102,523)
    Indiana                                              $74,418         1.7%      $83,888         2.0%     ($9,470)
    Iowa                                                $127,435         3.0%      $38,837         0.9%      $88,598
    Kansas                                              $230,301         5.4%      $37,973         0.9%     $192,328
    Kentucky                                            $101,805         2.4%      $55,949         1.3%      $45,856
    Louisiana                                           $156,494         3.6%      $61,345         1.4%      $95,149
    Maine                                                $27,443         0.6%      $18,209         0.4%       $9,234
    Maryland                                              $3,966         0.1%      $94,073         2.2%    ($90,107)
    Massachusetts                                         $2,413         0.1%      $97,758         2.3%    ($95,345)
    Michigan                                             $63,193         1.5%     $122,460         2.9%    ($59,267)
    Minnesota                                           $127,037         3.0%      $68,112         1.6%      $58,925
    Mississippi                                         $281,267         6.6%      $38,489         0.9%     $242,778
    Missouri                                            $108,639         2.5%      $82,943         1.9%      $25,696
    Montana                                              $79,855         1.9%      $14,539         0.3%      $65,316
    Nebraska                                            $116,611         2.7%      $24,051         0.6%      $92,560
    Nevada                                               $25,570         0.6%      $39,948         0.9%    ($14,378)
    New Hampshire                                         $8,576         0.2%      $20,901         0.5%    ($12,325)
    New Jersey                                            $1,058         0.0%     $143,512         3.3%   ($142,454)
    New Mexico                                           $71,391         1.7%      $27,820         0.6%      $43,571
    New York                                             $44,967         1.0%     $277,114         6.5%   ($232,147)
    North Carolina                                       $85,635         2.0%     $130,102         3.0%    ($44,467)
    North Dakota                                         $94,452         2.2%       $9,478         0.2%      $84,974
    Northern Mariana                                      $1,309         0.0%         $465         0.0%         $844
    Ohio                                                 $33,858         0.8%     $149,536         3.5%   ($115,678)
    Oklahoma                                            $142,547         3.3%      $45,232         1.1%      $97,315
    Oregon                                               $78,826         1.8%      $51,882         1.2%      $26,944
    Pennsylvania                                         $57,770         1.3%     $177,475         4.1%   ($119,705)
    Puerto Rico                                          $74,387         1.7%      $39,829         0.9%      $34,558
    Rhode Island                                             $34         0.0%      $14,102         0.3%    ($14,068)
    South Carolina                                       $98,376         2.3%      $63,774         1.5%      $34,602
    South Dakota                                         $97,338         2.3%      $11,053         0.3%      $86,285
    Tennessee                                            $58,896         1.4%      $91,074         2.1%    ($32,178)
    Texas                                               $262,049         6.1%     $299,043         7.0%    ($36,994)
    Utah                                                 $19,221         0.4%      $32,031         0.7%    ($12,810)
    Vermont                                              $21,208         0.5%      $10,415         0.2%      $10,793
    Virgin Islands                                       $15,986         0.4%       $2,961         0.1%      $13,025
    Virginia                                             $72,933         1.7%     $120,689         2.8%    ($47,756)
    Washington                                           $94,459         2.2%      $89,779         2.1%       $4,680
    West Virginia                                        $58,640         1.4%      $28,323         0.7%      $30,317
    Wisconsin                                           $139,287         3.2%      $72,198         1.7%      $67,089
    Wyoming                                              $50,740         1.2%       $8,709         0.2%      $42,031
    ----------------------------------------------------------------------------------------------------------------
    Total                                             $4,292,179
    ----------------------------------------------------------------------------------------------------------------

                         Federal Universal Service Support Mechanisms by State: 2009--Continued
                                    [Annual Payments and Contributions in Thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                            Low-Income Support
                                                    ----------------------------------------------------------------
                                                       Payments from USF to     Estimated Contributions   Estimated
                 State or Jurisdiction                   Service Providers        by Carriers to USAC     Net Dollar
                                                    ----------------------------------------------------     Flow
                                                                                                        ------------
                                                        Amount     % of Total     Amount     % of Total     Amount
    ----------------------------------------------------------------------------------------------------------------
    Alabama                                              $25,652         2.5%      $16,380         1.6%       $9,272
    Alaska                                               $24,480         2.4%       $2,687         0.3%      $21,793
    American Samoa                                           $39         0.0%          $71         0.0%        ($32)
    Arizona                                              $21,813         2.1%      $20,148         2.0%       $1,665
    Arkansas                                              $4,019         0.4%       $9,374         0.9%     ($5,355)
    California                                          $194,238        18.9%     $113,283        11.0%      $80,955
    Colorado                                              $2,905         0.3%      $18,313         1.8%    ($15,408)
    Connecticut                                           $5,389         0.5%      $13,635         1.3%     ($8,246)
    Delaware                                                $661         0.1%       $3,765         0.4%     ($3,104)
    Dist. of Columbia                                     $1,077         0.1%       $4,723         0.5%     ($3,646)
    Florida                                              $74,720         7.3%      $68,289         6.7%       $6,431
    Georgia                                              $33,514         3.3%      $33,573         3.3%        ($59)
    Guam                                                    $307         0.0%         $538         0.1%       ($231)
    Hawaii                                                  $495         0.0%       $5,087         0.5%     ($4,592)
    Idaho                                                 $3,603         0.4%       $5,096         0.5%     ($1,493)
    Illinois                                             $13,649         1.3%      $42,387         4.1%    ($28,738)
    Indiana                                               $4,917         0.5%      $20,037         2.0%    ($15,120)
    Iowa                                                  $4,314         0.4%       $9,276         0.9%     ($4,962)
    Kansas                                                $3,128         0.3%       $9,070         0.9%     ($5,942)
    Kentucky                                              $9,802         1.0%      $13,364         1.3%     ($3,562)
    Louisiana                                            $12,011         1.2%      $14,652         1.4%     ($2,641)
    Maine                                                 $6,798         0.7%       $4,349         0.4%       $2,449
    Maryland                                                $858         0.1%      $22,470         2.2%    ($21,612)
    Massachusetts                                        $21,043         2.1%      $23,350         2.3%     ($2,307)
    Michigan                                             $30,329         3.0%      $29,250         2.9%       $1,079
    Minnesota                                             $7,043         0.7%      $16,269         1.6%     ($9,226)
    Mississippi                                           $9,880         1.0%       $9,193         0.9%         $687
    Missouri                                              $8,198         0.8%      $19,811         1.9%    ($11,613)
    Montana                                               $3,875         0.4%       $3,473         0.3%         $402
    Nebraska                                              $2,157         0.2%       $5,745         0.6%     ($3,588)
    Nevada                                                $2,906         0.3%       $9,542         0.9%     ($6,636)
    New Hampshire                                           $746         0.1%       $4,992         0.5%     ($4,246)
    New Jersey                                           $15,053         1.5%      $34,278         3.3%    ($19,225)
    New Mexico                                           $14,595         1.4%       $6,645         0.6%       $7,950
    New York                                             $60,082         5.9%      $66,189         6.5%     ($6,107)
    North Carolina                                       $33,899         3.3%      $31,075         3.0%       $2,824
    North Dakota                                          $3,101         0.3%       $2,264         0.2%         $837
    Northern Mariana                                        $168         0.0%         $111         0.0%          $57
    Ohio                                                 $36,707         3.6%      $35,717         3.5%         $990
    Oklahoma                                             $71,141         6.9%      $10,804         1.1%      $60,337
    Oregon                                                $5,413         0.5%      $12,392         1.2%     ($6,979)
    Pennsylvania                                         $21,603         2.1%      $42,390         4.1%    ($20,787)
    Puerto Rico                                          $28,854         2.8%       $9,513         0.9%      $19,341
    Rhode Island                                          $3,425         0.3%       $3,368         0.3%          $57
    South Carolina                                        $9,629         0.9%      $15,233         1.5%     ($5,604)
    South Dakota                                          $3,334         0.3%       $2,640         0.3%         $694
    Tennessee                                            $31,349         3.1%      $21,753         2.1%       $9,596
    Texas                                               $101,914         9.9%      $71,427         7.0%      $30,487
    Utah                                                  $3,808         0.4%       $7,651         0.7%     ($3,843)
    Vermont                                               $2,576         0.3%       $2,488         0.2%          $88
    Virgin Islands                                           $77         0.0%         $707         0.1%       ($630)
    Virginia                                             $15,198         1.5%      $28,827         2.8%    ($13,629)
    Washington                                           $17,704         1.7%      $21,444         2.1%     ($3,740)
    West Virginia                                         $1,189         0.1%       $6,765         0.7%     ($5,576)
    Wisconsin                                             $9,341         0.9%      $17,245         1.7%     ($7,904)
    Wyoming                                                 $469         0.0%       $2,080         0.2%     ($1,611)
    ----------------------------------------------------------------------------------------------------------------
    Total                                             $1,025,195
    ----------------------------------------------------------------------------------------------------------------

                         Federal Universal Service Support Mechanisms by State: 2009--Continued
                                    [Annual Payments and Contributions in Thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                           Schools & Libraries
                                                    ----------------------------------------------------------------
                                                       Payments from USF to     Estimated Contributions   Estimated
                 State or Jurisdiction                   Service Providers        by Carriers to USAC     Net Dollar
                                                    ----------------------------------------------------     Flow
                                                                                                        ------------
                                                        Amount     % of Total     Amount     % of Total     Amount
    ----------------------------------------------------------------------------------------------------------------
    Alabama                                              $28,922         1.5%      $30,011         1.6%     ($1,089)
    Alaska                                               $22,542         1.2%       $4,923         0.3%      $17,619
    American Samoa                                        $4,282         0.2%         $130         0.0%       $4,152
    Arizona                                              $49,278         2.6%      $36,913         2.0%      $12,365
    Arkansas                                             $14,974         0.8%      $17,174         0.9%     ($2,200)
    California                                          $281,161        15.0%     $207,549        11.0%      $73,612
    Colorado                                             $14,452         0.8%      $33,552         1.8%    ($19,100)
    Connecticut                                          $22,255         1.2%      $24,981         1.3%     ($2,726)
    Delaware                                                $831         0.0%       $6,897         0.4%     ($6,066)
    Dist. of Columbia                                     $8,440         0.4%       $8,653         0.5%       ($213)
    Florida                                              $75,933         4.0%     $125,116         6.7%    ($49,183)
    Georgia                                              $67,875         3.6%      $61,511         3.3%       $6,364
    Guam                                                    $334         0.0%         $985         0.1%       ($651)
    Hawaii                                                $1,930         0.1%       $9,320         0.5%     ($7,390)
    Idaho                                                 $4,750         0.3%       $9,337         0.5%     ($4,587)
    Illinois                                             $63,987         3.4%      $77,659         4.1%    ($13,672)
    Indiana                                              $22,702         1.2%      $36,710         2.0%    ($14,008)
    Iowa                                                  $9,899         0.5%      $16,995         0.9%     ($7,096)
    Kansas                                               $15,278         0.8%      $16,617         0.9%     ($1,339)
    Kentucky                                             $28,136         1.5%      $24,484         1.3%       $3,652
    Louisiana                                            $35,427         1.9%      $26,845         1.4%       $8,582
    Maine                                                 $6,159         0.3%       $7,969         0.4%     ($1,810)
    Maryland                                              $9,850         0.5%      $41,167         2.2%    ($31,317)
    Massachusetts                                        $22,729         1.2%      $42,780         2.3%    ($20,051)
    Michigan                                             $51,300         2.7%      $53,590         2.9%     ($2,290)
    Minnesota                                            $17,168         0.9%      $29,807         1.6%    ($12,639)
    Mississippi                                          $29,982         1.6%      $16,843         0.9%      $13,139
    Missouri                                             $26,168         1.4%      $36,297         1.9%    ($10,129)
    Montana                                               $4,201         0.2%       $6,363         0.3%     ($2,162)
    Nebraska                                              $9,004         0.5%      $10,525         0.6%     ($1,521)
    Nevada                                                $4,295         0.2%      $17,481         0.9%    ($13,186)
    New Hampshire                                         $2,285         0.1%       $9,146         0.5%     ($6,861)
    New Jersey                                           $37,106         2.0%      $62,802         3.3%    ($25,696)
    New Mexico                                           $26,912         1.4%      $12,174         0.6%      $14,738
    New York                                            $237,857        12.7%     $121,267         6.5%     $116,590
    North Carolina                                       $57,744         3.1%      $56,934         3.0%         $810
    North Dakota                                          $3,560         0.2%       $4,148         0.2%       ($588)
    Northern Mariana                                      $1,142         0.1%         $203         0.0%         $939
    Ohio                                                 $63,578         3.4%      $65,438         3.5%     ($1,860)
    Oklahoma                                             $35,314         1.9%      $19,794         1.1%      $15,520
    Oregon                                               $15,057         0.8%      $22,704         1.2%     ($7,647)
    Pennsylvania                                         $69,524         3.7%      $77,665         4.1%     ($8,141)
    Puerto Rico                                           $8,735         0.5%      $17,430         0.9%     ($8,695)
    Rhode Island                                          $5,466         0.3%       $6,171         0.3%       ($705)
    South Carolina                                       $37,412         2.0%      $27,908         1.5%       $9,504
    South Dakota                                          $5,536         0.3%       $4,837         0.3%         $699
    Tennessee                                            $49,110         2.6%      $39,855         2.1%       $9,255
    Texas                                               $155,009         8.3%     $130,864         7.0%      $24,145
    Utah                                                 $15,628         0.8%      $14,017         0.7%       $1,611
    Vermont                                               $1,382         0.1%       $4,558         0.2%     ($3,176)
    Virgin Islands                                        $2,014         0.1%       $1,296         0.1%         $718
    Virginia                                             $29,056         1.5%      $52,815         2.8%    ($23,759)
    Washington                                           $27,850         1.5%      $39,288         2.1%    ($11,438)
    West Virginia                                        $10,647         0.6%      $12,394         0.7%     ($1,747)
    Wisconsin                                            $22,569         1.2%      $31,594         1.7%     ($9,025)
    Wyoming                                               $3,559         0.2%       $3,811         0.2%       ($252)
    ----------------------------------------------------------------------------------------------------------------
    Total                                             $1,878,296
    ----------------------------------------------------------------------------------------------------------------

                         Federal Universal Service Support Mechanisms by State: 2009--Continued
                                    [Annual Payments and Contributions in Thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                            Rural Health Care
                                                    ----------------------------------------------------------------
                                                       Payments from USF to     Estimated Contributions   Estimated
                 State or Jurisdiction                   Service Providers        by Carriers to USAC     Net Dollar
                                                    ----------------------------------------------------     Flow
                                                                                                        ------------
                                                        Amount     % of Total     Amount     % of Total     Amount
    ----------------------------------------------------------------------------------------------------------------
    Alabama                                                 $229         0.4%         $970         1.6%       ($741)
    Alaska                                               $29,122        48.0%         $159         0.3%      $28,963
    American Samoa                                          $141         0.2%           $4         0.0%         $137
    Arizona                                               $1,954         3.2%       $1,193         2.0%         $761
    Arkansas                                                $401         0.7%         $555         0.9%       ($154)
    California                                              $942         1.6%       $6,707        11.0%     ($5,765)
    Colorado                                                $234         0.4%       $1,084         1.8%       ($850)
    Connecticut                                               $0         0.0%         $807         1.3%       ($807)
    Delaware                                                  $0         0.0%         $223         0.4%       ($223)
    Dist. of Columbia                                         $0         0.0%         $280         0.5%       ($280)
    Florida                                                 $854         1.4%       $4,043         6.7%     ($3,189)
    Georgia                                               $1,989         3.3%       $1,988         3.3%           $1
    Guam                                                    $101         0.2%          $32         0.1%          $69
    Hawaii                                                  $196         0.3%         $301         0.5%       ($105)
    Idaho                                                   $257         0.4%         $302         0.5%        ($45)
    Illinois                                              $1,389         2.3%       $2,510         4.1%     ($1,121)
    Indiana                                                 $822         1.4%       $1,186         2.0%       ($364)
    Iowa                                                    $571         0.9%         $549         0.9%          $22
    Kansas                                                  $327         0.5%         $537         0.9%       ($210)
    Kentucky                                                $708         1.2%         $791         1.3%        ($83)
    Louisiana                                                $40         0.1%         $868         1.4%       ($828)
    Maine                                                    $63         0.1%         $258         0.4%       ($195)
    Maryland                                                  $0         0.0%       $1,330         2.2%     ($1,330)
    Massachusetts                                           $150         0.2%       $1,382         2.3%     ($1,232)
    Michigan                                                $941         1.6%       $1,732         2.9%       ($791)
    Minnesota                                             $2,637         4.3%         $963         1.6%       $1,674
    Mississippi                                             $148         0.2%         $544         0.9%       ($396)
    Missouri                                                $578         1.0%       $1,173         1.9%       ($595)
    Montana                                                 $843         1.4%         $206         0.3%         $637
    Nebraska                                              $1,391         2.3%         $340         0.6%       $1,051
    Nevada                                                   $73         0.1%         $565         0.9%       ($492)
    New Hampshire                                            $11         0.0%         $296         0.5%       ($285)
    New Jersey                                                $0         0.0%       $2,029         3.3%     ($2,029)
    New Mexico                                              $386         0.6%         $393         0.6%         ($7)
    New York                                                 $62         0.1%       $3,919         6.5%     ($3,857)
    North Carolina                                          $312         0.5%       $1,840         3.0%     ($1,528)
    North Dakota                                          $1,201         2.0%         $134         0.2%       $1,067
    Northern Mariana                                          $0         0.0%           $7         0.0%         ($7)
    Ohio                                                    $426         0.7%       $2,115         3.5%     ($1,689)
    Oklahoma                                                $809         1.3%         $640         1.1%         $169
    Oregon                                                  $312         0.5%         $734         1.2%       ($422)
    Pennsylvania                                            $109         0.2%       $2,510         4.1%     ($2,401)
    Puerto Rico                                               $0         0.0%         $563         0.9%       ($563)
    Rhode Island                                              $0         0.0%         $199         0.3%       ($199)
    South Carolina                                           $47         0.1%         $902         1.5%       ($855)
    South Dakota                                          $1,388         2.3%         $156         0.3%       $1,232
    Tennessee                                               $242         0.4%       $1,288         2.1%     ($1,046)
    Texas                                                   $889         1.5%       $4,229         7.0%     ($3,340)
    Utah                                                    $666         1.1%         $453         0.7%         $213
    Vermont                                                 $115         0.2%         $147         0.2%        ($32)
    Virgin Islands                                           $74         0.1%          $42         0.1%          $32
    Virginia                                                $731         1.2%       $1,707         2.8%       ($976)
    Washington                                               $80         0.1%       $1,270         2.1%     ($1,190)
    West Virginia                                           $308         0.5%         $401         0.7%        ($93)
    Wisconsin                                             $5,281         8.7%       $1,021         1.7%       $4,260
    Wyoming                                                 $148         0.2%         $123         0.2%          $25
    ----------------------------------------------------------------------------------------------------------------
    Total                                                $60,698
    ----------------------------------------------------------------------------------------------------------------

                         Federal Universal Service Support Mechanisms by State: 2009--Continued
                                    [Annual Payments and Contributions in Thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                    Total Federal Universal Program *
                                                    ----------------------------------------------------------------
                                                       Payments from USF to     Estimated Contributions   Estimated
                 State or Jurisdiction                   Service Providers        by Carriers to USAC     Net Dollar
                                                    ----------------------------------------------------     Flow
                                                                                                        ------------
                                                        Amount     % of Total     Amount     % of Total     Amount
    ----------------------------------------------------------------------------------------------------------------
    Alabama                                             $154,864         2.1%     $118,935         1.6%      $35,929
    Alaska                                              $244,417         3.4%      $19,511         0.3%     $224,906
    American Samoa                                        $8,400         0.1%         $516         0.0%       $7,884
    Arizona                                             $140,249         1.9%     $146,289         2.0%     ($6,040)
    Arkansas                                            $167,647         2.3%      $68,063         0.9%      $99,584
    California                                          $583,849         8.0%     $822,527        11.0%   ($238,678)
    Colorado                                             $96,989         1.3%     $132,967         1.8%    ($35,978)
    Connecticut                                          $27,253         0.4%      $99,000         1.3%    ($71,747)
    Delaware                                              $1,719         0.0%      $27,334         0.4%    ($25,615)
    Dist. of Columbia                                     $9,518        0.13%      $34,291         0.5%    ($24,773)
    Florida                                             $221,903        3.06%     $495,839         6.7%   ($273,936)
    Georgia                                             $239,517         3.3%     $243,770         3.3%     ($4,253)
    Guam                                                 $17,392         0.2%       $3,904         0.1%      $13,488
    Hawaii                                               $61,037         0.8%      $36,936         0.5%      $24,101
    Idaho                                                $59,389         0.8%      $37,003         0.5%      $22,386
    Illinois                                            $153,964         2.1%     $307,767         4.1%   ($153,803)
    Indiana                                             $102,858         1.4%     $145,484         2.0%    ($42,626)
    Iowa                                                $142,218         2.0%      $67,353         0.9%      $74,865
    Kansas                                              $249,034         3.4%      $65,855         0.9%     $183,179
    Kentucky                                            $140,451         1.9%      $97,031         1.3%      $43,420
    Louisiana                                           $203,972         2.8%     $106,388         1.4%      $97,584
    Maine                                                $40,463         0.6%      $31,580         0.4%       $8,883
    Maryland                                             $14,673         0.2%     $163,148         2.2%   ($148,475)
    Massachusetts                                        $46,335         0.6%     $169,539         2.3%   ($123,204)
    Michigan                                            $145,763         2.0%     $212,378         2.9%    ($66,615)
    Minnesota                                           $153,885         2.1%     $118,125         1.6%      $35,760
    Mississippi                                         $321,278         4.4%      $66,750         0.9%     $254,528
    Missouri                                            $143,583         2.0%     $143,845         1.9%       ($262)
    Montana                                              $88,774         1.2%      $25,215         0.3%      $63,559
    Nebraska                                            $129,163         1.8%      $41,711         0.6%      $87,452
    Nevada                                               $32,845         0.5%      $69,280         0.9%    ($36,435)
    New Hampshire                                        $11,617         0.2%      $36,248         0.5%    ($24,631)
    New Jersey                                           $53,218         0.7%     $248,888         3.3%   ($195,670)
    New Mexico                                          $113,284         1.6%      $48,248         0.6%      $65,036
    New York                                            $342,968         4.7%     $480,589         6.5%   ($137,621)
    North Carolina                                      $177,591         2.4%     $225,632         3.0%    ($48,041)
    North Dakota                                        $102,314         1.4%      $16,438         0.2%      $85,876
    Northern Mariana                                      $2,619         0.0%         $806         0.0%       $1,813
    Ohio                                                $134,569         1.9%     $259,335         3.5%   ($124,766)
    Oklahoma                                            $249,812         3.4%      $78,444         1.1%     $171,368
    Oregon                                               $99,608         1.4%      $89,978         1.2%       $9,630
    Pennsylvania                                        $149,006         2.1%     $307,789         4.1%   ($158,783)
    Puerto Rico                                         $111,977         1.5%      $69,074         0.9%      $42,903
    Rhode Island                                          $8,925         0.1%      $24,456         0.3%    ($15,531)
    South Carolina                                      $145,463         2.0%     $110,601         1.5%      $34,862
    South Dakota                                        $107,595         1.5%      $19,168         0.3%      $88,427
    Tennessee                                           $139,598         1.9%     $157,946         2.1%    ($18,348)
    Texas                                               $519,860         7.2%     $518,620         7.0%       $1,240
    Utah                                                 $39,323         0.5%      $55,550         0.7%    ($16,227)
    Vermont                                              $25,282         0.3%      $18,062         0.2%       $7,220
    Virgin Islands                                       $18,152         0.3%       $5,136         0.1%      $13,016
    Virginia                                            $117,918         1.6%     $209,307         2.8%    ($91,389)
    Washington                                          $140,092         1.9%     $155,701         2.1%    ($15,609)
    West Virginia                                        $70,784         1.0%      $49,119         0.7%      $21,665
    Wisconsin                                           $176,478         2.4%     $125,210         1.7%      $51,268
    Wyoming                                              $54,917         0.8%      $15,103         0.2%      $39,814
    ----------------------------------------------------------------------------------------------------------------
    Total                                             $7,256,372                $7,443,782                ($187,410)
    ----------------------------------------------------------------------------------------------------------------
    * Estimated contributions include an administrative cost of approximately $187 million.

        The Chairman. I thank you, Mr. Jones.
        If I might start--I spoke in my opening statement about
    opposition to reform. And there's no question there's going to
    be that. And I decline to glorify it, because I think it's
    useless for the modern world that we seek. Those that benefit
    from the existing system will want to keep the status quo. That
    will be the case.
        But the status quo is not acceptable. Too many areas in
    this country are untouched by universal service support,
    requiring their consumers and businesses to do without the
    broadband access they need. That is not fair.
        I have been served in the state that I represent by endless
    numbers of companies, large and small, all of whom promised to
    be able to deliver, to get to every single last person, and
    then they'd show you maps if you really asked for them, and
    they were pretty embarrassing. They were pretty embarrassing.
    And I have to say that--it's nothing personal--but Verizon has
    an ad out on wireless service, a TV ad. And I see it about two
    or three times a day, I guess. And it's most interesting that
    the only totally white place in the entire country, that is
    uncovered, is a place called West Virginia. I can't help but
    notice that. And I think that's accurate.
        So, my question to you all is this: What are the essential
    attributes of something called a fair system? I'd like to hear
    from all of you.
        Ms. Abernathy. Mr. Chairman, I think the essential
    attributes are that the support is targeted to the truly high
    cost areas; that there is accountability to document how you're
    spending the money; and that there's a real world recognition
    that, because these are high cost areas that can't support
    multiple competitors, that some entity is going to benefit, in
    the sense that it will provide service there. But you can't
    support multiple entities. It doesn't work that way. That's why
    these are the least dense, highest-cost parts of the country.
        But I think it has to be targeted, and you have to be
    accountable for it. And then you have to be willing to accept a
    level of regulation, because you're getting government funding.
        Ms. Dillon. I will build on that. I would say that, to me
    also, fairness means that the role of wireless is recognized as
    much as wireline, because, as we know, there's plenty of parts
    of this country and your state where companies like U.S.
    Cellular really focus on making sure that the rural consumer
    has access to wireless voice, and, in the future, data. And,
    you know, our concern in terms of fairness is that the current
    proposal really dramatically reduces funding to wireless in a
    way that just doesn't dovetail with how consumers and
    businesses are--what the needs are today and in the future.
        So, in our estimation, accountability is critical. We're
    not asking for wireless funding to go higher than it's been
    historically, but at a minimum, to not go dramatically lower.
    Because if it does, I think the consumer is the one who pays
    the price there, because, while it's important to have both,
    it's important to have fixed mobile access, but it's also very
    important for people, as they leave their homes and travel and
    go to work, that they also have the ability to communicate
    wirelessly.
        The Chairman. Thank you.
        Mr. Powell?
        Mr. Powell. Senator, I would agree with those comments. I
    think a fair system is one that focuses on un-served consumers
    and not rural companies, per se.
        I think that if you understand that the program, at its
    heart, is a cost subsidy program--we ask all Americans to pay a
    burden in order to achieve a national social aim of universal
    availability--that we must make sure that you have fiscal
    constraint and restrictions in the system that demand no more
    money than necessary, the kind of efficiency that will, at
    least, keep to a bare minimum what those in Senator Kerry's
    state are asked to pay in order, to the benefit of people
    living in another state.
        We can't emphasize enough the importance that we attribute
    to competitive focus. Let companies do what they do best, fight
    for the business of consumers. And let the benefits that
    history has demonstrated flow from those competitions be a part
    of any plan.
        And finally, we will be very unfair in our system if we
    don't recognize the enormous value that the technological
    innovation path is on, as you referenced in your opening
    remarks, and as Senator Warner talked about the speeds.
        When we do this, we better ensure that we're incenting
    investment in the kind of architecture and technological
    platforms that will grow and migrate and innovate, so that all
    consumers have an opportunity to benefit from the kinds of
    thing that are in the personal technology section of the New
    York Times.
        The Chairman. Thank you. Ms. Bloomfield.
        Ms. Bloomfield. Mr. Chairman----
        The Chairman. I have about 10 seconds left.
        Ms. Bloomfield. I would be remiss if I didn't tell you that
    you have Hardy Telephone Cooperative in Lost River, West
    Virginia----
        The Chairman. I do.
        Ms. Bloomfield.--that has had 99.4 percent broadband
    penetration for the past 3 years. And what they have done is,
    they have not given capital credits out over the last 4 years,
    because their Board has decided that any money they have, any
    resource they have, goes into building fiber to their
    subscribers.
        And that's a lot of the spirit that you get with some of
    these companies. So, I did want to note that you do have a
    coverage area in West Virginia.
        But, too, to answer----
        The Chairman. They're the Green Bay Packers of
    telecommunications.
        [Laughter.]
        Ms. Bloomfield. We agree. And you picked the right team, by
    the way.
        Also, just, you know, a couple of the things that, in terms
    of answering your question--carrier of last resort obligation
    is really important. It basically says if you're getting USF
    funding, you've taken on the obligation that you are going to
    provide service to every one of those subscribers out in that
    area. You're not going to cherry pick; you're not going to
    take, you know, the area where you've got a population base.
    You're going to provide service to the entire area. And that's
    going to be very important.
        You also have to make sure--I think one of the
    accountability factors that would be valuable is for USF to go,
    when folks receive USF, that that funding go to that service
    area, that it becomes very targeted in that area, instead of
    companies receiving USF support and no accountability in terms
    of where it goes.
        And the last point that I would make is sustainability. You
    know, infrastructure is not something you throw into the ground
    and walk away and hope that you're able to continue to meet
    consumers' needs, business needs, public safety needs. It's a
    living, breathing network that needs continued investment.
        The Chairman. Thank you.
        Mr. Jones?
        Mr. Jones. Since time is out, I'll keep this short. Just
    four points: Reasonable and comparable. I think you mentioned
    it. We don't want to create a rural/rural divide, or a rural/
    urban divide. Rates should be reasonably comparable as we move
    into the IP architecture and the broadband world.
        Interconnection: Systems need to be interconnected. And
    there are always disputes that are raised among carriers.
    Remember, this is not a tax-based system. This is a carrier-
    based system. Michael makes a good point about perhaps the
    equity of that. But it has always been a carrier-based system.
    So, when disputes come up on terminating, originating, and all
    these other things, state commissions have played that role.
        Consumer complaints is another one. Consumers should have
    one body close to the ground, we think, in the states where
    they can go and complain to. This is a very complained about
    industry.
        The last thing is the contribution mechanism. For whatever
    reason, Chairman Genachowski decided to keep the contribution
    mechanism out of this proposal. If you want to make it fair to
    all Americans, instead of paying 14 percent, 15 percent on
    interstate toll, you could put a charge per either telephone
    number or IP address, or whatever. And that, in my opinion,
    would make it more fair.
        The Chairman. I thank you all.
        And Senator Hutchison?
        Senator Hutchison. Well, I thank you. Mr. Chairman, I have
    to say, I think you really covered the waterfront. Asking the
    sort of simple question ``What's fair to the whole group?''
    really answered a lot of the questions I would have asked.
        I'll just, I guess, go micro a little bit here, and ask Ms.
    Bloomfield--I have said that I think the intercarrier charges
    that phone companies pay each other need to be reformed, but
    gradually. My question to you is, what impact do you think that
    would have on rural communities if the intercarrier regime is
    too abruptly reformed, and there's not an absorption time?
        Ms. Bloomfield. That's a great question. Thank you very
    much, Senator.
        There's really three places where these carrier get their
    funding from. One is the customers. One is from other carriers,
    you know, carrier-to-carrier compensation. And one, typically,
    is USF reform, in terms of rural carriers that we represent.
        Intercarrier comp is a big portion of that. So, as you talk
    about reform--and it's one of the things that we have been
    brought to the table, in terms of USF and ICC reform--is that
    we are agreeable to reform. We are agreeable to taking those
    rates down. That will mean a financial hit for our companies.
    They'll definitely have to figure out ways to kind of make up
    some of that. It may slow down some future investment. But we
    knew that was the only way to actually achieve real reform and
    find any kind of consensus.
        So, the most important thing for us will be that that
    transition be thoughtful, that it be slow enough that companies
    have the opportunity to figure out how they're going to adjust.
        And one of the proposals that we submitted to the FCC gives
    us about a six or seven, 8-year glide path, so that companies
    can adjust as the reform kicks in and as the rates go down, so
    you can kind of find that balance at some course through the
    process. But a flash cut would be incredibly detrimental, and I
    will tell you, it will again halt all broadband--you know, a
    lot of broadband investment.
        Senator Hutchison. Mr. Powell, welcome, in your new----
        Mr. Powell. Thank you.
        Senator Hutchison.--and different capacity.
        You are not a big user of the USF Fund right now. You've
    mostly gone into the urban areas, the cable companies, I mean.
    But I would just like to ask you how you envision the cable
    industry's role in bringing more broadband out into the rural
    and high-cost areas?
        Mr. Powell. Well, thank you for your question.
        I would emphasize the first thing you said, which is, we do
    reach 93 percent of households without subsidy. And we're very
    proud of that.
        If you think about cable's roots, where did we come from?
    We began in rural America. You know, Comcast was founded in
    Tupelo, Mississippi. Many cable companies have their original
    roots in rural America, because their original purpose was to
    bring television service to communities that could not receive
    service from broadcast transmissions. So, we have presence in
    many parts of the country, and look for opportunities to extend
    what is now a bundled service network to more parts.
        I would also say that, while the headlines may be big
    companies that are centered around urban areas at times, we
    have lots of members of our company who are very much, just as
    much a part of the fabric of rural America. We have cable
    companies as small as Dick Sjoberg's company that is serving a
    town with 67 people in it in rural Minnesota. He has a small
    number of the 30 homes available, and is offering up to 11
    megabit-per-second speed. So, we do have companies that provide
    those services in that part of the world.
        I think the fundamental challenge is what we would always
    agree, we all agree here--the areas that are harder to serve
    are hard to serve because they're uneconomical. And if the
    Federal Government is going to direct subsidy to turn what was
    otherwise uneconomical into economical, I think our companies
    would have a strong interest in having a fair opportunity to
    provide that service as well.
        Senator Hutchison. Thank you.
        I would just say, Mr. Chairman, I think the key here is
    going to be trying to get the Universal Service Fund to be
    technology-neutral and allow everybody to, at least, try to
    participate, and give the most service and the most options
    into these rural areas. Because certainly Texas has a number of
    them. You do. And, we don't have broadband service everywhere
    in Texas yet. I've been to a lot of places where I can't use my
    BlackBerry. So, I hope we can at least provide insights into
    the FCC's proposals.
        And you know, I think we could act in this area if we
    wanted to. And if we didn't like what the FCC was doing, we
    have, you know, a little bit of leverage with the Congressional
    Review Act. So, I hope that we can all work together to do what
    we think is best.
        Thank you.
        The Chairman. It's interesting--before I go to Senator
    Warner--this is not a delaying tactic. It was brought on by the
    Ranking Member of this Committee. The thought popped into my
    head and it's going to pop out.
        Actually, the FCC was not thrilled about the thought of our
    having this hearing. And I had that conversation with the
    relevant folks. And I said that I think it's very important
    that, in fact, it happen. And there was a worry--- Well, what
    would happen then if we did it? Wouldn't that mean that the
    House would do it? And all of that strikes me as kind of
    missing the point.
        What we're all saying here is that we're very much behind
    what is going on at the FCC, and the incredible effort that
    they're making over a long period of time, without a full
    complement of commissioners, to put forward something in the
    relatively near future. And so, what I wanted to emphasize was
    that I think this kind of thing is very important. They should
    hear each other; they should hear us.
        Senator Warner?
        Senator Hutchison. If you would just permit me, on that
    point, to say I support what they're doing in this area. If
    they would just stick to the things that we've authorized them
    to do----
        [Laughter.]
        Senator Hutchison.--rather than go into other areas which
    we haven't, I'd be supportive, too.
        Thank you.
        [Laughter.]
        The Chairman. It's all yours, Senator Warner.
        Senator Warner. On that note----
        [Laughter.]
        Senator Warner.--let me at least say I completely agree
    that--and I want to thank the chair for holding this hearing.
    This is a really important focus. And I agree with the Ranking
    Member as well, in terms of how we get this--technology-
    neutral, and in a competitive way--out to literally millions of
    Texans, Virginians, Washingtonians, West Virginians, maybe even
    a few Alaskans, you know, who don't have this broadband service
    yet.
        And let me also say to my friends from the wireline side up
    there that, you know, I think it's great that you all have
    started an approach that has suggested some areas of agreement.
        I've got three questions, though, on the ABC Plan. You
    know, I agree--and I hope that the, you know, with a limited
    amount of money, $4 billion--we haven't even talked about how
    we're going to cap, or not, the High Cost Fund, and the delta
    between $23 billion and $55 billion, in terms of what we need
    to build out--we have to use these dollars effectively and
    efficiently, number one.
        Number two, we should make sure that we don't sprinkle it
    around so much in an underserved area that we don't get quality
    service to that, if not 100 percent, close to 100 percent of
    the potential customer base receives service.
        So, I get the idea of what was behind your, you know,
    incumbent right of first refusal if you've got 35 percent built
    up. But it seems to me a pretty blunt instrument, and frankly,
    not within the spirit of competitiveness.
        One of the questions I've wondered is, you know--since we,
    you've talked about a 35, if you've got to hit that 35 percent
    service threshold, you get a right of first refusal--you know,
    why not let the market play out a little bit more? Why not let
    any competitor come to the table, if they've got an ability?
        And if there needs to be a way to at least acknowledge
    previous investment, rather than just having this arbitrary
    right of first refusal that would then allow 10 years of
    support in a 5-year build-out schedule, why not have some kind
    of sliding scale that said, OK, we're going to, you know, if
    you can get up to 90, 95 percent penetration of coverage in 3
    years, we'll give you, you know, some greater ability in terms
    of a reverse auction point system? So, some way to give you
    some advantage for your capital that you've already invested.
        But if there is a wireless or cable or satellite or other
    technology, I just don't think being the incumbent alone should
    give you that right of first refusal.
        So, Ms. Abernathy and Ms. Bloomfield, if you want to take
    that?
        Ms. Abernathy. Thank you, Senator.
        The issue really had been how do we most efficiently, and
    quickly get broadband deployed to these markets where there is
    no one else other than the incumbent provider today? These are
    the areas that no one else is serving.
        So, the only infrastructure in place today is the wireline
    infrastructure; and, even with our existing infrastructure, it
    needs to be subsidized in order to ensure ongoing deployment of
    broadband.
        So, clearly, the thought was, we'll get it there faster
    than if you go through and try to design an auction process.
    And we've already accepted carrier of last resort obligations.
    We've already accepted the quid pro quo for the funding, which
    is, we have to report; we have service metrics; we have to
    deploy within a certain timeframe. We've accepted all of that
    regulatory framework that goes along with the support.
        So, in the interest of, here's the way you can get it there
    the fastest, you do, in effect, sacrifice the more, you know--
    do you want to have an auction? It will take longer.
        And so the interest was, let's get it out there. And these
    are areas that no one is serving anyway, other than ourselves.
    So, it seemed like a reasonable compromise.
        Senator Warner. Let me see if Ms. Bloomfield wants to
    answer, because I just, I've got a couple other questions.
        Ms. Bloomfield. Well, let me clarify, Senator Warner, that
    the RLEC Plan does not have a right of first refusal. So, that
    is the plan that is carrying the price cap companies.
        But in terms of the one of the points that you raised
    about--wireless is really important, because I think more and
    more consumers see wireless and wireline services as really
    complementary services to one another. And I think one of the
    things that gets lost a little bit in the technology
    discussion--and you can probably draw the diagram as well as
    anybody--is the fact that you actually need a wired network to
    do the backhaul.
        And we can talk about, you know, what is the right speed?
    What is the right data capacity? And we know how much that data
    capacity and the desire is growing. But you can't do it without
    a wired network.
        You know, you talk about fiber to the home. Some of those
    facilities and that plant in the ground is what allows the
    wireless providers to actually a lot of the services they do,
    as well.
        So, in terms of technology neutrality, that's an important
    thing to keep in the back of everybody's head as we----
        Senator Warner. Well, it would raise the issue, though,
    that, if you've got that last mile wireless----
        Ms. Bloomfield. Mm-hm.
        Senator Warner.--and you predesigned a cap on the wireless
    side, it may not be the way--again, if we trying to--how do we
    get the service there the quickest?
        And I know my time has expired. I'm going to take 30
    seconds more. Is that all right?
        Just the fact that, as someone who, you know, personally
    lost a lot of money in the late 1990s on CLEX with the promise
    of interconnection, that, with some of the incumbents, never
    came to pass, I do think--and Mr. Jones has already raised this
    point--the failure to have in the ABC Plan--or somewhere in
    this, I hope the Commission would have--is really clear
    interconnection requirements, so that whoever is providing this
    service, they can interconnect back into the network. It is
    terribly important.
        And I would only just also like to mention--and I know that
    I won't get a chance to it get answered--but the ABC Plan, I
    understand, actually offers a lower access charge for IP
    connectivity than for traditional service. And doesn't that, in
    effect, have the incentive reversed? Because doesn't that mean
    that if we wanted everybody to move to Voice-over-IP, and we
    want to move to an IP protocol, that if we've got a lower
    access charge versus conventional service--who's going to want
    to upgrade their system if they're going to actually decrease
    their access charge reimbursements?
        Ms. Abernathy. They actually reconcile over time--the
    interconnection charges--so that you're not advantaging or
    disadvantaging either.
        Senator Warner. I may wait for a second round. Thank you,
    Mr. Chairman.
        The Chairman. You're welcome.
        Senator Cantwell?
        Senator Cantwell. Thank you, Mr. Chairman.
        Mr. Bloomfield, we're obviously hearing a lot at home about
    the issue of rural areas and the failure to connect, or long
    delays. And obviously, people here have already talked about
    Least Cost Routing as a potential cause of that problem. And I
    know that you've encouraged the FCC to take action on this.
    They're holding some sort of a hearing or something----
        Ms. Bloomfield. Workshop, next week.
        Senator Cantwell.--workshop next week.
        To the best of your knowledge, do you think the
    intercarrier compensation reforms in the ABC Plan would address
    this issue?
        Ms. Bloomfield. The FCC's perspective is that because the
    access rates are high, that is what's causing the Least Cost
    Routing, and creating this problem where the calls are simply
    not terminating in these rural markets. And----
        Senator Cantwell. So, I mean, I'm just asking you, does the
    plan address it? And if not, should it?
        Ms. Bloomfield. Oh. I--you know what? I, the plan does
    address it, because intercarrier comp rates go significantly
    low. They go to .0007 in a six, seven-year time frame. So,
    there's a significant drop.
        The thing that I worry about with arbitrage is, somebody's
    always clever enough to come up with the next scheme to, kind
    of, come around and do, you know, what is the next call
    termination issue?
        So, while yes, I do think this will be part of the
    solution, I think there's going to be another issue. You know,
    as with everything, once you kind of squeeze the balloon,
    something else pops out somewhere else.
        Senator Cantwell. Right. So, what would you do? Because
    obviously, having a plan that wouldn't really solve the problem
    for rural communities----
        Ms. Bloomfield. Well, I think, you know, one of the things
    that's really important that we're finding right now is that
    our carriers don't even know who to go to. So, one of the
    things that the FCC did a few weeks ago is, they put up on
    their website, you know, if you're having issues with these
    different carriers, who to call. I mean, it's that basic first-
    step problem of, you know, calls aren't coming through. I don't
    know who to go to in these different carriers. So, that has
    been the first step that they have done.
        I think the second step will be next week when they have
    this workshop, because it will be having all of the folks
    around the table. And it will be what--they're really setting
    it up as a discussion for coming up with solutions to this. You
    know, what are some answers? What are, you know, are there
    significant carriers that are the biggest problem area? How do
    you actually resolve some of this?
        So, I hope that by the end of next week we actually have a
    little bit more of a clear path forward. And we'd certainly be
    happy to circle back to you at that point in time.
        Senator Cantwell. OK.
        Commissioner Jones, will Washingtonians be better off under
    the Universal Service Fund in these compensation reforms, along
    the lines of the ABC proposal?
        Mr. Jones. It's difficult to tell right now, because we do
    not understand the model properly. And what the ABC Plan
    proponents are advocating before you on the Hill is an
    incomplete picture.
        I attached to my testimony an appendix that shows the total
    net flows--high cost support for price-capped rural carriers,
    and the competitive, you know, the wireless CETCs. So, that's
    what you have to look at.
        Under the price-cap carriers, yes, we may be advantaged to
    some extent. But if we do not have some jurisdiction over VoIP,
    and the traditional carriers like Frontier and CenturyLink
    switch traffic, or a larger amount of traffic, to the IP
    network, we may not have the ability, as Senator Warner says,
    to deal with the interconnection issues, the consumer complaint
    issues, because the Federal Government will have exclusive
    jurisdiction over that. So, in that sense, I think we would be
    worse off.
        Ms. Dillon. Chairman, can I add a point? Can I add
    something to that? Which is, I just want to say that I think in
    the state of Washington, which is a state that U.S. Cellular
    operates in, that consumers would be worse if the plan is
    adopted as currently worded, because the funding to wireless
    and the ability to reach the rural communities that we would
    want to reach and further expand in Washington would be
    hampered.
        And you know, if the right of first refusal is activated,
    that further, you know, hampers our ability against a smaller
    fund to even go in and provide service. And I think that, you
    know, for the price-cap carriers or the wireline carriers, if
    they get the funds through right of first refusal, they could
    still use that to build out a wireless network. So, you know,
    that may or may not happen.
        But I know that given the way that the wireless companies
    like U.S. Cellular look at rural communities, they would be
    hurt in that scenario.
        Senator Cantwell. So, Commissioner Jones, does it make a
    difference that the FCC is not, obviously, reforming the
    contribution mechanism at the same time it's reforming the high
    cost distribution mechanism?
        Mr. Jones. I think it does, but I think it's a remedy that
    we can address later. We were hoping--especially some of my
    state members--were hoping we could do it all at once. Chairman
    Martin, the previous chairman, put it in his plan, as you know,
    at the end of 2008. And that was almost passed. I think
    Commissioner Copps and Commissioner McDowell were actively
    involved in discussion of both contribution and disbursement.
    But for whatever reason, they've chosen not to put that in.
        So, I would prefer that it be dealt with now. But the
    issues of how to assess contributions, the IP issues, are
    somewhat complex. So, I think they can be dealt with later.
        Senator Cantwell. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Cantwell.
        Senator Pryor, to be followed by Senator Ayotte.

                     STATEMENT OF HON. MARK PRYOR,
                       U.S. SENATOR FROM ARKANSAS

        Senator Pryor. Thank you.
        Ms. Bloomfield, let me start with you, if I may. Regarding
    the ABC Plan, and I guess the consensus plan as well, there is
    this right of first refusal that is in the proposal. What--and
    I'm just not as familiar with it as you are--but, what is the
    time-frame for an incumbent carrier to determine whether
    they're going to exercise their right of first refusal?
        Ms. Bloomfield. And Senator Pryor, I don't mean to be
    passing the buck, but the RLEC Plan does not have a right-of-
    refusal proposal in it. So, Ms. Abernathy is probably better
    situated to answer that question than I am.
        Senator Pryor. Good. Good.
        [Laughter.]
        Senator Pryor. Down the table we go.
        [Laughter.]
        Ms. Abernathy. Here we go. OK. I'm looking at the
    timeframe.
        I believe the way it works, though--and I'll have to be
    clear on this--is that you have within the first year of--well,
    it depends on how the FCC ultimately adopts the plan.
        Senator Pryor. Right. Sure.
        Ms. Abernathy. But if there is a right of first refusal,
    there would be a period of time where the model would first
    identify the very high-cost areas where there is no competition
    today, so the only infrastructure is wireline infrastructure.
    And you would calculate that service area, and determine
    whether or not you want to provide service to that territory
    with the support mechanisms that the revised USF funding
    program would offer. And you would have to either take the
    money and build out; or you could say that you're not going to
    take the money, and then it could be opened up to auctions.
        Senator Pryor. And so, is there a time frame, though, in
    the ABC proposal?
        Ms. Abernathy. There is a time frame in the ABC proposal.
    But what I don't know is exactly how the FCC is going to----
        Senator Pryor. And do you remember what your time frame is?
        Ms. Abernathy. I think within the first year of generating
    the model and adopting the program, you would have to identify
    if you're going to take the money.
        Senator Pryor. And then, what happens if you, say you want
    the right of first refusal, but then you end up not deploying
    broadband? What happens? Is there a ``use it or lose it''
    provision?
        Ms. Abernathy. Well, you know, there's certainly--
    traditionally, the FCC would have fines and penalties and
    reporting obligations. Certainly, under the plan, you would
    have to demonstrate that you're using the support to build out
    and to deploy broadband. And it would be that way whether you
    use an auction, or whether you get a right of first refusal.
    You would have to demonstrate that you're, in fact, building
    out and offering the services within the time-frame that's been
    proposed.
        The big issue is the cost, and how quickly you can deploy
    to some of these high cost areas to get to your complete
    coverage over a period of time. Because it won't flash cut in 1
    year to complete coverage. It'll take a multi-year process,
    because you'll be investing capital investment.
        Senator Pryor. All right.
        And so let me ask--this kind of goes to that. On Senator
    Rockefeller's question a few moments ago about fairness, he
    asked about, you know, fairness and how do you define that? And
    you mentioned accountability. And that's part of the fairness
    that you think we ought to have.
        Ms. Abernathy. Mm-hm.
        Senator Pryor. Does the accountability, in your mind,
    include the quality of the service that's being provided and a
    commitment to improve the technology over time? Or is
    accountability just a one-time expenditure, and once you put
    something in, you've put it in?
        Ms. Abernathy. Well, under the wireline world in which
    Frontier lives, accountability is every year, every month
    reporting on the quality of our service, how quickly we put
    things back when they go down, service metrics, unbundling
    obligations. So, we live in a world where we report and
    identify the quality of our service all the time.
        The issue that is, I guess, the unknown is, the ongoing
    investment to continue, continually bring up to the next----
        Senator Pryor. Right.
        Ms. Abernathy.--level of service. It's hard for us, as
    we're building right now in all of our territories, to know
    exactly where we need to take it. But every year, we ask
    ourselves that question--Are we delivering the right speeds and
    the right services to our customers?
        Senator Pryor. Thank you.
        Mr. Jones, let me ask you a question about the mandatory
    preemption that's in the ABC Plan. And you talk about how
    consumers in Washington State would be hurt by that.
        Give the Committee, if you can, a few examples of how you
    think that might actually hurt consumers in your state.
        Mr. Jones. One of the traditional issues in examining
    intercarrier comp proposals is to look at consumer benefits,
    consumer welfare. The ABC Plan proponents put out a paper on
    consumer benefits.
        But a lot of that hinges on how the carriers price long
    distance services and how they bundle. And as you know, a lot
    of these services are bundled, sometimes with cable VoIP,
    wireless, wireline service. And it's difficult I think for
    consumers to understand how much of the reduction in
    intercarrier comp charges--and make no mistake. AT&T and
    Verizon, and the other long distance carriers, are going to
    save billions--hundreds of millions of dollars by going to
    .0007 or some similar rate.
        So, but it's difficult to see what the consumer benefits
    are going to be. And so that's one of my issues, is, Washington
    State consumers, if you're talking about large, consolidated
    companies that have substantial market power, that can bundle
    services and not break it out--as the Chairman said, it's kind
    of difficult on a line item basis to see. You know--
    intercarrier comp is going to .0007; my bill's going down?
        The other thing is consumer complaints. We just don't think
    that shifting consumer complaints about billing, service
    quality, to the FCC in Washington, D.C., instead of Little Rock
    or Olympia, Washington, is a good thing. It takes longer.
    They're going to be inundated with consumer complaint issues.
        So, those are just two issues I would raise.
        Senator Pryor. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Pryor.
        Senator Ayotte?

                    STATEMENT OF HON. KELLY AYOTTE,
                    U.S. SENATOR FROM NEW HAMPSHIRE

        Senator Ayotte. Thank you, Mr. Chairman.
        Chairman Powell, I wanted to follow up with you on Senator
    Warner's question that Commissioner Abernathy answered, with
    respect to replacing the right of first refusal with a reverse
    auction. I'm a strong advocate for this process to be
    competitively and technologically neutral. So, as you're aware,
    when we talk about what the commissioner said in terms of how
    long it would take to implement an auction, can you help us
    understand how do you think that process would work, if the
    Commission chose to go in that direction, as opposed to this
    right of first refusal?
        And how long do you think that would take, in terms of
    moving forward to address getting down to the user level of
    where consumers in New Hampshire might have greater access to
    broadband?
        Mr. Powell. You know, as best as I've understood the ABC's
    consensus plan participants' principal talking point that, you
    can't do competitive bidding because somehow it will take too
    long, as measured against what, you know, decades of not
    serving these communities; and that somehow the competitive
    bidding process is some order of magnitude worse.
        I think that's an exaggerated argument. First of all, it
    downplays how complex and how time-consuming it's going to be
    to even build the first refusal model--the FCC computer model
    that's going to determine these areas.
        It also ignores the fact of what the Commission is going to
    have to do, design an auction process anyway, because there
    will be carriers who don't exercise the first refusal. They
    won't have the luxury of doing one or the other. They'll have
    to be prepared to have an auction system in any event, for
    areas that won't be subject to this particular model; and, even
    in the cases of the model, when people choose not to do it.
        The Commission is the probably the best expert in the world
    on auctions. I think it has more technical expertise and
    capability and experience than any other regulatory body on the
    planet. I have every confidence. They have been tasked numerous
    times to develop competitive bidding processes for everything
    from wireless to other kinds of auctions. And I just think
    that, at the end of the day, being hasty and being efficient
    for the long term are two different things.
        And I think that the loss of ability and the sanctioning of
    a monopoly model over the efficiencies that are gained by
    competition over time are not worth the couple of extra
    months--even if I were prepared to concede that, which I'm
    not--that might be gained by first refusal over a competitive
    process.
        Senator Ayotte. Thank you.
        Ms. Dillon, I wanted to follow up. Thank you for taking the
    time to come in and meet with me yesterday.
        As a follow-up to your testimony, when we met yesterday,
    one of the things that really kind of shocked me when I delved
    into this further was that my state, New Hampshire, is
    contributing to the Universal Service Fund $25 million per year
    more than we are receiving back. And in a state of 1.3 million
    people, that's a lot of money.
        So, what steps do you think the FCC should take to ensure a
    more equitable distribution of the Universal Service Funds to
    those unserved households in each state?
        Because in my state, there is a very significant part of
    northern New Hampshire that doesn't have full access to
    technology. It would enhance our economic development in that
    area. And so, when I look at this number and I think, wow,
    we're giving $25 million more back to other people, so that New
    Hampshire consumers are paying in, that's really shocking to
    me. So, I'd just love to get your thoughts on that.
        Ms. Dillon. Sure, absolutely.
        Senator Ayotte. If anyone else has any insight, I'd
    appreciate it.
        Ms. Dillon. Yes. I was going to say, I bet there are some
    experts here. I'm kind of the new kid on the block in the
    industry. I'll tell you, that is one of the things that has me
    scratching my head, too. It doesn't really make a lot of sense.
    And I certainly know that is, the FCC is looking to reform USF.
    The more fair distribution to states I'm sure is part, I know
    is part of the agenda. I'm sure there's others here who can
    speak more specifically to what would be the right way to get
    at that. But I think that's a great opportunity for the reform
    that's on the table.
        Senator Ayotte. Mr. Jones, did you have something you
    wanted to add?
        Mr. Jones. Well, I don't mean to be humorous here, but we
    are not--you live in a relatively small state, and fairly
    densely populated. States in the west--Montana, Wyoming and
    others--are less densely populated. They have great expanses.
        So, it's just a fact of the way we've designed the system,
    to support carriers in high cost areas, that states like yours,
    and Massachusetts and others, have traditionally been net donor
    states. And then other states are net recipient states. And
    that is probably an issue of fairness that we've been grappling
    with, with this program for decades.
        And it gets back to, I think, when the Congress and FDR
    developed the Rural Electrification Service and Rural Telephone
    Service in the 1930s and 1940s. These were Federal appropriated
    funds. And the country decided to do this, to extend service
    out to these rural areas. And obviously, there was a cost
    proportionally more to people in your state than in the state,
    in these vast expanses in the west. And that's beyond my pay
    grade. That's more of your decision.
        Senator Ayotte. I just want to be clear--any of you that
    come visit New Hampshire, I'd like you to come to the northern
    part of our state.
        Mr. Jones. OK.
        Senator Ayotte. Ninety percent of the population lives in
    the bottom half of the state. So, the other half of the state,
    the top half of the state, where some wonderful people live, my
    constituents, basically they don't have full broadband access.
    They are under-served in many ways. So, it's tough for me to go
    home to my constituents and say, we're donating $25 million and
    we should keep doing this. So I hope that the FCC will take up
    this issue.
        Ms. Bloomfield. And Senator, if I could just add, that's
    where I think the carrier of last resort obligations will
    actually be pretty powerful. Because what they will say is, if
    you're getting USF support, you must build out, and
    particularly as it transitions to a broadband fund, you must
    build out in those areas.
        So, I think you'll see--again to that point of
    accountability. It has the potential to shift where some of
    those resources are spent.
        Mr. Powell. And Senator, if I could just add, one thing you
    might focus on, that I think is always challenging--and you
    want the FCC to get right--is whether the targeted areas are
    sufficiently granular that they will pick up remote parts of
    your community and not be swept in by some more populated
    density that's within the jurisdictional boundary.
        That's part of what goes wrong with this program all the
    time--that it doesn't change the life of the citizen in rural
    northern New Hampshire who doesn't have the service, but in a
    sense is being penalized, because they're being captured by a
    study area or a area in the model that sweeps in other, more
    dense populations.
        So, I think the more granular the FCC can be in the way
    that it targets the program, the better the chances are that
    you get a, quote, fairer share of that support.
        Senator Ayotte. Thank you.
        The Chairman. Thank you, Senator.
        Senator Begich, and then Senator Thune.

                    STATEMENT OF HON. MARK BEGICH,
                        U.S. SENATOR FROM ALASKA

        Senator Begich. Thank you very much, Mr. Chairman. And
    thank you for holding the hearing.
        When you made your comment about the one carrier, you
    weren't--your picture of your map was all white, not the red--
    we, we're not on the map, just so you know. We don't have that
    service at all.
        [Laughter.]
        Senator Begich. So, I want to make that point, because
    that's interesting--when you look at the data, you know, 1
    percent of the country is not served by wireless--almost 15
    percent of Alaska. So, when I hear Senator Ayotte talk about
    New Hampshire, which is about the size of this little bit of
    Alaska--no disrespect to New Hampshire----
        The Chairman. Senator, please be respectful to New--
    [Laughter.]
        Senator Begich. I am. I just pointed out the size of
    Alaska. I always----
        The Chairman. One of the states, one of the original
    states.
        Senator Begich. That's right. And I always like to--on my
    business card, instead of putting Alaska by Baja or down by
    Mexico, I put it where it's in proportion to the rest of the
    country. And you can kind of, you see from here.
        [Laughter.]
        Senator Begich. Probably people in the back can see it.
        The reason I bring that point up is, Alaska--when you talk
    about high cost delivery system, there's no state--maybe Hawaii
    because of its location and so forth.
        So, I guess I first want to get a general comment from each
    one of you. Do you--and I, you know, absolutely, I'm parochial
    and biased about this, because anytime someone says reform, it
    usually means a state that's just become a state in less than a
    little over 50 years, doesn't have the infrastructure, like a
    New Hampshire or West Virginia, Arkansas, Minnesota. We're
    building our infrastructure for the first time.
        How do you view--and it is a leading question--How do you
    view Alaska in comparison to these national plans? I mean, it
    is a very unique and different place.
        And I'll start from here and kind of move down, if that's
    OK. Because, I guess my point is--and also, with tribal lands,
    we're much different than the lower 48. We don't have
    reservations. We decided to take a different route, which has
    actually been more beneficial for the first people of our
    state, economically, socially, educationally, many other
    avenues. So, I think we've done some things that have actually
    proved to be right.
        So, how do we address the high cost when they start capping
    or limiting capacity for landline as well as wireless, in the
    sense of what they can utilize from the Universal Service Fund?
        Ms. Abernathy. Thank you, Senator.
        The FCC has always traditionally treated the insular areas
    and Alaska, Hawaii, separate and apart from what this plan
    would focus on, because, frankly, designing a plan for the
    other states just would not work in Alaska.
        I know Chairman Powell and I had the opportunity to visit
    Alaska when----
        Senator Begich. Right.
        Ms. Abernathy.--we served on the Commission. And until
    you've been there, you fail to appreciate the challenges. So, I
    fully expect that the FCC will have a totally separate program.
        Senator Begich. And, do you agree with that?
        Ms. Abernathy. I do agree with that.
        Senator Begich. OK.
        Ms. Abernathy. Absolutely.
        Ms. Dillon. Yes, I'm not as familiar about what the FCC
    plans as a separate program. I would just say that, you know,
    the whole spirit of Universal Service funds is to make sure
    that people have access to the technologies that they need.
        And you know, in a state like Alaska, you know, all the
    more so I think that the need for wireless technology--and even
    if there's not lines, but we also have plenty of licenses in
    areas that we use microwave technology to move, you know, the
    signal from tower to tower.
        So, you know, I think it's in the spirit of why I feel
    strongly that wireless, as part of this equation, needs to be
    adequately funded, whether it's for any part of the United
    States where service is still required.
        Mr. Powell. Senator, I'd just say quickly, I always knew
    that it was different. I didn't fully understand until I spent
    10 days there. And, it is a remarkable environment, but one,
    from a communications standpoint, if you throw it into the
    average, will always break. It can't be treated, it just can't
    be treated in the common, run of the mill approach to the
    average of the Nation in that way. It's one of the reasons why,
    when we submitted our amended version of the ABC Plan, we just
    carve out Alaska. And it should be addressed uniquely.
        And by the way, the Commission always has flexibility to
    deal with outlying situations----
        Senator Begich. Right.
        Mr. Powell.--and they should. I mean, I think any plan that
    wouldn't provide the Commission the legal flexibility to make
    exceptions around the edges would be a mistake.
        Two other points I'd make real quickly--and this is to
    Alaska's benefit--the reason it's so important to get financial
    control of the program is so that the money is used in the most
    needy of areas, and it's redirected from areas that need it
    less so.
        And so, you know, I think it's in Alaska's interest, and
    most rural states' interests, to make sure that there's a
    fiscal efficiency in the program.
        And then finally, I would say the beauty of the technology
    revolution is that it's built new tools and put them in our
    toolbox to solve hard problems. Alaska is a multi-technological
    problem. The idea that you'll solve----
        Senator Begich. Challenge, we like to say.
        Mr. Powell. Challenge, challenge, OK. Opportunity.
        Senator Begich. There you go.
        Mr. Powell. But it's just the reality. You want wireless.
    You want wired. You want wireline. You want satellite. You want
    anything that the wizards of technology can invent that change
    the fundamental economics of serving those communities. And
    that's why we think technical neutrality is so valuable in the
    program as well.
        Senator Begich. Sure.
        Ms. Bloomfield. So, as you know, Senator, we represent a
    lot of carriers in Hawaii and Alaska----
        Senator Begich. Right.
        Ms. Bloomfield.--and some of the very tribal areas. And we
    are really hopeful that the FCC will find a way to craft, for
    those carriers of last resort in those areas, a path forward,
    and a way to do it without necessarily taking away from other
    rural consumers.
        And I think one of the things that would be really helpful
    would be to have those carriers in Alaska and Hawaii, as a
    matter of fact, come into the FCC and really open up their
    books and show their costs.
        Senator Begich. Mm-hm.
        Ms. Bloomfield. Their costs are very unique. Their
    infrastructure is very unique. Come in and show those. And I am
    very hopeful that the FCC will figure out a way to kind of
    carve a different path, and kind of address those different
    challenges that those carriers actually face.
        Senator Begich. Very good.
        Mr. Jones?
        Mr. Jones. Alaska is not only unique, but it's a good
    business partner of the State of Washington.
        Senator Begich. We know that.
        Mr. Jones. And we have many--we know GCI. We know your
    fiber networks well. And we also know the unique needs that you
    have. And I think most of your needs are met under the rate-of-
    return, the restriction on removal, the rate-of-return carrier
    plan that was submitted jointly on July 29th. It pretty much
    makes them whole.
        And I haven't been an FCC commissioner like Michael and
    Kathleen. But my understanding is that they always make
    exceptions for remote and insular areas, and recognizing those
    unique needs.
        Senator Begich. Very good. Thank you very much.
        Thank you, Mr. Chairman.
        The Chairman. Thank you. And congratulations on your
    extensive explanation of Alaska, and how it belittles every
    other state.
        [Laughter.]
        The Chairman. Indeed, the United States itself is barely
    visible.
        Senator Begich. We just like to make the point.
        The Chairman. I see. OK.
        Senator Begich. Thank you, Mr. Chairman.
        The Chairman. Senator Thune, and then Senator Klobuchar.

                     STATEMENT OF HON. JOHN THUNE,
                     U.S. SENATOR FROM SOUTH DAKOTA

        Senator Thune. Thank you, Mr. Chairman.
        And hearing about the distinctiveness of Alaska explains
    the distinctiveness of Senator Begich. I think that's a----
        [Laughter.]
        Senator Begich. Please note, I did not mention your state
    in a comparison.
        Senator Thune. Yes, yes, yes. Thank you. I appreciate that.
        I, too, want to thank the Chair and the Ranking Member for
    having today's hearing. This is an issue that's important to a
    lot of us that represent rural areas. And South Dakota isn't as
    rural as Alaska, but we have lots of people who have an
    expectation, I think, and many of us have become accustomed to
    using home computers and mobile devices to pay bills, make
    purchases, conduct business and just communicate.
        And it's essential in a knowledge-based economy that we
    have broadband service. In fact, it's become an absolute
    necessity. So, I, I'm enthusiastic about the substantial growth
    that we've seen in the telecommunications sector of our
    economy, but it's concerning that we still have areas in the
    country that are un-served and that lag behind the rest of the
    U.S. population. And I hope that--it's very important, in my
    view, to ensure that the FCC enacts USF reforms that help give
    all Americans, including those in rural areas and tribes,
    access to broadband service.
        And Senator Klobuchar and I, a month ago, wrote the FCC,
    basically expressing general support for the ABC Plan, that it
    was a good framework for U.S. reform, and that it's achieved a
    remarkable level of consensus on an issue that's very complex,
    and which sometimes defies a, you know, a consensus of that
    type.
        So, it's not a perfect solution, but we think it would be
    unfortunate that if, that that consensus, after having been
    reached, after so much difficult negotiation, get destroyed as
    a consequence of making the perfect the enemy of the good.
        So, anyway, I would just like to pose a couple questions,
    if I might today, to a couple of folks on the panel.
        Mr. Powell, I know your organization's voiced opposition to
    the plan's proposed right of first refusal. And I know you've
    addressed some questions about that today. But I'm interested
    in knowing what your thoughts are about tailoring the ABC Plan
    to take into account the cable industry's concerns, but still
    permit a right of first refusal. Is there a middle ground that
    the cable companies would find acceptable with regard to that
    issue?
        Mr. Powell. Well, I would reiterate that we generally still
    oppose right of first refusal under any modification, because
    we think, at the end of the day, we still should be given a
    fair opportunity to compete.
        We do think, though, we have proffered, at the request of
    the Commission, alternative proposals that we would find, you
    know, more palatable.
        For example, the current approach in the ABC Plan would
    allow for right-of-refusal for a company that serves 35 percent
    or more of an area. We believe if the public interest is to
    bring architecture and infrastructure to areas that have
    previously been unserved, it should be--it's upside down. It
    should be the other way. If you serve less than 35 percent, and
    you get the right of first refusal, then at least the public
    benefits by you assuming an obligation to serve the remainder
    of that unserved area, as opposed to receiving a subsidy for an
    entire area in which you already are substantially currently
    serving.
        I can get you the specific details of the proposal we
    submitted. But that was one thing offered in the spirit and at
    the invitation of the Commission, to try to find compromise on
    that point.
        Senator Thune. At the end of the day, though, doesn't the
    cable company--cable industry, I should say--benefit from
    achieving a reasonably acceptable result with respect to USF
    reform, rather than having no result at all, or even
    maintaining the status quo?
        Mr. Powell. Oh, absolutely. And we've said repeatedly that
    we agree with a huge percentage of the ABC Plan. We've said 70,
    75 percent. Who knows how to exactly measure it? And in fact,
    the plan that we submitted to the Commission in August, late
    August of this year, we dubbed the ``amended ABC Plan''.
        We've been very disciplined to try to focus on four or five
    issues, discrete issues that are specifically important to the
    industry, and to champion the importance of this opportunity to
    reform the system.
        I don't think anyone at this table believes otherwise.
    Missing this opportunity would be a disaster. I do take issue
    with the idea that if the ABC Plan is not adopted in whole, in
    a ``take it or leave it'' fashion, that that's the only path to
    an acceptable result.
        Senator Thune. For Ms. Bloomfield or Ms. Abernathy, we've
    had some who have argued that USF should not be used to support
    universal broadband, but rather, used for other purposes, such
    as deficit reduction. And I'm interested in knowing--can you
    explain the importance of providing USF support to deploy
    universal broadband to un-served areas?
        Ms. Bloomfield. I would be happy to take the first crack at
    that, Senator.
        USF is really the only tool that has gotten initially even
    communication service out to these very remote areas. So, it's
    one of those things, when you look at some of these very high-
    cost areas, where you've got no business model that you can
    possibly come up with that would lead you to deploy this
    infrastructure, then you take it the next step, to a broadband
    infrastructure, that becomes exponentially more expensive to
    do.
        So, the concern that we've got is a couplefold in terms of
    USF and the Federal budget. First of all, as we've kind of
    discussed during the course of this panel, these are funds that
    go between different carriers. So, it isn't money that is on
    budget. It isn't money that is in the Treasury. It is carrier
    to carrier support.
        So, to take that, and then to turn it into a public debt
    issue, it's really, you know, you're basically taking from
    different pots and you're essentially creating a brand new tax
    on consumers. So, I think that becomes kind of a philosophical
    budgetary issue.
        But the other thing is that as you talk about universal
    service and you talk about unserved areas--these areas rely on
    USF funding to actually get the service. And you look at South
    Dakota as a perfect example of that. And you know, you talk
    about taking that support away, and I have to be very frank
    with you, I'm not sure what kind of business model you could
    actually create to provide any communication service, and what
    kind of enticement you would have to have anybody come out
    there and actually put infrastructure and plant in the ground
    in some of the remote--you know, western South Dakota is a
    pretty tough business model.
        So, we do think it is absolutely critical to ensure that
    you have affordable and sustainable broadband.
        Senator Thune. Thank you.
        Ms. Abernathy. USF is critical for getting service--both
    phone service to these markets, and then, now, transitioning in
    to broadband services. And the reality is, these are markets
    where there will be a subsidized provider. And there will be
    one subsidized provider, unless we have so much money that we
    feel like we can subsidize two or three. And I don't think
    that's the way it's intended.
        So, the challenge is, who gets the subsidy, and how you get
    the deployment out there as quickly as possible. And that's
    what this plan focuses on--targeting the resources; making sure
    that broadband is deployed quickly; and making sure that
    whoever is providing service in that market has carrier of last
    resort obligations, because that carrier will be the only
    provider there. You can't afford two.
        You can--right now, the only one there are the phone
    companies--because we have USF, and because we've been able to
    use that money to deploy. So, as you transition to broadband,
    you've got to have USF. It's just not going to happen
    otherwise.
        Senator Thune. OK. My time's expired.
        Thank you, Mr. Chairman. Thank you.
        Senator Begich [presiding]. Senator Klobuchar?

                   STATEMENT OF HON. AMY KLOBUCHAR,
                      U.S. SENATOR FROM MINNESOTA

        Senator Klobuchar. Thank you very much.
        Thank you to all of you.
        I was just hearing from our pork producers--ready for this
    one? There's hog rustling going on. I don't know if you know
    this--hundreds of pigs being stolen because they're so
    valuable. They are so frustrated because they don't have
    broadband so they can monitor the pigs like, nanny-cam type
    thing. I will just say, it's one example.
        Other ones that are more obvious: tourism in northern
    Minnesota. We can't compete with the Canadian resorts, because
    they are not able to book as quickly, or their customers aren't
    able to use them. We have major companies, ADCO in Jackson,
    Minnesota, a thousand employees, thanks to some early projects
    they did down there and some of the stimulus money we've been
    able to connect a number of these companies--Toro--and get
    better broadband.
        But I'm just convinced every day that this is the key for
    these areas, so that these jobs keep strong in the rural parts
    of our state.
        And I guess my first question would be about the, just,
    bizarre situation we have right now, where one group, one town,
    one small county will have broadband, because of how the
    Universal Service Fund has been set up, but then, literally,
    their neighbors across the way won't have it.
        And I understand that there have been incentives in place
    that have created that situation. I blame no one exactly. I
    just want to get it fixed.
        And so I wondered how you feel that this, the current
    reform effort, will level the playing field, and if there are
    other things that we should consider as we look at how we make
    a level playing field.
        If one or two of you want to answer?
        Ms. Abernathy?
        Ms. Abernathy. Certainly, under the ABC Plan, the idea, if
    the model works as we believe that it will, is to target the
    support to the areas that are not being funded today, and to
    target the support to the customers, not--as Chairman Powell
    said--not to a company, but to customers in an area. And then,
    whoever is serving that area will provide service.
        And right now, these high-cost, low-density areas are
    served by the wireline companies. And there's nobody else who's
    shown up over the years, because, frankly, it's uneconomic.
        So, I think that you've got to target the resources more
    efficiently to the right high-cost areas. Because, as the fund
    works today, because of historical anomalies--you're exactly
    right--you can have two communities, neighbors, and one is
    getting sufficient support, and one is not getting sufficient
    support. And we struggle with that every day at Frontier,
    because we have so many rural markets, we have a pot of money,
    and we've got to try and figure out which ones will get support
    and which ones won't.
        Ms. Dillon. Can I add to that, Senator Klobuchar?
        Senator Klobuchar. Yes.
        Ms. Dillon. First of all, you asked about leveling the
    playing field. And you know, there's plenty of states--we
    operate in 26 states. And much of the geography is rural. Much
    of it is, we're there because we are able to both put private
    capital and USF support for wireless.
        And I'm sure that what you're talking about for your state
    is fixed and mobile. I mean, those hogs probably need to be
    tracked wirelessly, right? As they're wandering around.
        Senator Klobuchar. Who knows?
        Ms. Dillon. But anyway, so, the notion----
        [Laughter.]
        Senator Klobuchar. We're going to go GPS, I think.
        [Laughter.]
        Ms. Dillon. But the, you know, I just want to be clear that
    there--you know, there was a comment made earlier from the
    Senator about consensus around the ABC Plan. The gap in our
    mind is really--it's not about reform, which we agree with.
    It's not about if there's a role for wireline and wireless; but
    to take wireless dramatically down. I think most people, when
    they think about broadband, they're going to think about both
    fixed and wireless. And that would be a more level playing
    field.
        Senator Klobuchar. The importance of wireless having a role
    here is, you see more and more of it.
        Ms. Dillon. Yes.
        Senator Klobuchar. If any of you----
        Ms. Bloomfield. So, the only other thing I would add,
    Senator, is that, one of the things that's a little bit in
    conflict is that we are working really hard, as we've put
    together these reform proposals, to stay within a controlled
    budget. I mean, it's very clear that the FCC, and certainly
    Congress, are very concerned about the size of the Universal
    Service Fund. So, you're kind of conflicted with, you know, all
    of the things you would like to do on an aspirational level, in
    terms of broadband deployment, and then what you can do from a
    practical perspective.
        One of the things I think the consensus framework does
    pretty effectively is addressing some of that rural/rural
    divide, that, how do you have two rural towns where you may
    have one that is served by an NTCA member or small telephone
    company, who actually has been a USF recipient, and they have
    3,000 subscribers. So, they do a pretty darn good job of making
    sure that they've got good services and good customer service,
    and they're very responsive, because that is their customer
    base. That's their community. How do you then help those other
    companies that also provide service in a rural area, but, you
    know, also have different areas they have to be competitive,
    like the City of Chicago, or Denver, or some of those other
    challenges?
        So, that's where I think the consensus framework really
    tried to address, how do you do this with a very limited pot of
    money? How do you do it so that the fund doesn't grow
    exponentially? And how do you get as much service out there as
    possible?
        Senator Klobuchar. Mm-hm.
        Mr. Powell. Senator, one thing, just a point of
    clarification. One of the things that's gone wrong with the
    program--and this is going to end up being a commendation to
    this commission's leadership. All we subsidized in the past is
    voice.
        Senator Klobuchar. Mm-hm.
        Mr. Powell. It's been a voice network subsidy program. Now,
    what's been allowed is a certain amount of using that money to
    build a network that has multiple purposes. The multiple
    purposes have included broadband to some degree. But as a
    technical matter, that goes beyond the scope of what's being
    funded.
        So, you get these anomalies in which carriers use their
    funds in one way----
        Senator Klobuchar. Right.
        Mr. Powell.--versus a carrier who used them another way.
        What I do think shouldn't be lost about the big change in
    time in this program is that we're now going to explicitly
    focus on the criticality of broadband as a 21st century
    infrastructure.
        And for all of this complicated stuff we all have got to
    whack through, that's really what shouldn't be lost. We've
    reached a moment in time and history in which the voice network
    is important and has served us well, but it is not where we
    need, it's not the ship we need to be in to go into the future.
    And I think this is an invaluable first step in that journey.
        Senator Klobuchar. All right.
        One last, Mr. Jones?
        Mr. Jones. Mr. Powell makes a good point. The FCC's policy,
    even though its voice in the Act, in Section 254, the ETCs that
    we designate and oversee have been deploying broadband over DSL
    networks for years. We all know that. So, it's--and the FCC has
    had a policy that its voice support. But if you can promote
    advanced services in these areas, go and do it.
        So, the state commissions have been very cognizant of this.
    When we review the ETCs every year, they bring in their plans.
    And they all talk about how much broadband they're deploying.
        And it kind of creates--to get back to my point--it creates
    kind of level of discomfort and potential loopholes for states
    and the Federal Government, because we don't regulate, or, we
    have jurisdiction over these services per se, because of the
    FCC's lack of action in classification.
        But point of fact, on the ground, we're looking at the
    carriers when they come in and saying, northern Minnesota, put
    a little more--wouldn't it be good if you get a little more
    broadband up here.
        So, it's a strange, outdated situation that needs to get
    fixed.
        Senator Klobuchar. All right. Very good.
        Thank you to all of you.
        Senator Begich. Thank you.
        Senator Boozman.

                    STATEMENT OF HON. JOHN BOOZMAN,
                       U.S. SENATOR FROM ARKANSAS

        Senator Boozman. Thank you, Mr. Chairman.
        I thought you said, Senator Klobuchar, pig wrestling,
    instead of pig rustling.
        Senator Klobuchar. No, I said rustling.
        [Laughter.]
        Senator Boozman. That's a Minnesotan accent.
        Senator Klobuchar. I said it with a Minnesota accent. But
    the pig wrestling could be really interesting.
        Senator Boozman. Yes. Exactly.
        [Laughter.]
        Senator Boozman. I was thinking, you'd want wireless to
    take the photos. Very good.
        [Laughter.]
        Senator Klobuchar. Thank you for clarifying.
        Senator Boozman. Thank you.
        I want to thank you all. This has been a good hearing. We
    appreciate you being here.
        I'd just like to kind of clarify a few things, and just ask
    a couple questions.
        Ms. Abernathy, under the ABC Plan, would carriers be
    eligible for funds from both the Connect America Fund as well
    as the Mobility Fund?
        Ms. Abernathy. If the carrier provides both wireless and
    wireline services, and you served one of these designated high-
    cost areas--yes. But I think it's unlikely that you'd have both
    a wireline and a wireless in these last, hard-to-serve parts of
    the country. I'd find that highly unusual. But I suppose, in
    theory, yes.
        Senator Boozman. Thank you.
        Ms. Dillon, you said in your testimony that $300 million--
    $300 billion for a Mobility Fund is not enough; that you
    estimate the size of the fund should be $1 billion. Given that
    it's not likely that the FCC is going to go that far, is there
    a compromise in there?
        Ms. Dillon. Well, let me step back and say that, you know,
    even at a billion, that's a reduction from where the Mobility
    Fund is today. And I think as, and we have as a mid-size
    carrier risk around our ability and others like us to continue
    to build out using that support at any level----
        Senator Boozman. OK.
        Ms. Dillon.--if, in fact, you know, that fund can be tapped
    into, you know, on the price cap side.
        So, actually, what we're advocating is for a separate
    Mobility Fund. And, you know, I would say that even a billion
    not only is less than today, but doesn't really complete the
    job. So, I don't know what the right answer is. Certainly
    anything more than $300 million is moving in the right
    direction. But less than a billion is really not going to get
    rural America to 4G wireless.
        Senator Boozman. OK.
        Anybody else want to comment on----
        Mr. Powell. You know, you would assume the cable industry
    is all about wired, but, you know, we also are holders of
    spectrum, and also look at creative business plans that would
    allow us to use wireless functionality in parts of the country
    where you could extend your wireline network.
        I would say one more thing, because I think it's come up a
    lot, this importance of COLR. First of all, to be clear on the
    record, I think the cable industry is more than happy to sign
    up for every obligation that would be required to serve these
    communities. That shouldn't be a reason to disadvantage us.
        But as a plug for wireless, if you ask the average American
    consumer, if you had to get rid of every last service, then
    what would be the one you would most desperately rely on in a
    crisis or a hurricane or a storm, it would include wireless.
        And I think that, at the end of the day, I don't know the
    right number for them. And I don't know the right number for
    us. But I know that any system that doesn't take account for
    the way that the consumers want to embrace and use and rely on
    communications is a terribly missed opportunity for universal
    service reform.
        Senator Boozman. Yes, ma'am?
        Ms. Abernathy. Just to add one data point. The wireless
    amount that's been set aside under this proposed plan is 10
    times what the National Broadband Plan thought was necessary
    for wireless mobility. Under the FCC's National Broadband Plan,
    $300 million was the total. And under this ABC Plan, it's $300
    million per year for 10 years. So, it is a much larger revenue
    stream for wireless than was ever envisioned by the FCC in its
    National Broadband Plan.
        Senator Boozman. OK. Thank you.
        Let me ask a little bit about the Lifeline program. That's
    something that's been under fire lately, and lots of concerns
    about.
        Let me ask you, Ms. Abernathy, can you tell me how many
    duplicative claims for Lifeline support were initially found
    receiving benefits in your entity?
        Ms. Abernathy. I know that we're still going through to see
    if there's a lot of duplication. I don't believe we had a lot.
    And I'll get the final number for you. Because it's easy to
    track on a wireline basis.
        I think the duplication arose because you would fund both a
    wireless and wireline phone for a particular family member, and
    that's where the challenges and the duplication came.
        Senator Boozman. There may be some duplication from all--
    individuals duplicating with other carriers, which is another
    separate problem.
        Ms. Abernathy. Correct. Which is unfortunate, and I think
    needs to be corrected. But having observed what the Lifeline
    plan can mean for certain individuals, I don't want to throw
    the baby out with the bath water. I think the important thing
    is to reform and improve Lifeline and Link Up, because it is
    important especially in these difficult economic times. But the
    duplication needs to be addressed.
        Senator Boozman. Does anybody else want to comment?
        Yes, sir.
        Mr. Jones. Senator, this is a big issue in our state. We
    have--I'm in the minority on this with my fellow commissioners.
    I voted against it. But we have a number of prepaid--these are
    not the postpaid carriers, but the prepaid--carriers who have
    come in and sought, and gotten support for, the Lifeline/Link
    Up program.
        We--I can't mention names--but we had one carrier who, we
    authorized them for 1 year. And then we said we would do an
    audit to see how much duplicative support was done, because we
    have our state-based wireline Lifeline program, as well as the
    Federal program. And of course, that was against the rules to
    apply to both and receive support from both. And we found
    substantial duplication, because, as you know, it's a self-
    certification program. The states don't have an adequate data
    base. The FCC does not have an adequate data base.
        So, it is a real problem, because the Lifeline/Link Up
    Program is growing dramatically. So, we applaud the FCC for its
    notice of proposed rulemaking. And they're getting at it.
        But this is a difficult issue, because you need state
    cooperation. You need probably a Federal data bank where you
    can key in these applicants when they apply, so it's no longer
    self-certification, but there's some government check, where
    you can see that they're not receiving duplicate support.
        So, it's under investigation in our state.
        Senator Boozman. Good. I think that's helpful.
        I mean, as you said, Ms. Abernathy, there are people that
    genuinely benefit from the program. There is a finite amount of
    money. And so we want to ensure that that money that we do
    designate towards is going to the right people. So, we
    appreciate your study.
        And again, I think any input that you can give for all of
    us--it's to all of our benefit to make sure that the system
    does have integrity.
        Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator Boozman.
        Senator Warner, you have some additional questions?
        Senator Warner. Absolutely.
        Well, let me, first of all just, commend Senator Boozman
    for his questions on this Lifeline issue. I think we all will
    concur this is a--particularly during these challenging times--
    a needed program.
        But I have been, it's come to my attention, as I'm sure it
    has yours, not only some of the duplications but some of the,
    you know, I guess robust marketing--how's that for a
    politically correct term----
        [Laughter.]
        Senator Warner.--you know, that has been going on in some
    of these areas, which--in some cases, even here in this, the
    District, you know--are not necessarily target, what you would
    think would be the targeted community, and with glaring print
    that says, while there is self- certification, none of this is
    reported.
        And so, not seeming to me to be the right way to send the
    right message. So, I thank my colleague for raising this.
        I, you know, we had last left off on interconnection. And
    my hope would be, particularly as we--let me come back again to
    my wireline friends, but also, to a degree--you know, if cable
    is going to be the provider, for that matter, or wireless
    provider--you know, don't you think we need some requirement in
    this universal service reform to make sure that there is clear,
    understandable, and timely interconnection?
        Because if, you know, building out this network, whomever
    it may be--if the incumbent then slows down the interconnection
    ability, you know, you can put a lot of capital to work that
    looks good on paper, but never gets then into service that
    folks need.
        So, anybody want to address some of those issues?
        Ms. Bloomfield. I would just say, Senator, that there
    really is no incentive for our carriers to not do
    interconnection. I mean, the more robust--the more options you
    have for your consumers, the more robust the network is. So, I
    don't really see interconnection as being a huge issue for our
    segment of the industry.
        Senator Warner. So, you would then not have a problem with
    if there was a requirement of robust interconnection----
        Ms. Bloomfield. Among all carriers.
        Senator Warner.--amongst all carriers, at a competitive
    rate, within a certain timeframe, and if suddenly--you know,
    again, not to show my post-1996 scars, when I was in the
    private sector. But if, you know, suddenly the incumbent
    carrier always had some reason or another why they just
    couldn't get to it right then and there----
        Ms. Bloomfield. Right.
        Senator Warner.--you might even, you wouldn't mind your
    side of the business, a timeline and----
        Ms. Bloomfield. Absolutely. I think that would be very easy
    to live up to, and I think, from a consumer perspective, would
    be very important. So, no, I don't see that as being an issue.
        Mr. Powell. Senator, if I could?
        Senator Warner. Everybody can. I'd love to get everybody--
    --
        Mr. Powell. If I could, one issue that we have, that is
    evident in the ABC Plan, is an issue that is related to
    interconnection, which is tandem switching services.
        Under the ABC Plan, the largest incumbents have made a play
    for having those kinds of connective services be deregulated in
    markets that we're strongly concerned still desperately depend
    on good regulatory overseeing--interconnection and traffic
    distribution networks. Otherwise, we could be left in a
    situation of having to either replicate that at great expense,
    or not have an adequate number of competitive alternatives to
    keep those rates reasonable if they're otherwise not regulated.
        So, one of the items and issues that we've put on the
    record is similar to the line of a concern you're raising, and
    that's with respect to tandem switching in the ABC proposal.
        Senator Warner. Ms. Dillon and Ms. Abernathy?
        Ms. Abernathy. I guess I would point out that today the
    wireline companies are the only ones that are subject to
    unbundling. And we do this and none of the other competitors do
    this. None of the other competitors would think about, sort of,
    sharing their network with their competitors. This is what we
    do. We interconnect with other competitors. This is the world
    in which we live and the way in which we're regulated. And it's
    just the way it is.
        And as I said, I think it comes along with when you take
    Federal Government dollars to provide certain services, there
    are obligations that go along with them. And those obligations
    include carrier of last resort. They can include unbundling.
    They can include performance metrics. They include reports,
    accounting safeguards. We do it all.
        Senator Warner. So, again, that would, I would take, then
    again, that as a sign that whatever USF reform came to place,
    having a requirement for timely interconnection, you know,
    yes----
        Ms. Abernathy. I think that will happen anyway. But if the
    parties think that it needs to be regulated, we're used to
    regulation.
        Senator Warner. I was very current, circa late 1990s. So,
    I'm, you know, I'm no----
        [Laughter.]
        Mr. Jones. Senator, there's something that we've done. As
    you know, Section 251 and 252--the issue is not so much
    interconnection as, what happens when the carriers don't agree
    on terms and conditions? As you know, sometimes the incumbents,
    as Kathleen said, don't want to open up their network. So, if
    there's a dispute, where does it go? Does it go to the FCC?
    Does it go to the state commission?
        Under 251 and 252, we think we do that pretty well, in a
    timely way. We usually complete our arbitration disputes within
    9 to 12 months. I think the FCC takes a little bit longer.
        So, if you want to give that to us, we'd be happy to take
    it. But we do have this jurisdictional issue.
        We have arbitrated some disputes with some of Michael's
    companies, cable, VoIP issues like directory listings and, you
    know, different parts of interconnection. But formally, they
    aren't subject to our jurisdiction. We, I think we carry out
    those dispute arbitrations, you know, for the benefit of the
    network. And we do it. And so we could do it here too.
        Senator Warner. Can I ask another, Mr. Chairman?
        And I'm not sure whether--I apologize. I had to step out
    for a couple other calls. But have of our colleagues gotten
    into the question of capping the growth of the fund at any
    point or----
        Senator Begich. Off and on, members have mentioned and
    talked about it. But if you want to go into it, it's OK.
        Senator Warner. Yes. I just was, just curious. I mean, you
    know, we all know that USF has grown to over $8 billion. We all
    know we've got, you know, this high cost--which most of
    conversation has been about today--a little over $4 billion.
        We also know a lot of our consumers. And I, like, probably
    many of the states, have got consumers that pay in more than we
    get back. And there is some notion of shared responsibility on
    this.
        But I'd be curious--and recognizing again we've got that,
    you know, I think one of you all mentioned there's a study that
    said on the low end, $20 billion plus to build out broadband
    availability close to 100 percent. I mean, I think that's still
    relatively slow. You know, we've probably get a delta more
    between 20 and 55. Twenty-three and 55 are the numbers I'm
    using.
        You know, what would all expect or anticipate? And should
    we cap the fund, the High Cost Fund? What should it be? What
    would it look like in 5 to 10 years, recognizing we've got, we
    really are going to have this need for this public support to
    make sure that all our folks get broadband services?
        Ms. Dillon. Well, I'll start. You know, the $10 billion to
    $20 billion that I quoted was through the lens of wireless, and
    bringing 4G wireless throughout the United States, and more for
    fixed, obviously.
        And, you know, we--I think the notion of----
        Senator Warner. I liked your subtlety with that more for
    fixed comment.
        [Laughter.]
        Ms. Dillon. Yes. The--well. The, anyways, the notion of
    reform, I think, on the table, is capping the fund, which, you
    know, we don't have a problem with. It's really, I think, the
    balance of what is in that fund and how it's allocated.
        So, you know, I hate to be a broken record, but I think the
    balance of most of that fund, if it stays at $4.5 billion,
    shifting to fixed versus wireless, just sort of doesn't--flies
    in the face of where the world is heading.
        So, it's not, I mean, it doesn't need to be an either/or.
    And the fund should be capped, given that we, you know, that's,
    I think that's the responsible thing to do.
        Senator Warner. Others want to----
        Ms. Bloomfield. I'd love to chime in.
        So, one of the things the 1996 Act really set out was that
    USF should be specific and predictable, and it should be
    sufficient. And I think that is actually a part of the law, as
    it stands today.
        And I think one of the things about a cap is, how can you
    ensure that you are actually meeting your legislative mandate
    if you have a cap on the program? And one of the things--you
    know, if you look at the High Cost Fund, it's 4.2-some billion
    dollars.
        And you think about--when I listen to everybody talk about,
    you know, the infrastructure of Kathleen's companies, and
    certainly the companies in Washington State that Phil works
    with, you know, when you think about the broadband deployment
    that's been done with, you know, $4.2 billion, I mean, it's an
    amazing job that has been actually accomplished with a very
    limited amount of resources that have been allocated toward it.
        And that's only, you know, the High Cost Fund is only half
    of the entire USF. You've got Schools and Libraries. You've got
    the Low Income. You've got Rural Health. So, you've got a lot
    of other pieces out there.
        So, I think that, again, part of it comes down to what you
    all as policymakers want to try to achieve. A cap I think would
    be stifling. It certainly would not go, fit in with the 1996
    law itself.
        And I think that, you know, one of the things we have done
    in terms of our reform proposal is, we have proposed a very
    small growth factor--2 to 3 percent on an annual basis. What
    that will allow in the rural carriers that we provide service
    to--40 percent of the land mass of this country, is the ability
    to build and sustain those networks.
        I, you know, I think a two to 3 percent growth rate on an
    annual basis is actually very small and gets you a lot of bang
    for your buck.
        Mr. Powell. You know, one thing worthy of noting for the
    record--and Shirley mentioned other Universal Service Programs.
    Every other part of the Universal Service Program is capped.
        Schools and Libraries is a worthy, notable objective, put
    in place in the Universal Service System by Congress in 1996,
    and it operates under a cap, even though demand exceeds supply.
        At the end of the day, when you have a Federal program
    that's paid for by the American consumers, some degree of
    fiscal constraint--and not suggesting that a word like
    sustainability can mean an infinite level of growth, at the
    expense of consumers, is not a fair balance, in our judgment,
    of the various equities between both the burdens associated
    with the program and the benefit.
        The Rural Health Care program is also capped. A lot of the
    industries that object to the cap today were more than happy to
    have the cap imposed on competitive ETC carriers and wireless
    when the fund was growing.
        Caps shouldn't be done bluntly or without some predictive
    judgment of need. But the notion that a program of this
    magnitude, of this size, involving the American taxpayer,
    without meaningful enforcement of fiscal restraint, seems to
    me, in this day and age, a big mistake.
        Ms. Abernathy. I would point out that the ABC Plan is built
    around a $4.5 billion fund. It's not built around any growth in
    the fund, because that was one of the mandates that came down
    from the FCC, as far as what we want to look at and what we
    want to consider.
        And it may be less some years, more other years. But it's
    supposed to stay right in that framework. And I think it's a
    challenge. But you have to be fiscally responsible.
        Senator Warner. One last--I just am curious. And this is--
    and obviously, wireless has been very, very good to me, you
    know. So--but I, and I understand your concerns from the
    wireless side. We're at, you know, you're at $1.2 billion right
    now. The notion on the ABC is about $300 million.
        But the whole notion of kind of carve outs, even for
    something that has been as successful as wireless has been--- I
    just wonder how we square that if we're going to also continue
    to think we want to be technology-neutral.
        Ms. Dillon. Right. Well, the plan that's being considered
    is not technology-neutral. It disfavors wireless, because it
    takes wireless down. So, we're just asking that wireless--we
    recognize it's probably going to be somewhat down, but not down
    to the point that it's incapacitated.
        So, to me, that makes it more technologically neutral, to
    bring it up to something that's more workable.
        Senator Warner. Anybody else want to weigh in on that?
    Because, I mean--Mr. Jones, I just think that we, you know, as
    we talked about the 1996 Act when it was still telephony; moved
    to wireless; we're now talking about IP. You know, hopefully
    somebody is sitting out there who's got the next thing coming
    along. We want to make sure that we don't box that out of a
    possible deployment strategy.
        Mr. Jones?
        Mr. Jones. I just think the very nature of a cap--and as
    Michael said, it does have the--Schools and Libraries and other
    programs have caps. Caps have the discipline of wringing
    inefficiencies out of a system.
        And so, whether it's eliminating the identical support
    role, where wireless carriers are compensated on the basis of
    wireline costs--I mean, is that rational? Probably not. Is it
    rational to have multiple carriers in a study area, when you're
    limited?
        I think--so part of the process of setting a cap, I think,
    will wring some efficiencies, and the re-targeting will work.
        However, I don't think wireless should be excluded from the
    mix. Wireless can compete in certain areas. U.S. Cellular
    provides a very valuable service in our state, in some of the
    high-cost areas, to the Yakima Tribal Area. They provide
    excellent service.
        So, the trick is in the details, to try to come up with
    wringing those inefficiencies out of the system. I support a
    cap, or a budget, for the time being--I think the carriers are
    saying the word budget, not cap--because we don't understand
    all the formulas that support the rate-of-return carriers in
    particular.
        But once we understand that, let's give the budget a try.
    Let's wring the inefficiencies out of the system.
        But my challenge to you is, I think if you have a need, as
    you say, that's $10 billion or $20 billion, you have a budget
    that's $4.5 billion, and then you want to accommodate wireline,
    wireless, cable VoIP, and maybe even over-the-top VoIP, new
    technologies--it's very tough to do. So, you have to make some
    hard choices.
        Senator Warner. Again, then, thank you, Mr. Chairman. I
    would--good enough to end on it. But we, you know, as I think a
    couple comments have been made, USF reform is long overdue. But
    there is still, you know, there's, this is not all a bad story.
    This is a success story as well. And trying to just give a
    framework to make sure we get the balance of the country
    covered in a way that's fair, that provides that 21st century
    infrastructure that's so desperately, is really helpful.
        And I, you know, I know there are differing viewpoints at
    the table here. You know, but I would commend the industry of
    trying--this stuff gets very dense, very quickly, when you kind
    of get to the second and third layer down.
        But the more you all can find some commonality--and I know
    there was one of my wireline--up here, carriers came and talked
    about the fact that they didn't really realize what the
    firestorm, the right of first refusal might have set off.
        I do think there are other ways to recognize invested
    capital and how we get it out there quicker that might be more
    elegant than a right of first refusal. I do think that trying
    to get, you know, I'm glad to hear that I'm behind on
    interconnection. But, so, putting something like that in would
    be helpful, because I think there still can be challenges
    around that.
        I do--and I know we've touched on this briefly, on the
    acts, and I think Ms. Abernathy made a good comment that there
    was a transition period--but trying to make sure that we get,
    that we don't under-compensate on access charges on, you know,
    kind of next generation IP that we disincent people to make the
    technology upgrades, because they want to maintain the higher
    access charges for the, yesterday's technology, are all things
    that we hope you'll keep working on and sorting through.
        And again, Mr. Chairman, I appreciate you holding this open
    perhaps longer than you anticipated for me to get another round
    in. Thank you very much.
        Senator Begich. I'm a patient person.
        Thank you all, really, I want to echo those comments--for
    your work and your comments today, but also before, and I'm
    sure after, as we continue to work through these issues.
        The hearing record will be kept open for 7 days.
        And I would like to enter, on behalf of the Chairman, for
    the record, a statement from ViaSat, a satellite company that
    provides consumer broadband.
        [The information referred to follows:]

                       Prepared Statement of ViaSat, Inc.

        ViaSat supports the efforts of Congress and the Administration to
    facilitate the deployment of affordable broadband services to all
    Americans. We are encouraged that the FCC's National Broadband Plan
    explicitly recognizes the major improvements we are making in satellite
    broadband, as well as the role satellite can play in cost effectively
    ensuring universal availability of affordable broadband access.
        As the Senate evaluates the pending reform of the High-Cost
    universal service support mechanism, it is our hope that you consider
    the following recommendations.
    ViaSat's Credentials
        ViaSat is a U.S.-based company founded in the home of one of its
    co-founders 24 years ago. ViaSat is a leading provider of
    communications networks to U.S. consumers, enterprises, and the U.S.
    Department of Defense. We are also one of the leading providers of
    consumer broadband, enterprise and government satellite networks on a
    global basis. We invent, design and build telecommunications
    technology. Our goal is to transform the way satellite broadband
    services are provided today to homes, businesses, community
    organizations, and first responders, as well as for other national
    security purposes. We also plan to help ensure that all Americans have
    the opportunity to access quality broadband services.
        ViaSat is investing over $400 million in the deployment of a highly
    innovative new satellite network that will more than triple the quality
    of satellite broadband service in the United States (and Canada),
    resulting in quality levels and price points that are comparable to, or
    better than, many of today's terrestrial alternatives. That satellite
    is scheduled to be launched next week, and to commence service later
    this year. In 2010, we invested almost $600 million more to acquire
    WildBlue Communications, Inc., which is one of the top 20 broadband
    ISPs in the U.S., serving homes across the Nation by satellite.
    WildBlue, and its distribution partners, including DIRECTV, DISH
    Network, the National Rural Telecommunications Cooperative, and AT&T,
    will be the means by which we will deliver this satellite broadband
    technology to the American public.
        Key points:

       Focus on the consumer. The FCC estimates that an estimated
            18 million Americans do not have access to terrestrial
            broadband. The satellite broadband industry is focused on the
            needs of these Americans. We are launching a new satellite next
            week to start to meet the needs of this segment of the
            population, by providing them a high-quality broadband
            experience. We have more satellites under design, and our
            competitors are similarly targeting new satellite services to
            ``unserved'' Americans. The marketplace is responding. Any USF
            reform that distorts the marketplace risks quelling continued
            private investment in these networks, and eliminating options
            for the consumer.

       Focus on adoption. The FCC has recognized that adoption of
            broadband is one of the biggest challenges this Nation faces.
            Affordability significantly affects the rate of adoption. A
            significant focus of USF reform should be making broadband
            affordable--both to underprivileged Americans, and to those in
            rural areas whose cost of service exceeds that in urban areas.

       Do not adopt a preference for any incumbent provider. It is
            widely recognized that the current USF system is terribly
            broken. The right of first refusal (``ROFR'') mechanism in
            favor of ILECs that some have advocated would perpetuate the
            problems with the current system, and actually make things
            worse. Specifically, by making only one service provider
            eligible for support in a given geographic area, the ROFR would
            eliminate competition. The result would be even worse if, as
            proposed, the ILEC is not obligated to provide broadband to
            everyone in its service area.

       Any High-Cost support mechanism should be competitively and
            technologically neutral. Support should be distributed through
            a funding mechanism that is open to all providers, regardless
            of the technology they may use today or in the future. The
            support mechanism should eliminate the existing systematic
            biases that were developed to support traditional, wireline
            voice telephony, and should avoid creating new biases (e.g.,
            those that would flow from an ILEC ``right of first refusal'').
            If a hard ``cap'' on support is adopted, it should apply
            uniformly to all service providers--including ILECs.

       Any High-Cost support mechanism should award funds to the
            most cost-effective providers. Support should be distributed to
            the providers that deliver high-quality, cost-efficient service
            to the American consumers who contribute to the universal
            service fund. Support should not be distributed under any
            ``quota'' system that reserves funding for less cost-efficient
            providers.

       ViaSat stands ready to serve the unserved. ViaSat and other
            technology providers promote the competition that today extends
            new and innovative services to the unserved. Without robust
            competition, this will not happen any longer.

        Our recommendations:

        A far better way exists to serve the unserved and deploy support
    efficiently and without delay.

       Break down barriers to competition with market-based
            mechanisms to award support to the unserved. While we believe
            reverse auctions are the best solution, we also support other
            market-based solutions. One alternative would be to employ a
            cost model to estimate the per-line cost of extending and
            maintaining service. Take into account all technologies
            including satellite and award based upon the lowest cost
            service that meets applicable standards. All broadband
            providers in a given area should be eligible for the same per-
            line subsidy. A broadband provider should be eligible for that
            subsidy once it wins a customer in an unserved area, and only
            as long as it retains that customer. Customers should be
            allowed to change broadband providers and port the support to
            the new provider.

       Control costs by funding cost-efficient solutions and
            actually service to consumers. Today, USF support often bears
            no relationship to the lowest cost solution, or to the number
            of consumers actually served. In fact, a provider who loses
            customers to a competitor may still receive the same level of
            support. The size of the fund can be constrained by basing
            support levels on the most efficient solution, and by tying
            support to the number of customers a provider actually serves.
            Providing support on a per-line basis would provide an
            incentive to win and retain customers.

       Do not establish quotas for different technologies. An a
            priori allocation of support to different technologies would
            violate non-discrimination and technology-neutrality
            requirements. Given the significant role that satellite and
            other wireless broadband providers are playing in the
            marketplace, the proposal of ILECs to allocate only about 5
            percent of USF support to satellite and wireless technologies
            is grossly inadequate.

       An ``exit strategy'' from the existing High-Cost support
            mechanism should be developed. The legacy support and ILEC
            preferences that exist under the current High-Cost mechanism
            should not be perpetuated. A short term (e.g., three year)
            transition mechanism from the existing program may be
            appropriate, however.

        The High-Cost universal service lawmaking process should consider
    the interests of all stakeholders--including consumers, state
    governments, and public interest groups. Accordingly, we stand ready to
    work with all interested parties to develop reform proposals that
    represent a true reform and a true industry consensus, and that will
    benefit the American public.

        Senator Begich. Thank you all very much.
        [Whereupon, at 4:51 p.m., the hearing was adjourned.]

                                A P P E N D I X

                Prepared Statement of Hon. Frank R. Lautenberg,
                          U.S. Senator from New Jersey

        Since 1997, the Federal Government's Universal Service Fund has
    subsidized the cost of affordable phone service in rural areas and for
    low-income families.
        The public finances this subsidy through a surcharge tacked onto
    many customers' phone bills. Unfortunately, consumers in the most
    populous states end up paying more into the fund than others, but
    without receiving more benefits.
        For example, in 2009, consumers in my home state of New Jersey paid
    $4.68 to the fund for every dollar they got back. The state's total
    contribution that year was $248 million. Similar disparities exist in
    other states.
        The Federal Communications Commission is planning to modernize the
    Universal Service Fund, shifting its emphasis from paying for rural
    phone service to expanding broadband service to the Americans who do
    not have high-speed Internet access.
        I applaud the FCC for taking these steps. In a world where people
    increasingly go online to find jobs and engage with schools, cultural
    institutions and their government, there are many benefits to ensuring
    as many Americans as possible have the fastest possible Internet
    connections.
        However, I am concerned consumers will continue to shoulder too
    much of the cost of financing the Universal Service Fund. As the FCC
    updates the fund for the public's need in the Digital Age, one of the
    agency's primary goals should be bringing relief to consumers in states
    like New Jersey and making sure their share of the cost is not unfair.
        I urge the FCC to move promptly to reform the Universal Service
    Fund and look forward to hearing what steps the agency will take to
    address my concerns.
                                     ______

      Response to Written Question Submitted by Hon. Claire McCaskill to
                           Hon. Kathleen Q. Abernathy

        Question. What is the genesis of the ABC Plan's proposed $.0007
    rate for Intercarrier Compensation? Is $.0007 a cost-based rate for
    origination, transmission, or termination of calls (access rates) on
    the Public Switched Telephone Network (PSTN)? Are there any economic
    studies in the ABC Plan or by any regulatory body that demonstrate
    $.0007 to be a cost-based rate for termination of calls on the PSTN?
    With the proceeds from the FCCs Intercarrier Compensation reform, do
    you expect carriers receiving those funds to pass them along to their
    customers in the form of lower bills, or to invest those funds in
    broadband maintenance and deployment?
        Answer. The ABC Plan recognizes that new technologies and products
    are eating away at traditional wireline carriers' access revenues.
    Carriers are losing access lines that provide the basis for access
    charges. As a result, the status quo--relying on revenue derived from
    access payments for use of the PSTN--will not serve such carriers well
    in the future. Further, jurisdictional access rate disparities have led
    to countless instances of arbitrage, fraud and abuse, wasting billions
    of dollars that could have been otherwise used to deploy broadband. A
    transition from the policies of the circuit-switched world to that of
    the Internet Protocol-based world is necessary. To achieve this, the
    ABC Plan proposes a five-year transition to a single, low, default
    terminating rate of $.0007 per minute starting July 1, 2012 and
    completing July 1, 2017, coupled with essential opportunities for
    companies to recover lost revenue due to the transition. The $.0007
    number for intercarrier compensation that is used in the ABC Plan and
    other reform proposals has been associated with intercarrier
    compensation since 2001. In 2001, the FCC determined that $.0007 was
    the appropriate compensation rate cap for dial-up ISP-bound traffic.
    Given the shift to all-IP networks, this rate is appropriate.
        It is my impression that recipients of proceeds from intercarrier
    compensation reform will either pass funds along to their customers or
    use the funds to deploy and maintain broadband, or both. Economic
    analysis indicates that consumers can actually expect approximately $9
    billion per year in consumer benefits to result from lowering the
    access rate for terminating traffic to a uniform $0.0007/minute.\1\
    ---------------------------------------------------------------------------
        \1\ Letter from Robert W. Quinn, Jr., AT&T; Steve Davis,
    CenturyLink; Michael T. Skrivan, FairPoint; Kathleen Q. Abernathy,
    Frontier; Kathleen Grillo, Verizon; and Michael D. Rhoda, Windstream;
    to Chairman Julius Genachowski, Commissioner Michael Copps,
    Commissioner Robert McDowell, and Commissioner Mignon Clyburn, FCC, CC
    Docket Nos. 96-45, 96-98, 99-68, 99-200, 01-92; WC Docket Nos. 03-109,
    04-36, 05-337, 06-122, 07-135, 10-90; GN Docket No. 09-51, at
    Attachment 4, Professor Jerry Hausman, Consumer Benefits of Low
    Intercarrier Compensation Rates (filed July 29, 2011).
    ---------------------------------------------------------------------------
                                     ______

         Response to Written Question Submitted by Hon. Mark Pryor to
                           Hon. Kathleen Q. Abernathy

        Question I have consistently called for reform of the Universal
    Service Fund (USF) and the Intercarrier Compensation (ICC) system to
    further enable broadband deployment in areas it would not otherwise be
    economical. To what extent do you believe the ABC Plan and/or the RLEC
    Plan specifically accomplishes this goal? Are there changes to the
    public interest obligations and cost recovery mechanisms suggested in
    the ABC Plan and the RLEC Plan the FCC has contemplated that could
    compromise the ability of broadband providers in states like Arkansas
    to justify investment in unserved and underserved areas? What
    adjustments would and should the FCC be able to make this year to
    ensure that these areas receive broadband service?
        Answer. The ABC Plan was filed by Frontier, AT&T, CenturyLink,
    Fairpoint, Verizon and Windstream in response to the Federal
    Communications Commission's request for industry input on addressing
    the outdated and inextricably linked universal service and intercarrier
    compensation systems. In addition to reforming these two regimes, one
    of the hallmarks of the Plan is that it transforms the Universal
    Service Fund into one that explicitly supports broadband, and targets
    support to the areas that are the highest cost to provide broadband
    service and are not served by an unsubsidized provider. In fact, the
    Plan will ensure that four million rural homes and businesses in high-
    cost areas served by price cap carriers will have access to broadband.
    Achieving consensus on this proposal required compromise, perseverance,
    and a leap of faith by all involved. The delicate balance that was
    ultimately achieved benefits consumers across the country, and furthers
    the goal of Congress and the FCC outlined in the National Broadband
    Plan.
        Because the Plan is so very carefully constructed, even the
    smallest adjustments by the FCC could foil the Plan's intended goal of
    ensuring broadband deployment in currently unserved and underserved
    areas. For example, the ABC Plan is designed to stay within a budget of
    $2.2 billion. To abide by this budget constraint, the Plan requires
    providers to meet certain broadband deployment obligations, such as
    offering broadband at speeds of at least 4 Mbps down and 768 Kbps up.
    If the FCC decides to keep the fund size constant but substantially
    increases the obligations associated with the funding, providers would
    not receive adequate support and may decide not to accept the funding
    to deploy broadband in the unserved area. The same unfortunate result
    would occur if the FCC seeks to decrease the fund size with the same or
    increased obligations. As for the cost recovery mechanism, any near-
    term reforms that significantly reduce implicit support under the
    intercarrier compensation system without creating new, meaningful
    opportunities for replacement revenues will make it more difficult for
    companies to extend and sustain broadband networks in high-cost areas.
        Frontier recommends that the FCC adopt the ABC Plan as is to ensure
    that broadband becomes available to currently unserved and underserved
    areas in the near future.
                                     ______

      Response to Written Questions Submitted by Hon. Olympia J. Snowe to
                           Hon. Kathleen Q. Abernathy

    Contribution Factor--Refer to Appendix A for historical data and trend
            lines.
        Both the industry's ABC proposal and the FCC's current efforts to
    reform the Universal Service Fund deal primarily with the distribution
    side of the program and don't really address reforming the contribution
    mechanism of USF. However, the contribution factor has increased from
    5.6 percent in 2000 to over 15 percent present day (figure 1), in part
    due to the shrinking contribution based that is assessed. To
    illustrate, the adjusted contribution base for the 4th Quarter of 2011
    is $14 billion compared to a contribution base of $17 billion for the
    4th Quarter of 2007 (figure 2). So if no changes are made to the
    contribution mechanism, the financial burden to consumers could
    continue to increase due to a continued decrease in interstate and
    international revenue.
        As the statute stipulates, companies must pay a percentage of their
    interstate and international telecommunication service revenues to the
    Universal Service Fund, intrastate revenues are excluded as well as
    information services such as broadband Internet access. A key
    recommendation within the National Broadband Plan is to broaden the USF
    contribution base. \1\
    ---------------------------------------------------------------------------
        \1\ Recommendation 8.10: The FCC should broaden the universal
    service contribution base.
    ---------------------------------------------------------------------------
        Question 1. Should the contribution base for USF be expanded to all
    telecommunications and broadband providers to (1) lessen the financial
    burden on consumers and (2) make such assessment more equitable? And do
    you believe expanding the base requires Congressional action?
        Answer. Under the statute, ``every telecommunications carrier that
    provides interstate telecommunications service shall contribute, on an
    equitable and nondiscriminatory basis'' to the mechanism devised by the
    FCC to support universal service. Based on this language, it may be
    appropriate for the FCC to expand the existing base in order for the
    contribution system to remain sustainable and to ensure equitable
    allocation of support obligations for both consumers and providers. The
    FCC has authority to make adjustments to the current contributions
    mechanism for telecommunications providers under Sec. 254(d) of the
    Act.

        Question 2. If you agree the contribution base should be expanded,
    what suggestions of reform do you have to meet the previous questions
    criteria?
        Answer. To ensure that the contribution mechanism is equitable and
    not overly burdensome to both consumers and providers, the FCC should
    consider the possibility of other methodologies instead of or in
    addition to a revenues-based methodology. The focus should be on
    adopting a mechanism that fairly allocates the support obligations.
    Contribution Mechanism Methodologies
        Some industry groups and companies have advocated for the adoption
    of a numbers-based contribution mechanism. They have stated that such
    format would provide a more stable, predictable and nondiscriminatory
    funding mechanism that would affect all providers and end-users of
    voice services equitably, irrespective of the particular technology
    used to provide that service.
        However, the major goal of the ABC proposal and the FCC's effort to
    reform USF are to transition today's voice-focused high-cost Universal
    Service Fund into a broadband-focused fund. So a numbers-based--
    particularly phone number based-contribution mechanism would not
    necessary properly map to a more broadband-centric fund.
        Question 3. What are your views on the benefits and disadvantages
    of both a numbers-based contribution mechanism and a general revenue-
    based methodology, where a carrier would be assessed based on their
    total gross communications services (telecommunications and information
    two-way services) revenue?
        Answer. I agree with your above conclusion that a numbers-based
    methodology does not fit squarely with the reform proposed in the ABC
    Plan. However, a contribution system based on connections, numbers or
    revenues, or a hybrid of those or other methodologies may be
    appropriate based on the requirements of the statute for an equitable
    and non-discriminatory system.
    Voucher Program for USF
        Various parties have suggested reforming the USF program's
    disbursement process. Instead of the USF collecting money from
    telecommunications carriers and then distributing the funds to
    households that need assistance paying for phone service, some have
    suggested giving the low-income households direct vouchers that they
    could use for communications services.
        Such arrangement would be similar to the Housing Choice Voucher
    Program (Section 8) provided by the Department of Housing and Urban
    Development (HUD) to subsidize housing for low-income families and
    individuals. The participant is free to choose any housing that meets
    the requirements of the program and is not limited to units located in
    subsidized housing projects.

        Question 4. Could such modification to a direct voucher program
    improve the effectiveness of the Fund as well as help reduce waste,
    fraud, and abuse? Is this something that Congress should examine and
    possibly implement?
        Answer. There are several options both the FCC and Congress could
    consider to ensure that the Lifeline/Link Up Program effectively helps
    low-income families and individuals receive telecommunications services
    in a way that minimizes waste, fraud and abuse. The FCC has an open
    proceeding to consider modifications to the Lifeline/Link Up Program
    that would address efficiency and waste, fraud and abuse concerns.\2\
    There are statutory limits, however, to the options available to the
    FCC, and therefore Congress may find it appropriate to examine whether
    a voucher program would be a more efficient means of distributing
    Lifeline/Link Up support.
    ---------------------------------------------------------------------------
        \2\ See Further Inquiry into Four Issues in the Universal Service
    Lifeline/Link Up Reform and Modernization Proceeding, Public Notice, 26
    FCC Rcd 11098 (2011); Lifeline and Link Up Reform and Modernization;
    Federal-State Joint Board on Universal Service; Lifeline and Link Up,
    Notice of Proposed Rulemaking, 26 FCC Rcd 2770 (2011).
    ---------------------------------------------------------------------------
           Appendix A.--Contribution Factor & Base Historical Charts

                                     ______

      Response to Written Questions Submitted by Hon. Claire McCaskill to
                                 Mary N. Dillon

        My chief concern with any reform proposal is ensuring that
    broadband expands to those who currently do not have it as fast as
    possible and in a coordinated manner. We need to close the digital
    divide in this Nation and the current piecemeal approach in providing
    broadband to rural areas has led to winners and losers--some areas have
    broadband while many others have dial-up or no service at all.
        Question 1. Under the USF reform proposals that appear to be coming
    out from the FCC, how quickly can you get broadband to rural areas,
    especially those that are unserved?
        Answer. Senator McCaskill, thank you for giving us the opportunity
    to provide you with additional information on these important issues.
    At the outset, we offer some background information on the status of
    broadband in rural America:
        As of today, most of rural America, under any rational definition
    of ``rural,'' is unserved by broadband as the FCC proposes to define
    it--that is--4 Mb down/1Mb up. Most rural households located outside of
    the town centers are too far from a telephone company central office to
    receive fixed broadband from a telephone company and beyond the reach
    of cable television. Satellite broadband is available throughout the
    Continental United States, but does not yet deliver 4/1 service, it is
    a fixed service, and it currently suffers from other technical
    limitations that make it less useful. Many rural areas have access to
    narrowband or ``3G'' data services from mobile wireless companies, but
    today there are virtually no new mobile ``4G'' broadband networks
    operating beyond the Nation's major cities, as this is new technology
    in early stage roll out.
        In urban areas, mobile 4G networks offer real world throughput at
    speeds well above the FCC's requirement. All four major carriers have
    achieved speeds between 10 and 20 Mb down and above 4 Mb up in
    commercial deployments. Small dongles that plug into a USB port on a
    desktop computer or laptop can bring these fast speeds to homes and
    businesses. Smartphones, tablets, and other devices with built-in 4G
    capabilities can put vast computer power in the hands of a mobile user.
        Let me explain why mobile broadband is so critical to economic
    development in rural areas. Many companies are now ramping up ``cloud''
    applications, that store data in remote locations, which a user can
    access using a computer or a smartphone. There are countless business
    and personal uses for cloud computing, most of which require a
    broadband connection to work properly. For example, a broadband
    connection enables an insurance adjuster on the road to download
    pictures, manuals, or data from the cloud without having to seek out an
    Internet connection from the nearest fixed point of service.
        These cloud-based applications greatly improve productivity and
    will soon form a substantial reason for businesses to locate in, or
    move away from, our Nation's rural areas. Accordingly, high-quality
    mobile broadband networks are a critical component to rural economic
    development.
        Mobile 4G broadband represents the fastest, and most economically
    efficient means of delivering broadband to rural consumers. Satellite
    technology has minimally acceptable throughput, it has latency issues,
    and most limiting, it is a fixed service, not mobile. Stringing wires
    to homes and businesses will deliver broadband and it will have
    societal benefits, however it is extraordinarily expensive and is not
    the most efficient use of scarce public resources within the universal
    service fund.
        The FCC has just released the text of its universal service reform
    order, adopted on October 27. It is over 700 pages in length and we
    have not had a chance to fully digest its contents Accordingly, we may
    have additional views from those set forth below to provide after we
    comprehensively review the order.
        In response to your question:
        Under the USF reform proposals that appear to be coming out from
    the FCC, how quickly can you get broadband to rural areas, especially
    those that are unserved?
        There are four parts to reform that provide opportunities for
    mobile wireless carriers to build broadband out to rural areas.

    1. Phase 1 Mobility Fund

        First, the Commission has created a Phase 1 Mobility Fund, a one-
    time $300 million investment in new cell sites in rural America. These
    funds will be awarded via auction in the second half of 2012. If you
    assume an average cost of approximately $300,000 per cell tower, this
    investment will result in less than 1,000 new cell sites being
    constructed in rural America, not enough to even make a dent in the
    needs of rural citizens for additional coverage. We may participate in
    the auction, however even if we garner 10 percent of the funds
    nationwide, or $30 million, that will only build at most approximately
    90 cell sites, far fewer than we need to fill in our unserved areas.
    This will not materially improve mobile wireless broadband networks in
    unserved areas. Since this will be an auction where awards are made to
    the lowest bidders it stands to reason that the lowest cost of the
    unserved areas will prevail and will get all of the available funding.
    This means that the highest cost unserved areas will continue to remain
    fallow with no mobile broadband.

    2. Phase 2 Mobility Fund

        Second, the Commission created a Phase 2 Mobility fund, designed to
    provide $500 million per year in rural America, $100 million of which
    is set aside for tribal lands. The mechanism for distributing funds
    under the new Phase 2 Mobility Fund is not decided in this order, but
    are still to be determined in a new rulemaking that will likely
    conclude in the second half of 2012. If not delayed by litigation, we
    believe the new Phase 2 Mobility Fund will begin to distribute funds
    sometime in late 2013.
        Accordingly, at this time, it is impossible to determine what the
    opportunity will be for U.S. Cellular or any other company to roll out
    mobile broadband services, but it is likely that no new construction
    under the Phase 2 Mobility Fund will occur until 2014 at the earliest.
    We may participate in the Phase 2 Mobility Fund, however even if we
    succeed in obtaining ten percent of the funds nationwide, or $50
    million, that will represent approximately 33 percent of the funding we
    are using today to build cell sites in rural areas. The FCC's decision
    to significantly reduce funding to mobile broadband platforms
    constrains both public and private capital flowing to rural America.

    3. Connect America Fund

        Third, the Commission has created a Connect America Fund (``CAF'')
    pursuant to which any carrier can access funding to build broadband,
    purportedly on a competitively neutral basis. As we understand the
    Commission's executive summary, the Nation's largest ``price cap''
    carriers, AT&T, Verizon, CenturyLink, Windstream, and Frontier, will
    receive rights of first refusal, allowing them to be the exclusive
    recipient of funding for at least five years. In areas served by small
    rural telephone companies, funds will be set aside for the incumbent
    wireline carriers for up to ten years.
        Accordingly, we do not expect to have any opportunity to draw any
    funds from the CAF for any area served by a rural telephone company for
    at least a decade. In any area where a price cap carrier exercises its
    right of first refusal, we do not expect to have any opportunity to
    draw any funds from the CAF for at least five years. In areas where the
    right of first refusal is not exercised, if it is within our licensed
    area we would expect to participate in whatever process the FCC
    develops, however there is no reason why we should be given second
    class status in any corner of the country.
        Moreover, we think it is a mistake for the FCC to reserve
    approximately $4 billion out of a $4.5 billion dollar fund each year
    for wireline technology, despite the fact that nearly a third of
    residential households have cut the cord and rural Americans are
    demanding improved mobile services. Just last week, CenturyLink
    announced that it has 20 percent fewer customers than it did a year
    ago, continuing an inevitable trend that should cause policymakers to
    allocate more, not less, funding to the services consumers desire. In
    sum, we disagree with the FCC's decision to wall off wireline funding
    in the CAF is a mistake.

    4. Existing CETC Support Mechanism

        Fourth, the FCC intends to continue to provide funding through its
    existing support mechanism for four more years. In mid-2012, support
    for wireless carriers participating in the CETC mechanism will begin to
    phase down in five equal 20 percent increments. When our support is cut
    each year, we will reduce our universal service budget by a similar
    amount, meaning that some new cell sites in rural areas will be dropped
    from our build plans. We have no way of knowing whether new support
    mechanisms will allow us to build out our networks in rural areas. We
    will continue to invest whatever funding we receive in our rural
    networks.
        Ironically, in most states, including Missouri, the existing
    mechanism allows us to leverage our substantial network investments by
    installing new 4G broadband equipment on existing towers, increasing
    capacity on links connecting towers, and upgrading our switching
    platform. An overlay does not ordinarily require building a new tower,
    obtaining new zoning permits, rights of way or environmental
    clearances.
        U.S. Cellular currently has thousands of cell sites throughout the
    country, serving almost 6 million customers, many within vast rural
    areas. In Q1--2012, we will begin to upgrade some of our existing cell
    sites with 4G technology. Many of these cell sites were constructed
    with support from the Universal Service Fund Once these sites are
    upgraded for 4G every person who receives a high-quality signal from
    U.S. Cellular will have access to broadband at home, at their business,
    and on the road. The ability to deploy 4G on sites already built with
    USF support provides tremendous efficiencies and an excellent ``bang
    for the USF buck'' for accelerating mobile broadband deployment but it
    does nothing for areas where coverage is inadequate or doesn't exist at
    all.
        And here is where the FCC's Order comes up short since it does not
    sufficiently address the obvious and substantial coverage problem in
    rural America. Reductions in support under the CETC mechanism reduce
    carriers' ability to build new plant to fill in dead zones and threaten
    viability of network facilities in rural areas where the revenue
    generated is insufficient to cover the cost of operations, maintenance,
    upgrades and a return on invested capital.
        At a time when so much work remains to be done to provide high-
    quality coverage in rural America, the combination of reform programs
    set forth above reduce funding to mobile broadband. In addition, the
    FCC's policy shift, to restrict funding to a single carrier, is likely
    to result in a patchwork quilt of incompatible technologies throughout
    rural America which is going to leave consumers driving in and out of
    areas where they have very good signal, but an incompatible handset
    that cannot even dial 911.
        Finally, some carriers have placed evidence into the record
    demonstrating that significant reductions in support to wireless
    carriers will result in the redeployment of cell site equipment
    currently serving remote areas to places where it can provide a return
    on invested capital.
        Given all of the above, we conclude that the FCC's actions will
    delay service in some rural areas, cause the redeployment of assets in
    some other areas, pick winners in the marketplace by limiting funding
    to one class of carrier, or in some cases only one carrier, and
    unlawfully abandon the pro-competitive mandates set forth in the 1996
    Act. Delaying mobile broadband deployments is counterproductive and we
    will ask the FCC to improve opportunities for rural consumers to access
    mobile broadband.

        Question 2. Will cable companies, which have traditionally not
    accepted USF support, competitively bid for funding to expand broadband
    to if given the opportunity and reform is competitively neutral?
    Proponents of the right of first refusal have argued that the right of
    first refusal does not negatively impact competition because no one
    else wants to serve these areas anyway. How do you respond?
        Answer. We do not operate cable systems and cannot speak for cable
    companies, however we have every reason to believe that if support
    mechanisms were competitively neutral, then cable companies would have
    an opportunity to participate and in fact many would participate.
        Proponents who argue that ``no one else wants to serve these areas
    anyway'' have it exactly backward. If the area is so undesirable, that
    is actually an argument against a right of first refusal. If no party
    wants to serve an area, then a right of first refusal, which by
    definition, restricts competitive entry, is completely unnecessary.
        Even assuming incumbents are correct that cable companies would not
    enter, presumably because the cost of installing cable is equal to or
    greater than the cost of an incumbent wireline carrier upgrading plant,
    the right of first refusal prevents more efficient technologies, or
    those that rural citizens actually prefer, from entering the market.
    That is, more efficient providers are blocked from accessing support to
    provide consumers with service at a lower cost.
        In fact, the problem of a single carrier dominating the market by
    having all the customers and exclusive access to universal service
    support is precisely the problem the 1996 Act intended to solve when
    Congress mandated that new competitors could access support in high-
    cost areas. As a carrier who has been aggressively investing in rural
    America, U.S. Cellular can say categorically that it would take the
    opportunity to invest in areas locked up by a right of first refusal,
    if given the opportunity.
        In the fifteen years since the 1996 Act, the FCC has only adopted
    one ``core principle'' of universal service policy, namely that all
    universal service rules must be competitively neutral so that they do
    not favor any technology or class of carrier.
        On its face, a right of first refusal provision is not
    competitively neutral, and U.S. Cellular has yet to see any reason why
    the least efficient provider of services should be favored over more
    efficient alternatives, especially when consumers are demanding these
    alternatives and when they form a core component of rural economic
    development in the decades to come.
        In sum, the right of first refusal is legally indefensible under
    the 1996 Act and the Commission's own rules.
                                     ______

      Response to Written Questions Submitted by Hon. Olympia J. Snowe to
                                 Mary N. Dillon

    Contribution Factor--Refer to Appendix A for historical data and trend
            lines.*
    ---------------------------------------------------------------------------
        \*\ [See p. 80 of this transcript].
    ---------------------------------------------------------------------------
        Both the industry's ABC proposal and the FCC's current efforts to
    reform the Universal Service Fund deal primarily with the distribution
    side of the program and don't really address reforming the contribution
    mechanism of USF. However, the contribution factor has increased from
    5.6 percent in 2000 to over 15 percent present day (figure 1), in part
    due to the shrinking contribution based that is assessed. To
    illustrate, the adjusted contribution base for the 4th Quarter of 2011
    is $14 billion compared to a contribution base of $17 billion for the
    4th Quarter of 2007 (figure 2). So if no changes are made to the
    contribution mechanism, the financial burden to consumers could
    continue to increase due to a continued decrease in interstate and
    international revenue.
        As the statute stipulates, companies must pay a percentage of their
    interstate and international telecommunication service revenues to the
    Universal Service Fund, intrastate revenues are excluded as well as
    information services such as broadband Internet access. A key
    recommendation within the National Broadband Plan is to broaden the USF
    contribution base.\1\
    ---------------------------------------------------------------------------
        \1\ Recommendation 8.10: The FCC should broaden the universal
    service contribution base.

        Question 1. Should the contribution base for USF be expanded to all
    telecommunications and broadband providers to (1) lessen the financial
    burden on consumers and (2) make such assessment more equitable? And do
    you believe expanding the base requires Congressional action?
        Answer. Thank you for the question, as reform of the contribution
    mechanism is critical to sustaining the universal service fund.
        Taking your last question first, U.S. Cellular supports
    Congressional action to resolve substantial uncertainty in the existing
    law, and to provide the FCC with flexibility to design universal
    service mechanisms to ensure that universal service goals are met. U.S.
    Cellular has taken the position that the current statute authorizes the
    FCC to support Title II telecommunications services, but authority to
    support Title I services is far from clear. If it is ultimately
    determined that the FCC has no authority to fund Title I services, then
    it may not be able to collect contributions from Title I services.
    Accordingly, Congressional action can reduce the possibility of
    litigation that can potentially delay implementation.
        The public interest in expanding the base is substantial. The core
    principles of universal service are, (1) the value of a network
    increases when everyone is connected, and (2) the definition of
    supported services must evolve with technology. Today, both fixed and
    mobile broadband are just as essential to our Nation as basic telephone
    service was three decades ago. Applying the universal service
    principles above to a broadband world, policy makers must conclude that
    it is in the national interest for every citizen to have access to
    fixed and mobile broadband. Therefore, as many users of the network as
    possible should contribute, to ensure that each contribution amount is
    as low as possible and the greatest number of people can access the
    network.
        As your chart below evidences, interstate telecommunications
    services make up a shrinking revenue base for contributions, as the
    Nation migrates to all-IP networks. Accordingly, even if program demand
    remains flat, the contribution factor will continue to rise as the base
    shrinks.
        Despite the strong public interest reasons set forth above, we
    understand the difficulties that any political body has in assessing
    charges on what can be described as access to the Internet. Indeed,
    that is why the contribution mechanism has not been addressed for
    nearly a decade. The current mechanism is unsustainable, and therefore
    this issue must be confronted now. Put simply, Congress must authorize
    and direct the FCC, as the expert agency, to develop mechanisms that
    broaden the base, and ensure equity among consumers.

        Question 2. If you agree the contribution base should be expanded,
    what suggestions of reform do you have to meet the previous questions
    criteria?
        Answer. U.S. Cellular's experience with the current system makes
    clear that change is not only advisable, it is a necessity. In the near
    future, there may be almost no ``telecommunications services'' being
    provided as that term is understood in the 1996 Act.
        A connection-based system may be much simpler for carriers to
    assess and collect, however it may disproportionately affect low-volume
    users. A connection-based system that assesses connections based on
    capacity or usage may prove to be more equitable. For example, a low
    connection charge for a low capacity connection and a higher charge for
    a high capacity connection.
        U.S. Cellular understands the difficulty in using a numbers-based
    methodology in a broadband world, where in the future traditional ten
    digit telephone numbers may not be used. One solution would be to
    assess any connection that is capable of delivering basic voice
    communications. Such a mechanism would assess a twisted copper pair, as
    well as a broadband connection, as each are capable of delivering basic
    voice service.
        Another option is to adopt a hybrid methodology, which assesses
    different types of services in a different manner, some based on
    revenues and some on connections. This is more complicated, and is
    likely to require more oversight as technologies continue to evolve,
    however in the short term it may be more equitable.
        In sum, if Congress does act, it should provide the FCC with the
    greatest possible flexibility to fashion equitable contribution
    mechanisms, so that the agency's statutory mission can be met. In
    addition, Congress should require the FCC to complete any proceeding
    consistent with the statute within one year.
        Contribution Mechanism Methodologies
        Some industry groups and companies have advocated for the adoption
    of a numbers-based contribution mechanism. They have stated that such
    format would provide a more stable, predictable and nondiscriminatory
    funding mechanism that would affect all providers and end-users of
    voice services equitably, irrespective of the particular technology
    used to provide that service.
        However, the major goal of the ABC proposal and the FCC's effort to
    reform USF are to transition today's voice-focused high-cost Universal
    Service Fund into a broadband-focused fund. So a numbers-based--
    particularly phone number based--contribution mechanism would not
    necessary properly map to a more broadband-centric fund.

        Question 3. What are your views on the benefits and disadvantages
    of both a numbers-based contribution mechanism and a general revenue-
    based methodology, where a carrier would be assessed based on their
    total gross communications services (telecommunications and information
    two-way services) revenue?
        Answer. A connections-based system (as opposed to a numbers-based
    system) has the advantage of broadening the base and correspondingly
    reducing each citizen's burden to support universal service goals. A
    connections-based mechanism is likely to be easier for carriers and the
    FCC to administer and audit. It will also make it difficult for
    carriers to avoid contributing, or use arbitrage schemes to minimize
    contributions, leading to disputes and increasing compliance costs for
    both carriers and the government.
        An assessment based on gross communications services would be
    easier than the current interstate and international telecommunications
    services formula, provided that the term ``gross communications
    services'' is broad enough to discourage arbitrage or other avoidance
    mechanisms. As technology changes, there will be a continuing need to
    monitor and update the definition to limit avoidance mechanisms that
    artificially raise the price for others.
    Voucher Program for USF
        Various parties have suggested reforming the USF program's
    disbursement process. Instead of the USF collecting money from
    telecommunications carriers and then distributing the funds to
    households that need assistance paying for phone service, some have
    suggested giving the low-income households direct vouchers that they
    could use for communications services.
        Such arrangement would be similar to the Housing Choice Voucher
    Program (Section 8) provided by the Department of Housing and Urban
    Development (HUD) to subsidize housing for low-income families and
    individuals. The participant is free to choose any housing that meets
    the requirements of the program and is not limited to units located in
    subsidized housing projects.

        Question 4. Could such modification to a direct voucher program
    improve the effectiveness of the Fund as well as help reduce waste,
    fraud, and abuse? Is this something that Congress should examine and
    possibly implement?
        Answer. With respect to the Lifeline fund, U.S. Cellular does not
    believe Congress needs to enact specific legislation, because the
    current Lifeline mechanism operates much like the HUD Section 8
    program. Today, the program provides a specified discount that a low-
    income household can use to purchase service from any eligible
    provider. Low-income support goes directly to the eligible provider who
    gets the customer and provides the discount. As a result of more
    carriers being designated as eligible to provide Lifeline discounts,
    low-income consumers have increasing choices in service providers.
        If Congress wishes to legislate, U.S. Cellular recommends funding
    the development of a nationwide database of eligible households,
    building on the work of some states, such as Colorado. If carriers
    signing up new Lifeline customers can check eligibility real time, the
    possibility of waste is greatly reduced.
        Separately, U.S. Cellular suggests that a voucher system for high-
    cost support, wherein a rural consumer receives a voucher that can be
    applied to the service provider of the customer's choosing, is superior
    to the single winner reverse auction methodology recommended in the
    recent Connect America Fund item. A voucher system for high-cost
    support would unleash competition in the marketplace, rather than
    limiting competition to the auction room. Accordingly, any
    Congressional action to reform the telecommunications laws should
    include careful examination of why the FCC has chosen a command and
    control distribution mechanism for high-cost support, rather than
    ensuring that universal service mechanisms increase consumer choice in
    rural areas, as required by the 1996 Act.
                                     ______

      Response to Written Questions Submitted by Hon. Roger F. Wicker to
                                 Mary N. Dillon

        Question 1. Ensuring the build out of broadband to unserved areas,
    such as Mississippi, is vital to ensuring the economic vitality of
    these rural regions. What do you recommend as the best way to
    accomplish this while ensuring the most efficient use of taxpayer
    money?
        Answer. At the outset, U.S. Cellular believes that the current
    law's principle, that rural consumers are entitled to have access to
    services that are reasonably comparable in quality and price to those
    available in urban areas, is the correct standard. In today's world,
    that means access to both fixed and mobile broadband platforms must be
    provided.
        Over the past decade, U.S. Cellular has consistently advocated that
    the most efficient way to accelerate broadband deployment to rural
    areas is to establish an amount of support available to each geographic
    area, and make that support available to the carrier that gets the
    customer (similar to the voucher discussion above). Such a mechanism
    allows consumers to have choices and provides marketplace incentives
    for all carriers to provide better service, and for new carriers to
    enter.
        In the recent Connect America Fund proceeding, U.S. Cellular
    sponsored experts who opined that the regulatory cost of implementing a
    command/control system that designates a single dominant provider in
    rural areas will far exceed a mechanism that provides an efficient
    amount of support in an area that is provided only to the carrier the
    customer chooses. Having reviewed the recent order, we are more
    convinced than ever that this is the right policy choice.

        Question 2. How can we achieve true USF reform that improves the
    fund's efficiency and fulfills its mandate to rural America, while at
    the same time ensuring adequate competition and encouraging, rather
    than stifling, private investment?
        Answer. To elaborate a bit, the FCC had to decide whether
    competition should exist within the auction room, or alternatively, in
    the market. U.S. Cellular believes that market competition will yield
    far more efficiencies than auction competition. The FCC's regulatory
    regime for auction winners is substantial, including regulation of
    rates, collocation, roaming, and a host of reporting requirements.
    These regulations may be required to control dominant carriers in the
    market, but they are completely unnecessary in a competitive market. As
    set forth by U.S. Cellular's experts, Dr. Lee Selwyn and Professor
    William Rogerson, the cost of implementing these regulations, and the
    cost to consumers of having new competitors shut out of the market will
    substantially exceed the savings from a single winner reverse auction.

        Question 3. I'm told that the FCC plan may reduce support for rural
    wireless carriers--which concerns me since a significant number of
    Mississippians are ``cutting the cord'' and moving to a wireless world.
    Additionally, I understand the FCC will wait until a future proceeding
    to determine how and where the adjustments will take place. How would
    such regulatory uncertainty impact your business plans for future
    growth and job creation? I am concerned that in an ailing economy, this
    hardly seems like a prudent way to proceed.
        Answer. Senator, your point is well taken. U.S. Cellular accepts
    that it is difficult for the FCC to provide a high level of regulatory
    certainty in a rapidly changing industry. That said, the fact that it
    has taken ten years to reform universal service has cast a difficult
    cloud over the wireless industry, at precisely the time we're trying to
    build out rural areas.
        The adoption of reform last month has greatly increased
    uncertainty, because the rules of the road for reform are not
    finalized. They are subject to implementation by the bureaus over the
    next few years, and the entire decision to fund broadband capable
    networks will have to go through the judicial review process.
        The FCC's decision to phase down support to wireless carriers while
    such regulatory uncertainty exists is unfortunate. We can't speak for
    the largest wireless carriers, but we can speak for ourselves in
    stating that there are vast areas in rural states we serve where we're
    using support to build new cell sites to cover unserved and underserved
    areas. We know that in areas where support is being used to build
    infrastructure, our networks perform better, have fewer dropped calls,
    and provide important health and safety benefits superior to those
    available in unsupported rural areas. And we've put evidence of that
    into the FCC's record.
        The FCC's record speaks well for Mississippi carriers such as C
    Spire Wireless (formerly CellularSouth), who have demonstrated how
    their networks provide critical health and safety benefits for
    consumers, as evidenced by C Spire's performance during hurricane
    Katrina. C Spire's network recovered within days and was critical to
    first responders and public safety, facilitating rescue and recovery
    efforts. Again, all of this is in the FCC's record.
        Accordingly, irrespective what universal service policy choices the
    FCC ultimately makes, support used to build networks should not have
    been phased down until the rules are finalized and judicial review is
    complete. With respect to cord-cutting, it is noteworthy that support
    to wireless carriers is being reduced while our networks continue to
    grow, and while rural consumers are clamoring for additional coverage
    and increased mobile broadband access.
        At the same time, the FCC did not phase down support to wireline
    carriers. In fact the Nation's largest wireline carriers, including
    AT&T, will receive more support under the new mechanism. We fail to
    understand, at a time when the world is rapidly migrating to wireless
    platforms that are underdeveloped in rural America, why the FCC would
    shift support away from wireless and toward the platform that consumers
    are abandoning.
        In sum, your concern about jobs is on point. Wireless networks in
    rural America need more universal service funding, not less. Every
    incremental dollar we receive accelerates cell site construction, which
    has substantial economic benefits for rural areas. Jobs are created to
    build the infrastructure and new cell sites facilitate job creation
    when citizens can compete with their counterparts in urban areas, and
    indeed around the world. Mobile wireless networks have been a
    consistent job creation engine, even in the fact of the worst economic
    recession in eighty years. The President has repeatedly cited mobile
    broadband as critical infrastructure for the 21st Century, setting an
    agenda of 98 percent coverage in five years. Yet the FCC is shifting
    support funds in ways that frustrate the administration's agenda.
        Improving our Nation's infrastructure has never been a partisan
    issue, and it should not become one now. Our nation's competitiveness
    on the world stage is a national priority, shared by all. The FCC's
    recent order does not go far enough to provide rural consumers with
    access to both wireline and mobile broadband infrastructure that are
    high-quality and comparable in price to urban areas.

        Question 4. Some plans have provided rural wireless with a $300
    million annual mobility fund. Assuming the Commission goes in the
    direction of favoring certain technology over others, can you tell me
    what bare minimum funding rural wireless would need to sustain
    operations in rural areas like my home state of Mississippi or say,
    West Virginia?
        Answer. U.S. Cellular does not serve Mississippi, so we don't have
    data to understand a minimum amount of support needed to sustain
    operations in the state. In West Virginia, we are not licensed to serve
    throughout the state, and therefore we cannot speak to the entire
    state's needs.
        That said, we know that there are many areas with services that
    lack coverage, or do not have 3G or 4G service. Since wireless carriers
    are in the process of building networks, the proper question is how
    fast do policymakers want to advance 4G services in rural America? For
    example, CTIA submitted a study to the FCC estimating that it would
    cost over $22 billion to build high-quality 4G service throughout rural
    America. If the FCC devoted $4 billion per year to the build out, the
    job could be done in just five years.
        Understanding that 4G LTE technology can deliver throughput speeds
    of up to 16 Mb per second today, with higher speeds to come in the near
    future, U.S. Cellular believes that wireless is the answer for many
    rural areas in Mississippi, West Virginia, and throughout the country.
        As Congress considers the FCC's recent action, it is worth noting
    that approximately $4.5 billion per year has been budgeted for high-
    cost universal service support. Of that amount, roughly ninety percent,
    or $4 billion, has been set aside for fixed wireline technology, while
    only $500 million has been allocated to wireless. We find it unfair
    that wireless consumers, who contribute over 40 percent of the fund,
    will continue to subsidize wireline networks for many years to come.
        Accordingly, while it is difficult to understand the minimum needed
    to deliver high-quality 4G wireless service to rural America, we know
    that devoting only ten percent of the high-cost fund to wireless is not
    the right proportion.

        Question 5. What will be the net effect on our constituents in
    rural America if the funding falls short?
        Ultimately, universal service support is for consumers, who pay
    into the fund. Those living in rural areas deserve to have the benefits
    that people in urban areas take for granted. The FCC's recent policy
    choices provide insufficient funding for mobile wireless networks. The
    net effect will be investments cancelled or delayed.
                                     ______

      Response to Written Question Submitted by Hon. Claire McCaskill to
                               Michael K. Powell

        Question My chief concern with any reform proposal is ensuring that
    broadband expands to those who currently do not have it as fast as
    possible and in a coordinated manner. We need to close the digital
    divide in this Nation and the current piecemeal approach in providing
    broadband to rural areas has led to winners and losers--some areas have
    broadband while many others have dial-up or no service at all. Under
    the USF reform proposals that appear to be coming out from the FCC, how
    quickly can you get broadband to rural areas, especially those that are
    unserved?
        Will cable companies, which have traditionally not accepted USF
    support, competitively bid for funding to expand broadband to unserved
    areas if given the opportunity and reform is competitively neutral?
    Proponents of the right of first refusal have argued that the right of
    first refusal does not negatively impact competition because no one
    else wants to serve these areas anyway. How do you respond?
        Answer. As I explained at the hearing, cable started as a rural
    service and we continue to have a significant presence in rural
    America. In many rural areas, cable providers were the first to offer
    high-speed broadband service to consumers, and only after cable offered
    the service did the incumbent phone company also begin to offer it in
    those areas. NCTA's member companies offer high-speed broadband
    services based on DOCSIS 3.0 technology to millions of rural customers.
        NCTA encouraged the FCC to make broadband subsidies available on a
    competitively neutral basis (e.g., through competitive bidding) rather
    than favoring incumbent phone companies. During the course of the FCC's
    proceeding, many small and mid-sized cable operators met with Chairman
    Genachowski and others at the FCC and specifically expressed their
    interest in participating in a competitively neutral high-cost
    broadband funding mechanism and in expanding their services to
    additional rural areas. NCTA also explained that the participation of
    cable operators in the voice service USF program, which has
    historically been strongly tilted in favor of incumbent phone
    companies, was not a valid predictor of cable's interest in a
    competitively neutral broadband support program.
        Notwithstanding our advocacy on this point, and the principle of
    competitive neutrality upon which the USF support program is based, the
    FCC chose to create a regime in which the vast majority of support is
    made available to incumbent phone companies on a preferential or an
    exclusive basis, with no meaningful role for competitive bidding. The
    effect of this blatant favoritism is that cable operators will be
    discouraged from serving high-cost areas and consumers in those areas
    will be limited to inferior broadband service from phone companies.
                                     ______

      Response to Written Questions Submitted by Hon. Olympia J. Snowe to
                               Michael K. Powell
    Contribution Factor--Refer to Appendix A for historical data and trend
            lines.*
    ---------------------------------------------------------------------------
        \*\ [See p. 80 of this transcript].
    ---------------------------------------------------------------------------
        Both the industry's ABC proposal and the FCC's current efforts to
    reform the Universal Service Fund deal primarily with the distribution
    side of the program and don't really address reforming the contribution
    mechanism of USF. However, the contribution factor has increased from
    5.6 percent in 2000 to over 15 percent present day (figure 1), in part
    due to the shrinking contribution based that is assessed. To
    illustrate, the adjusted contribution base for the 4th Quarter of 2011
    is $14 billion compared to a contribution base of $17 billion for the
    4th Quarter of 2007 (figure 2). So if no changes are made to the
    contribution mechanism, the financial burden to consumers could
    continue to increase due to a continued decrease in interstate and
    international revenue.
        As the statute stipulates, companies must pay a percentage of their
    interstate and international telecommunication service revenues to the
    Universal Service Fund, intrastate revenues are excluded as well as
    information services such as broadband Internet access. A key
    recommendation within the National Broadband Plan is to broaden the USF
    contribution base.\1\
    ---------------------------------------------------------------------------
        \1\ Recommendation 8.10: The FCC should broaden the universal
    service contribution base.
    ---------------------------------------------------------------------------
        Question 1. Should the contribution base for USF be expanded to all
    telecommunications and broadband providers to: (1) lessen the financial
    burden on consumers and (2) make such assessment more equitable? And do
    you believe expanding the base requires Congressional action?
        Answer. NCTA looks forward to participating in any future FCC
    proceeding to reform the USF contribution regime. NCTA is concerned
    that imposing a contribution requirement on broadband Internet access
    services could undermine efforts to promote broadband adoption because
    it would increase the price that consumers pay for such services.
    Moreover, to the extent broadband customers already are contributing
    based on their purchase of voice services (wireline and/or wireless),
    there is a risk that many customers could end up paying more than they
    do under the current regime, rather than less, if USF contributions
    were extended to broadband services as well as to voice services.
    Congressional action on contribution issues might be helpful in
    expanding the options available to the FCC as it considers how best to
    reform the contribution regime.

        Question 2. If you agree the contribution base should be expanded,
    what suggestions of reform do you have to meet the previous questions
    criteria?
        Answer. As noted above, we have concerns that adding broadband
    Internet access to the list of services subject to the contribution
    requirement could increase the burden on customers that already are
    contributing, rather than ``expanding the base'' of contributors, and
    could discourage broadband adoption. In the past NCTA has supported a
    numbers-based regime that would impose a flat contribution on each
    customer, which could be simpler to administer and more equitable for
    consumers.
    Contribution Mechanism Methodologies
        Some industry groups and companies have advocated for the adoption
    of a numbers-based contribution mechanism. They have stated that such
    format would provide a more stable, predictable and nondiscriminatory
    funding mechanism that would affect all providers and end-users of
    voice services equitably, irrespective of the particular technology
    used to provide that service.
        However, the major goal of the ABC proposal and the FCC's effort to
    reform USF are to transition today's voice-focused high-cost Universal
    Service Fund into a broadband-focused fund. So a numbers-based--
    particularly phone number based--contribution mechanism would not
    necessary properly map to a more broadband-centric fund.

        Question 3. What are your views on the benefits and disadvantages
    of both a numbers-based contribution mechanism and a general revenue-
    based methodology, where a carrier would be assessed based on their
    total gross communications services (telecommunications and information
    two-way services) revenue?
        Answer. In the past NCTA has supported a numbers-based regime that
    would impose a flat contribution on each customer. A revenue-based
    regime raises difficult issues regarding the allocation of revenues
    when customers purchase bundles that include services not subject to
    the assessment (e.g., multichannel video service). A regime that
    imposes a flat contribution on each customer can be structured in a
    manner that is simpler to administer and more equitable for consumers.
    Voucher Program for USF
        Various parties have suggested reforming the USF program's
    disbursement process. Instead of the USF collecting money from
    telecommunications carriers and then distributing the funds to
    households that need assistance paying for phone service, some have
    suggested giving the low-income households direct vouchers that they
    could use for communications services.
        Such arrangement would be similar to the Housing Choice Voucher
    Program (Section 8) provided by the Department of Housing and Urban
    Development (HUD) to subsidize housing for low-income families and
    individuals. The participant is free to choose any housing that meets
    the requirements of the program and is not limited to units located in
    subsidized housing projects.

        Question 4. Could such modification to a direct voucher program
    improve the effectiveness of the Fund as well as help reduce waste,
    fraud, and abuse? Is this something that Congress should examine and
    possibly implement?
        Answer. The use of vouchers for low-income support is an idea that
    is worth exploring. From NCTA's perspective, it is critical that any
    such program allow vouchers to be used with any broadband provider, not
    just incumbent telephone companies. In deciding whether to switch to
    such an approach, Congress would need to consider the potential
    benefits, as well as the potential costs of transitioning to an
    entirely new regime.
                                     ______

      Response to Written Questions Submitted by Hon. Claire McCaskill to
                               Shirley Bloomfield

        Question 1. My chief concern with any reform proposal is ensuring
    that broadband expands to those who currently do not have it as fast as
    possible and in a coordinated manner. We need to close the digital
    divide in this Nation and the current piecemeal approach in providing
    broadband to rural areas has led to winners and losers--some areas have
    broadband while many others have dial-up or no service at all. Under
    the USF reform proposals that appear to be coming out from the FCC, how
    quickly can you get broadband to rural areas, especially those that are
    unserved?
        Answer. This question gets to the heart of the great disconnect
    that exists regarding the true meaning of ubiquitous broadband
    deployment. In many areas today, the universal service fund (USF) has
    worked thus far to enable the installation and operation of broadband-
    capable networks--but many of these networks provide only basic levels
    of broadband service and will need critical upgrades soon or over time.
    In other areas, where larger carriers have opted out of the ``rate-of-
    return'' system, there are few incentives to invest in high-cost areas
    because these carriers can realize greater returns on their investments
    in more populated parts of their serving areas.
        Reform is therefore needed in both areas, to ensure not only that
    broadband becomes available throughout rural America, but to make sure
    also that high-quality broadband will remain available and affordable
    for rural consumers and businesses. This reform must be carefully
    designed and tailored to solve the different problems facing different
    areas, including the differing needs of the carriers who serve these
    areas. A ``one-size-fits-all'' approach to reform--or reforms that
    threaten to disrupt the predictability and sufficiency of the USF
    system--will only undermine the dual objectives of getting broadband to
    and keeping broadband in rural areas.
        The small rural local exchange carriers (RLECs) on whose behalf I
    testified were formed for the specific purpose of providing
    communications services where high costs deterred larger entities with
    more profitable markets from doing so. The USF and related intercarrier
    compensation (ICC) mechanisms have been essential in allowing RLECs to
    provide and maintain advanced services throughout their service areas.
    Yet even so, the high cost nature of these rural markets has precluded
    universal deployment of comparable broadband services. Indeed, in many
    cases today, RLECs can provide only basic levels of broadband given the
    great distances to be covered, and upgrades are necessary to ensure
    that service will remain reasonably comparable over time between rural
    and urban areas. RLECs also have many customers who go unserved as
    well, given the nature of the areas they serve.
        So the ``digital divide'' should not and cannot be measured on a
    static basis--i.e., who may be served or unserved at any given point in
    time. Instead, it must be measured by identifying where truly
    comparable broadband can be installed and provided only through the
    availability of USF support for the carrier most committed to serving
    that area.
        The USF and ICC mechanisms remain necessary to ensure ubiquitous
    deployment and sustained operation of broadband networks in RLEC areas.
    As noted earlier, these small carriers serve the vast and sparsely
    populated areas that were left behind long ago by other providers--40
    percent of the Nation's geography containing only 5 percent of the
    Nation's customers. With minor exception at best, customers in areas
    served by RLECs would not have sustainable access to affordable
    broadband without sufficient and predictable USF support and ICC
    revenues. At the same time, we recognize that there is a need to
    support a better business case for investment by larger entities that
    serve other rural areas This recognition that no rural consumer should
    go without broadband, regardless of who serves them--together with the
    notion that there should be no ``one-size-fits-all'' approach to
    reform--led to the development of the industry's ``Consensus
    Framework'' for USF and ICC reform, consisting of the small carriers'
    RLEC Plan and the complementary ABC Plan. We believed that these two
    plans, while providing for ``shared sacrifice'' by RLECs and others
    across the industry, balanced the needs to inject funding into unserved
    areas and to support existing investment in and ongoing operation of
    broadband-capable networks.
        Leading up to the FCC's October 27th vote on its USF/ICC order, we
    hoped that the complementary plans in the Consensus Framework would
    provide a balanced and sensible roadmap for reform. Unfortunately, the
    FCC has deferred for another day the question of what longer-term
    reforms are needed to create a ``Connect America Fund'' for consumers
    served by RLECs. Instead, the FCC's Order is comprised mostly of short-
    term changes to the existing USF that will likely reduce or at best
    maintain the total amount of support that most RLECs receive; the FCC's
    own estimate is that more than half of small rural carriers will lose
    some USF support under the Order, and we do not foresee any incremental
    funding being made available in the aggregate to support new broadband
    build-out or even significant network upgrades by RLECs.
        To be clear, it is possible that an individual RLEC might receive
    additional funding above what it receives today under these reforms.
    The few RLECs fortunate enough to fall within that category may have
    some ability to ``edge out'' new broadband to unserved portions of
    their serving areas, or to keep their networks up to pace with the
    speeds that the FCC has identified as quality broadband in its Order.
    But the fact that further cuts and changes to the USF and ICC programs
    loom in a Further Notice of Proposed Rulemaking attached to the Order
    may deter even these RLECs from investing. Rather, for the most part,
    until the FCC addresses the long-term vision for reform, we expect that
    the plan that has been approved will do little more than perhaps permit
    most RLECs to maintain broadband-capable networks where they have them
    today.
        This is of significant concern not only because it means that many
    unserved will continue to go unserved, but also because this
    constrained support may limit the ability to upgrade RLEC networks over
    time to keep up with those available in urban and even other rural
    areas. To summarize, we are concerned that the reforms coming out from
    the FCC will not enable RLECs to deliver on the promise of universal
    broadband throughout their service areas. Indeed, depending on how they
    are implemented, these reforms may compromise the ability of RLECs--
    small carriers based in the communities they serve--to continue
    providing affordable broadband even where it is available today.

        Question 2. How will you ensure that this new government broadband
    program distributes funds in an accountable and coordinated manner? Are
    there specific conditions a participant would have agree to in order to
    receive funding?
        Answer. There is a great deal of accountability in the USF system
    by which RLECs receive support today. Given that the FCC has not
    changed that system in any material respect as it applies to RLEC
    support (beyond certain cuts and caps), we believe those accountability
    measures remain in effect under the recently released Order. Under the
    USF mechanisms as they work today, detailed cost studies and approvals
    must be developed and submitted in order to receive USF support.
    Furthermore, a material amount of USF reimbursement for RLECs is
    provided on a two-year lag basis, and if subsequent studies suggest the
    original cost projections were too high, reimbursement can be adjusted
    downward. Finally, the FCC appears to have adopted additional
    accountability measures in the Order released since I testified; we
    continue to evaluate those to determine whether those are reasonable
    and appropriately tailored for small carriers.
        At bottom, RLECs are proud to serve as ``carriers of last resort''
    in their areas--responding to the requests of customers for service in
    areas where no competitor would want to venture given the lack of
    business case for doing so. This is perhaps the ultimate measure of
    accountability, as it ensures that the carrier first and foremost is
    responsible to satisfy its customers' demands. But the RLECs' ability
    to continue serving as such carriers of last resort--particularly for
    upgraded broadband network demands--will be in question if adequate USF
    and stable ICC mechanisms are not available.

        Question 3. What is the genesis of the ABC Plan's proposed $.0007
    rate for Intercarrier Compensation? Is $.0007 a cost-based rate for
    origination, transmission, or termination of calls (access rates) on
    the Public Switched Telephone Network (PSTN)? Are there any economic
    studies in the ABC Plan or by any regulatory body that demonstrate
    $.0007 to be a cost-based rate for termination of calls on the PSTN?
        Answer. The Consensus Framework called for a phase-down
    specifically of terminating end-office switching rates from current
    levels to $0.0007 over the course of 8 years for RLECs. As NTCA and the
    other rural associations made clear, this phase-down was the product of
    a substantial industry compromise, and was agreed to subject to the
    availability of a fully compensatory, rate-of-return-based access
    restructure mechanism for RLECs that would ensure: (1) recovery of the
    costs of performing transport and termination functions and (2)
    continued universal service in rural areas. It is also worth noting
    that this compromise did not include reductions to other ICC rate
    elements, including originating access charges or most transport rates.
        In presenting these economic terms as a potential path forward for
    FCC consideration, NTCA was careful not to indicate that the FCC could
    or should adopt those rates without involving the States as required by
    law or that it could implement such rate reductions without any
    consideration of the ``additional costs'' of transport and termination
    required by the Communications Act. We believe that the FCC's ability
    to implement these rate reductions and reach the ultimate rate of
    $0.0007 (or to mandate a rate of zero, which is what the Order does) is
    necessarily bounded and limited by the plain language of the statute
    that Congress enacted in 1996. In other words, the FCC might be able to
    adopt a methodology that leads toward a particular end-office switching
    rate if structured correctly, but the structure of and process for that
    reform is critical and the statute precludes any short-cuts in rate-
    setting or gamesmanship with ``methodologies'' that are really nothing
    more than rate-setting exercises.
                                     ______

         Response to Written Questions Submitted by Hon. Mark Pryor to
                               Shirley Bloomfield

        Question 1. I have consistently called for reform of the Universal
    Service Fund (USF) and the Intercarrier Compensation (ICC) system to
    further enable broadband deployment in areas it would not otherwise be
    economical. To what extent do you believe the ABC Plan and/or the RLEC
    Plan specifically accomplishes this goal?
        Answer. Subsequent to the hearing at which I testified, the FCC
    adopted an Order and Further Notice of Proposed Rulemaking that appears
    to incorporate only portions of the ABC Plan and requests further
    comment on most of the RLEC Plan. This being said, we continue to
    believe that these complementary plans would have been the most direct
    and efficient route to our shared goal--the deployment and operation of
    broadband-capable networks in the hardest-to-serve reaches of the
    United States. We hope that, after this opportunity for further
    comment, the FCC ultimately will find that the RLEC Plan, or at least
    significant components of it, could represent a reasonable means of
    achieving this important public policy objective.
        We designed the RLEC Plan to carefully ensure the sustainability of
    broadband-capable networks in high-cost rural areas. As context, small
    rural local exchange carriers (``RLECs'') serve areas that were long
    ago ``left behind'' by larger providers who had made the determination
    that no business case would justify investment or operations in such
    locations. Those conditions continue today, and RLECs serving those
    high-cost areas accordingly rely upon USF cost-recovery and other
    mechanisms (such as intercarrier compensation (ICC)) to ensure that
    rural consumers have access to advanced communications services.
        RLECs take seriously and are proud of the commitment to the
    communities they serve--they are locally-based small businesses that
    serve as carriers of last resort for consumers throughout these vast
    rural areas, rather than focusing their operations only on population
    clusters that dot this rural landscape. Accordingly, RLECs serve where
    the customers are, whether the small town core or in outlying areas
    beyond the town.
        The RLEC Plan looks to strike a balance by encouraging efficient
    investment in areas where broadband does not exist today and where the
    costs of such deployment and operation are not economical. At the same
    time, it affirmed that carriers that have already made investments in
    such hard-to-serve areas must have a reasonable opportunity to recover
    the costs of those investments. It is important to look at universal
    service as more than just a program to get networks out in rural
    America--it must be a broader program that ensures those investments
    stay in rural America and that the services on those networks stay
    affordable for rural consumers and enterprises.
        With respect to the question of how the RLEC Plan would enable
    broadband deployment specifically in areas that would otherwise not be
    economical to serve, this would be achieved primarily through a ``cost
    of service'' benchmark that would compare the costs of providing
    broadband in rural and urban areas. The difference between the ``urban
    benchmark'' and the cost to provide service in a rural high-cost area
    would isolate whether the area is in fact high cost and then also
    identify the potential support needed to serve that area. Put another
    way, under the RLEC Plan, an RLEC would not receive support unless the
    actual costs of deploying and operating a broadband-capable network in
    a given area exceeded those required to deploy the same kind of network
    in more densely populated areas.
        The ``benchmark'' under the RLEC Plan also reflects that the costs
    of operating in hard-to-serve rural areas are often driven by so-called
    ``middle mile'' costs--specifically, the costs of obtaining critical
    transport links from rural areas back to Internet points of presence in
    urban areas. Without cost-effective access to sufficient ``middle
    mile'' capacity, consumers with outstanding local broadband-capable
    networks in their rural areas could still lack quality broadband
    because of ``roadblocks'' (i.e., insufficient capacity) in the middle
    mile network. The RLEC Plan ``benchmark'' ensures that small carriers
    can obtain support for those ``middle mile'' costs that are in excess
    of those that would typically be incurred in operating in a more urban
    or suburban setting.
        Finally, the RLEC Plan enables broadband deployment by encouraging
    broadband adoption. The plan is designed to encourage vigorous RLEC
    promotion of broadband subscriptions, allowing RLECs better opportunity
    to recover their costs to the extent that more customers in the rural
    area make use of broadband services. We think this is an important and
    attractive feature of the plan, since it addresses the clear need for
    support to enable deployment and operation in such areas while giving
    RLECs an incentive to create a better business case and seek more
    revenues directly from their customers over time.

        Question 2. Are there changes to the public interest obligations
    and cost recovery mechanisms suggested in the ABC Plan and the RLEC
    Plan the FCC has contemplated that could compromise the ability of
    broadband providers in states like Arkansas to justify investment in
    unserved and underserved areas? What adjustments would and should the
    FCC be able to make this year to ensure that these areas receive
    broadband service?
        Answer. Perhaps one of the most significant concerns in any reform
    process is the need to ensure reasonable transition periods that enable
    consumers and providers to react appropriately to regulatory change. In
    contrast, unnecessary and disruptive ``flash cuts'' can often impose
    damaging impacts that undermine the benefits that reform was intended
    to create. There is near-universal agreement that reform is needed, but
    often overlooked is the fact--at least for RLECs and their consumers--
    that the existing mechanisms have proven effective and efficient in
    enabling broadband deployment and operation. From the RLEC perspective,
    reform is necessary primarily to ensure that the existing mechanisms
    are made more sustainable and re-oriented for broadband.
        Absent timely and rational reform, regulatory uncertainty will
    continue to depress incentives for investment and limit access to both
    publicly-administered and privately-obtained capital. ``Flash cuts'' to
    new mechanisms or reforms that ``change the rules'' in a way that
    doesn't allow for providers to adjust will undermine the objectives of
    such reform. For example, reforms that retroactively undercut a
    carrier's ability to recover investments made in good faith under
    existing rules will do little, if anything, to advance the cause of
    broadband. These sorts of caps would destroy market confidence in the
    regulatory process, and place individual carriers in an untenable
    position. While a ``prospective'' cap or limit on support may be
    something to which a provider can adjust (if adequate time is given), a
    retroactively-applied ``cap'' or similar backward-looking constraint on
    cost-recovery would upend regulatory principles deriving from
    retroactive ratemaking. Stated simply, a carrier that invested in good
    faith under existing rules cannot tear its network out of the ground or
    undo existing loan commitments (many of which are commitments to a U.S.
    agency and backed by taxpayer dollars) simply to comply with a new
    backward-reaching rule that limits recovery of prior investments.
        The FCC must therefore be surgical in its approach to reform. The
    FCC must incorporate the best of what has worked in the existing
    system, improve aspects that are do not meet current needs, and then
    take specific, targeted steps to implement change.. Overly broad or so-
    called ``experimental'' reforms have no place in the Congressional
    mandate, as articulated in the Communications Act of 1934, as amended,
    to ensure universal access to advanced services throughout the Nation.
    Pursuit of unproven (or disproven) techniques will result in unintended
    consequences that will have devastating impacts on rural America and,
    by extension, the National networks. This option should not be selected
    over more sensible solutions.
        Toward these ends, we support carefully designed FCC steps that
    would start immediately to: (1) shut down long-standing arbitrage
    practices that undermine the integrity of the existing intercarrier
    compensation system; (2) begin paced reforms of that intercarrier
    compensation system that will lead to unified rates, subject to
    ensuring that implicit support within intercarrier rates will be
    replaced by explicit and sufficient supplemental universal service
    support; and (3) begin implementation of a measured, carefully designed
    universal service reform plan that migrates funding over time and with
    reasonable opportunity to adjust from support of voice services to
    support of higher-capacity broadband-capable networks. This sort of
    calibrated response--such as that advocated in the RLEC Plan--will more
    effectively ensure the advancement of broadband networks throughout the
    Nation, restore investment and lender confidence, and thereby affirm
    the FCC's fulfillment of its Congressional mandate to promote universal
    service.
                                     ______

      Response to Written Questions Submitted by Hon. Olympia J. Snowe to
                               Shirley Bloomfield

    Contribution Factor--Refer to Appendix A for historical data and trend
            lines.*
    ---------------------------------------------------------------------------
        \*\ [See p. 80 of this transcript].
    ---------------------------------------------------------------------------
        Question 1. Both the industry's ABC proposal and the FCC's current
    efforts to reform the Universal Service Fund deal primarily with the
    distribution side of the program and don't really address reforming the
    contribution mechanism of USF. However, the contribution factor has
    increased from 5.6 percent in 2000 to over 15 percent present day
    (figure 1), in part due to the shrinking contribution based that is
    assessed. To illustrate, the adjusted contribution base for the 4th
    Quarter of 2011 is $14 billion compared to a contribution base of $17
    billion for the 4th Quarter of 2007 (figure 2). So if no changes are
    made to the contribution mechanism, the financial burden to consumers
    could continue to increase due to a continued decrease in interstate
    and international revenue.
        As the statute stipulates, companies must pay a percentage of their
    interstate and international telecommunication service revenues to the
    Universal Service Fund, intrastate revenues are excluded as well as
    information services such as broadband Internet access. A key
    recommendation within the National Broadband Plan is to broaden the USF
    contribution base.\1\
    ---------------------------------------------------------------------------
        \1\ Recommendation 8.10: The FCC should broaden the universal
    service contribution base.
    ---------------------------------------------------------------------------
        Should the contribution base for USF be expanded to all
    telecommunications and broadband providers to: (1) lessen the financial
    burden on consumers and (2) make such assessment more equitable? And do
    you believe expanding the base requires Congressional action?
        Answer. NTCA has long been concerned about the future of the
    universal service system as a whole and how to best ensure that both
    the contribution and distribution sides of the program effectively meet
    the statutory predictability, sufficiency, and comparability mandates
    associated with this long-standing national policy. For some time, our
    association and its members have been concerned about the contribution
    base and its related assessment factor, and their ability to
    appropriately carry out their statutory mandates.
        There is no question that the dramatic evolution of the
    communications industry is impacting the program and particularly its
    contribution aspects. Truly, this is an issue that warrants a
    meaningful solution. But, it is important to keep the overall matter in
    perspective and approach it in a way that solves the right problems
    rather than viewing it as yet another means of undermining the
    universal service system, as some appear ready to do.
        There are meaningful solutions to the contributions dilemma and for
    the most part congressional action would not be necessary to effectuate
    such change. While the FCC does not appear to have the authority to
    move away from the assessment of interstate and international
    interexchange revenues, the agency does have the authority to merely
    expand the contribution base to include the assessment of entities
    beyond the tradition communications industry players that have been
    subject to such assessment to date. The FCC could dramatically improve
    the supply equation by expanding the contribution base to fixed and
    mobile retail broadband Internet Access Revenues, texting revenues, and
    non-interconnected (1-way) voice over Internet protocol (VoIP) service
    revenues. Also, serious consideration should be given to how to ensure
    that web-based enterprises, that clearly place a substantial burden on
    networks, contribute directly or indirectly to universal service to
    help sustain the very networks they rely upon for their success.
        The FCC has ample authority and good public policy reasons to
    expand the contribution base. As previously noted, section 254(d) of
    the Communications Act permits the assessment on any provider of
    interstate and international telecommunications. And, ensuring that
    broadband, non-interconnected VoIP, and texting services share in the
    responsibility of building and maintaining the infrastructure upon
    which those services rely, is good public policy that is in our
    economic and national security interests.
        We believe these actions and approaches outlined above could be
    initiated and implemented by the FCC without additional or specific
    congressional action.

        Question 2. If you agree the contribution base should be expanded,
    what suggestions of reform do you have to meet the previous questions
    criteria?
        Answer. As noted above, we believe the FCC should immediately
    initiate action to effectuate the expansion of the contribution base to
    effectively result in the assessment of fixed and mobile retail
    broadband Internet access revenues, non-interconnected VoIP revenues,
    and texting revenues, and that the FCC should consider how to ensure
    that web-based enterprises, that place a substantial burden on
    networks, contribute directly or indirectly to USF and ultimately help
    sustain such networks upon which their business models are entirely
    reliant.

    Contribution Mechanism Methodologies
        Question 3. Some industry groups and companies have advocated for
    the adoption of a numbers-based contribution mechanism. They have
    stated that such format would provide a more stable, predictable and
    nondiscriminatory funding mechanism that would affect all providers and
    end-users of voice services equitably, irrespective of the particular
    technology used to provide that service.
        However, the major goal of the ABC proposal and the FCC's effort to
    reform USF are to transition today's voice-focused high-cost Universal
    Service Fund into a broadband-focused fund. So a numbers-based--
    particularly phone number based--contribution mechanism would not
    necessary properly map to a more broadband-centric fund.
        What are your views on the benefits and disadvantages of both a
    numbers-based contribution mechanism and a general revenue-based
    methodology, where a carrier would be assessed based on their total
    gross communications services (telecommunications and information two-
    way services) revenue?
        Answer. NTCA has long held that the assessment of revenues, as
    opposed to assessing numbers or other hybrid approaches that have their
    own problems and issues, is still likely the best approach for ensuring
    the universal service program is appropriately funded. First it is
    already statutorily mandated and to move away from revenue's assessment
    would require legislative action. The FCC could much more easily move
    in the direction outlined above, which would be to merely expand the
    contribution base to capture the multitude of revenues that are
    representative of today's communications traffic patterns and
    infrastructure users.

    Voucher Program for USF
        Question 4. Various parties have suggested reforming the USF
    program's disbursement process. Instead of the USF collecting money
    from telecommunications carriers and then distributing the funds to
    households that need assistance paying for phone service, some have
    suggested giving the low-income households direct vouchers that they
    could use for communications services.
        Such arrangement would be similar to the Housing Choice Voucher
    Program (Section 8) provided by the Department of Housing and Urban
    Development (HUD) to subsidize housing for low-income families and
    individuals. The participant is free to choose any housing that meets
    the requirements of the program and is not limited to units located in
    subsidized housing projects.
        Could such modification to a direct voucher program improve the
    effectiveness of the Fund as well as help reduce waste, fraud, and
    abuse? Is this something that Congress should examine and possibly
    implement?
        Answer. NTCA has long viewed communications related voucher
    programs of any nature with a very skeptical eye, primarily because
    vouchers do nott build infrastructure. America's rural markets have
    never been natural candidates for competition and particularly when
    viewed from the perspective that NTCA's small rural community-based
    providers do. These carriers typically have evolved because no other
    carrier found it economic to serve in these markets. Cooperatives and
    small family or community held communications systems have a deep
    commitment to service rather than profit making and generally have
    state regulated responsibilities to serve not just the population
    center of their markets, but each and every consumer that desires
    service throughout their markets. Responding to these responsibilities
    is extremely costly and that is why NTCA's members are so reliant upon
    the universal service and intercarrier compensation cost recovery
    mechanisms and the Rural Utilities Service financing programs, that
    together ensure these rural providers are able to fulfill their service
    missions' and policymakers' expectations. To go down the road of merely
    providing vouchers to consumers would lead to a situation where the
    providers that have a commitment and responsibility to serve the entire
    market area, would no longer have the ability to rely on cost recover
    streams from the universal service related mechanisms that have
    traditionally ensured they could plan their network deployment and
    effectively predict their cost recovery. In the situation of
    communications, we do not see vouchers in any of the universal service
    program elements, as a viable or appropriate distribution alternatives,
    and would vigorously discourage policymakers from such considerations.
                                     ______

      Response to Written Question Submitted by Hon. Claire McCaskill to
                                Philip B. Jones

        Question. What is the genesis of the ABC Plan's proposed $.0007
    rate for Intercarrier Compensation? Is $.0007 a cost-based rate for
    origination, transmission, or termination of calls (access rates) on
    the Public Switched Telephone Network (PSTN)? Are there any economic
    studies in the ABC Plan or by any regulatory body that demonstrate
    $.0007 to be a cost-based rate for termination of calls on the PSTN?
        Answer. It appears that the justification of the $.0007 rate
    derives from the so-called ISP Remand Order of the FCC that was
    released on April 27, 2001 (CC Docket No. 96-98, 99-68, and FCC 01-
    131). In that Order, the FCC established rate caps for only ISP-bound
    traffic (not all circuit-switched traffic that is exchanged among
    carriers over the PSTN, or public-switched telephone network) that
    ended at $.0007 after a three-year phase-in period (hence, the term
    used is interim Federal default rate for ISP-bound traffic). The
    ultimate rate that the FCC determined to be appropriate for ISP-bound
    traffic in that Order was bill-and-keep, but they declined to adopt
    such a regime in that Order suggesting that the Commission would
    revisit the issue later and examine more evidence. However, the issues
    surrounding this Order, both the legal rationale used and the economic
    justification and types of traffic subject to this Federal default
    rate, have been litigated extensively over the past decade.
        Moreover, one must point out several issues related to the
    determination of the $0.0007 default rate in this Order. First, it was
    only meant to be an ``interim'' default rate for a short period of
    time, until the Commission could gather more evidence on actual costs
    of exchanging traffic and recent interconnection agreements among
    carriers. Second, it applied only to ISP-bound traffic at that time,
    which at that time was largely being carried by CLECs to terminating
    carriers for dial-up ISP access. Finally, there was no determination or
    real evidence in the record of the actual costs of exchanging and
    terminating ISP-bound traffic. Instead, the Commission merely
    referenced several recently concluded interconnection agreements
    between a CLEC and a local exchange carrier (LEC) to justify the $.0007
    rate, but without having such agreements and their terms and conditions
    subject to scrutiny and review by the many other stakeholders involved
    in the process.
        Regarding the background of the ABC plan's use of this rate for all
    traffic, earlier in the proceeding, Verizon--an ABC plan proponent--
    argued that a substantial amount of traffic is billed at 0.0007 today--
    but it provided no statistics to back up its claim.\1\ It is also
    difficult to determine if a 0.0007 rate could be cost based. The ABC
    plan proponents did file a description of a model they claimed supports
    their proposed 0.0007 rate.\2\ But they didn't provide any realistic
    access to the model to anyone interested in testing or critiquing its
    assumptions.\3\
    ---------------------------------------------------------------------------
        \1\ Interestingly, another ABC plan proponent, AT&T argued in 2009
    before the Connecticut commission that ``merely adopting that [$0.0007]
    rate based on an inference, which has no record support, that it is
    somehow above AT&T Connecticut's costs would be arbitrary and
    capricious.'' See, DPUC Investigation into the Southern New England
    Telephone Company's Cost of Service Re: Reciprocal Compensation, Docket
    No. 09-04-21, Reply Brief of SNET, at 41 (December 4, 2009). That seems
    inconsistent on its face with its current positions.
        \2\ See, Letter from Robert W. Quinn, Jr., AT&T, Steve Davis,
    CenturyLink, Michael T. Skrivan, FairPoint, Kathleen Q. Abernathy,
    Frontier, Kathleen Grillo, Verizon, and Michael D. Rhoda, Windstream,
    to Marlene H. Dortch, FCC,WC Docket No. 10-90 et al., (filed July 29,
    2011), (Transmittal Letter--2 pages): http://fjallfoss.fcc.gov/ecfs/
    document/view?id=7021698690,
    (Company Advocacy Cover Letter--5 Pages): http://fjallfoss.fcc.gov/
    ecfs/document/view?id
    =7021698691, (Attachment 1--Framework of Proposal--14 Pages): http://
    fjallfoss.fcc.gov/ecfs/document/view?id=7021698692, (Attachment 2--
    Summary of Model Results--04 Pages): http://fjallfoss.fcc.gov/ecfs/
    document/view?id=7021698693, (Attachment 3 Model Description--28
    Pages): http://fjallfoss.fcc.gov/ecfs/document/view?id=7021698694,
    (Attachment 4 Purported Benefits--34 Pages): http://fjallfoss.fcc.gov/
    ecfs/document/view?id=7021698695, (Attachment 5--``Legal'' analysis--69
    Pages): http://fjallfoss.fcc.gov/ecfs/document/view?id=7021698696.
        \3\ The circumstances clearly indicate the ABC plan proponents were
    never interested in any critique of that model. Although they
    necessarily completed the model before they filed their proposal, they
    delayed providing any access to the model until too late in the process
    to allow any serious review and criticism. Some parties complained in
    late September that the belated ``access'' first offered was defective.
    No analyst could make any realistic judgments about the validity of the
    models outputs based on the limited access provided. Indeed, even if
    full access had been provided, the proponents studied decision to delay
    releasing the model until so late in the process already denied parties
    adequate time to vet the model before FCC action. On September 19th,
    less than seven days before the FCC Chairman circulated a draft of the
    order voted out at the October agenda meeting, the ABC proponents filed
    with the FCC a plan to--purportedly--provide ``full'' access to the
    model's inner workings--and in so doing necessarily conceded that the
    access they provided previously was insufficient for any useful
    analysis. But even assuming arguendo, two weeks was a legally adequate
    time to review the model, the proponents further limited access to six
    workstations a day and to parties that had the financial resources to,
    on incredibly short notice, send expert staff to Cincinnati, Ohio and
    pay $500 for access and $100/day to examine the model.
    ---------------------------------------------------------------------------
        Certainly, more than one of the expert State Commission members and
    staff of the Federal-State Joint Board on Universal Service believe the
    proposed 0.0007 cannot be cost based and is likely to harm competitive,
    mid-sized, small and rural carriers while saving the largest carriers
    billions of dollars. According to the State member comments, such an
    intercarrier compensation proposal would affect most small carriers and
    some mid-sized carriers by reducing revenues, decreasing earnings, and
    potentially impairing access to capital. Moving to a bill-and-keep
    regime, which the FCC's recent order proposes, which provides zero
    compensation for traffic termination can only further exacerbate this
    problem. It is difficult to see how such a regime could be cost-based.
    Indeed, based on FCC precedent,\4\ the Act's pricing standards cannot
    be read to support bill and keep absent factual finding that the
    traffic is substantially in balance or that LECs incur no additional
    costs to terminate traffic. We must await the publication of the text
    of the Commission's final order to discern what will necessarily be a
    novel legal justification for the approach suggested in the draft
    order.
    ---------------------------------------------------------------------------
        \4\ First Local Competition Order, 11 FCC Rcd 16055, at Paragraph
    1112.
    ---------------------------------------------------------------------------
        The biggest problem with the direction suggested by both the FCC
    order and the ABC plan is that a single, national unified intercarrier
    compensation rate does not take into account the unique circumstances
    of each carrier. The State Members' plan makes clear that a Federal
    unified rate is not necessary right now because of the unique geography
    and terrain of each state, and the challenges of applying a methodology
    to determine a one-size-fits-all rate that will actually recover the
    real variable costs of the access service. The State members analyzed
    many scenarios and determined a way to reduce interstate and bring
    intrastate access much lower and very close to interstate while
    recognizing the unique cost characteristics of classes of carriers.
        My State colleagues on the Joint Board also believe the move to a
    single unified rate not only is bad for small and mid-sized carriers
    but is also contrary to explicit Congressional direction. The Telecom
    Act of 1996 clearly preserved State authority over intrastate services
    and rates. Outright preemption, or indirect preemption through a
    Federal system that establishes one unitary rate for all 50 states, of
    states' access charge authority is not necessary to accomplish
    Congressional goals. Moreover, the legal theory advanced to accomplish
    preemption by the ABC plan proponents is a clear deviation from
    Congressional intent. Most states have already substantially reduced
    intrastate access rates, or are in the process of reducing such rates.
    The FCC could easily provide incentives for the small minority of
    remaining States to act in a timely fashion.
                                     ______

      Response to Written Questions Submitted by Hon. Olympia J. Snowe to
                                Philip B. Jones

    Contribution Factor--Refer to Appendix A for historical data and trend
            lines.*
    ---------------------------------------------------------------------------
        \*\ [See p. 80 of this transcript].
    ---------------------------------------------------------------------------
        Question 1. Both the industry's ABC proposal and the FCC's current
    efforts to reform the Universal Service Fund deal primarily with the
    distribution side of the program and don't really address reforming the
    contribution mechanism of USF. However, the contribution factor has
    increased from 5.6 percent in 2000 to a level approaching 20 percent
    today (figure 1), in part due to the shrinking contribution base of
    interstate toll revenues. To illustrate, the adjusted contribution base
    for the 4th Quarter of 2011 is $14 billion compared to a contribution
    base of $17 billion for the 4th Quarter of 2007 (figure 2). Moreover,
    the latest information from USAC for the First Quarter of 2012
    indicates that the contribution factor will increase to about 17.9
    percent. So if no changes are made to the contribution mechanism, the
    financial burden to consumers could continue to increase due to a
    continued decrease in interstate and international revenue.
        As the statute stipulates, companies must pay a percentage of their
    interstate and international telecommunication service revenues to the
    Universal Service Fund, intrastate revenues are excluded as well as
    information services such as broadband Internet access. A key
    recommendation within the National Broadband Plan is to broaden the USF
    contribution base.\1\
    ---------------------------------------------------------------------------
        \1\ Recommendation 8.10: The FCC should broaden the universal
    service contribution base.
    ---------------------------------------------------------------------------
        Should the contribution base for USF be expanded to all
    telecommunications and broadband providers to: (1) lessen the financial
    burden on consumers and (2) make such assessment more equitable? And do
    you believe expanding the base requires Congressional action?
        Answer. Contributions are an integral part of USF reform. I and
    many of my State colleagues believe the FCC should have tackled
    contributions in the most recent USF/ICC order. The problem with not
    addressing contributions at the same time as fund distribution is
    obvious. There is no program without a sound funding foundation.
    Logically, that should be established before deriving any distribution
    plan. However, I am very pleased to hear the FCC is taking steps to
    address contributions very soon and look forward to working with them.
        I agree with the State members of the Federal-State Joint Board on
    Universal Service. The USF assessment must be reformed for the reasons
    you discuss. Currently, the burden of USF falls on decreasing
    interstate telecommunications revenue. Section 254 of the Act makes
    clear that ``every telecommunications carrier that provides interstate
    telecommunications services shall contribute, on an equitable and
    nondiscriminatory basis, to the specific, predictable, and sufficient
    mechanisms. . . . Any other provider of interstate telecommunications
    may be required to contribute to the preservation and advancement of
    universal service if the public interest so requires.'' To date the FCC
    has failed to classify point-to-point fee based VoIP services. Such
    services easily meet the functional definition Congress designated as
    ``telecommunications services''--which are--in the statute--equivalent
    to ``telecommunication services.'' The most recent order takes a
    byzantine discussion and reclassification of funded services--which
    seems to affirm that only common carriers that provide ``voice
    telephony'' services can receive Federal funding, but leaves broader
    definitions untouched. A few years ago, the FCC overturned years of
    precedent that high speed data services are ``telecommunications
    services''--as they were so classified at the time the 1996 legislation
    was enacted and currently, some carriers are allowed to choose whether
    to provide broadband on a common carrier basis (with a separate ISP of
    the customers choosing) or as an ``information service''.
    Unfortunately, the statute currently specifies that only a
    telecommunications carrier that provides a ``interstate
    telecommunications service'' (not simply ``interstate
    telecommunications'') must contribute to the Federal fund. This problem
    is most easily ameliorated by simply classifying at least point to
    point voice as a ``telecommunications service'', regarding of which
    technology is used.
        Broadening the base could greatly reduce the Federal surcharge rate
    and should also be more resistant to the erosion of narrow-band voice
    service revenue. In their filing the State Members of the Federal State
    Joint Board on USF's staff estimate that if all revenues currently
    reported on line 418 of FCC Form 499 were required to contribute, that
    would reduce the carrier contribution factor to approximately 2 percent
    from the current level of about 15 percent. While some information
    services currently reported on line 418 are excluded, that would raise
    the rate somewhat, but the final USF surcharge rate would be far lower
    than at present.
        Personally, I don't believe the FCC needs Congressional action to
    expand the contribution base. As a statutory basis for this proposed
    action, the Commission can use its discretionary Section 254(d) funding
    authority to require contributions from any ``provider of interstate
    telecommunication.'' The Commission previously used this authority to
    impose surcharges on voice over Internet protocol services for E911
    services and the like.
        However, Congressional action may be preferred to eliminate the
    potential legal challenge likely to result from FCC action to expand
    the base to previously un-assessed services. I haven't made any
    personal conclusion on which approach might be preferable, and NARUC as
    a whole has not taken a position on contribution reform. But one
    approach you may wish to consider was a proposal by Cong. Boucher and
    Terry in the fall of 2009 included in their ``Discussion Draft'' for
    Universal Service Reform. Section 102 of that Draft sets forth a draft
    proposal which I think provides a good starting point for discussion
    and debate. It requires the FCC to complete contribution reform on
    passage of the bill, but provides the Commission with sufficient
    flexibility to accommodate various interest groups and concerns. It
    suggested that the Commission consider three possible methodologies for
    assessment: (a) revenues-based system on interstate, intrastate, and
    foreign communication services; (b) working telephone numbers; and (c)
    any other current of successor identifier protocols or connections to
    the network used by communications service providers. It allowed the
    Commission to consider either one methodology or a combination thereof,
    and also allowed for certain exceptions for low-volume users, de
    minimis use, and group plans (presumably for a working telephone
    numbers based approach.
        The devil will be in the details in terms of the methodology chosen
    and how it is applied, and it will be difficult to satisfy the needs of
    each particular interest group and user of today's increasingly diverse
    communications system. No methodology will be perfect, and the states--
    both commissions and other agencies--will need to be a part of the
    solution. But I would urge you to keep a few basic regulatory
    principles in mind as you craft a new solution. The first is the
    concept of unforeseen consequences: almost anything the Commission, or
    Congress, does will have some consequences we cannot foresee today. So
    I suggest that you build in a certain amount of flexibility for the
    implementing agencies as we face real-world situations and devise
    rules; this would include the Commission, USAC as the Federal
    implementing agency, state commissions (especially those with state USF
    funds), other state agencies, and of course the communication service
    providers. You may want to build in a certain mandatory review period
    after a certain number of years (eg, three or five years) at which
    point we can review and modify the rule, so that we don't repeat the
    mistake we have made in relying on interstate toll revenues for such a
    long period of time. The second is that we should realize that the pace
    of technological change in this industry is very swift, and that we
    should not try to favor, or disfavor, any particular technology in the
    contribution methodology that is selected. We should try to target
    reform on communications traffic that travels from one point
    (originating) to the point where the consumer receives and uses the
    voice/data (termination); we should not try to base our laws and
    regulations on the type of traffic or technology. Finally, we should
    keep the principles of universal service in mind as we craft the new
    rules on contribution reform. Specifically, we should adhere to the
    principle that all users of communications services should be able to
    receive the most up-to-date and relevant communications traffic--
    whatever the content and whatever the medium--in all parts of this
    country.

        Question 2. If you agree the contribution base should be expanded,
    what suggestions of reform do you have to meet the previous questions
    criteria?
        Answer. As for what should be done, I agree with the State members
    of the USF joint board (State Members) who recommended that the FCC
    broaden the Federal universal service contributions base to include all
    services that touch the public communications network. By ``public
    communications network'' they meant the interconnected communications
    network that uses public rights of way or licensed frequencies for
    wireless communications. The same contribution base should be used to
    generate support for High Cost programs and for Schools and Libraries,
    Rural Health Care and Low Income programs. This proposal would better
    match the realm of services that benefit from universal access to the
    services that must contribute to that universal access.
        The State Members recognized that some line drawing is needed
    between the services that should contribute to USF and those that
    should remain exempt. They did not claim to have fully defined that
    line at the time when comments were due in the FCC's proceeding earlier
    this year. They did recommend, however, that broadband and services
    closely associated with the delivery of broadband should contribute.
    This change is essential if universal service funds are going to be
    used to build broadband facilities. Broadening the contribution base
    matches well with a broadening of the distribution purposes of the fund
    to include the total network deemed essential for universal service in
    the future.
        The USF surcharge should apply equitably to all broadband services
    such as DSL, Cable Modems, and wireless broadband. The surcharge may
    also include services, such as ISP service, that are traditionally
    bundled with those broadband services. Generally, the State Members did
    NOT intend that pure content delivered by non-telecommunications
    carriers over broadband facilities should contribute.
        To assist the Commission in defining this line more clearly, the
    State Members suggested that the Commission examine the current
    reporting categories defined for FCC Form 499-A. Form 499-A requires
    reporting on Line 418 some services that should be subject to the USF
    surcharge, like DSL, and some services, like Westlaw for example, that
    should not be subject to the USF surcharge.
        State Members were aware that the Commission has drawn a
    fundamental divide between ``telecommunications services'' and
    ``information services,'' and the Commission has placed broadband
    services in the latter group. Nevertheless, they did not believe that
    distinction would be particularly helpful in defining the contribution
    boundary for universal service, particularly when the fund is used to
    support both classes of service. If the ``information service'' concept
    is to be useful here at all as an exception from contribution
    requirements, it should be narrowed to a more traditional scope that
    excludes services like Westlaw but that includes retail broadband
    service.
        The State Members recommended that the Commission make the maximum
    effort to separate the question of what services should contribute to
    universal service from the question of whether service rates are
    ``regulated'' and, if so, at what level of government. They concluded
    that the list of contributors to universal service should have little
    or no relation to: (1) whether the FCC has authority to prescribe rates
    and standards for that service; (2) whether States have that regulatory
    authority; or (3) whether no government has that regulatory authority.
        The courts have held that States may constitutionally impose sales
    taxes on both interstate and intrastate telecommunications. Similarly,
    State Members believed that the U.S. Constitution does not prohibit
    either a Federal universal service surcharge or a State universal
    surcharge, or both, on all services delivered over the public
    communications network.
        The statute requires that contributions must be ``equitable and
    nondiscriminatory.'' The State Members do not believe it to be either
    inequitable or discriminatory for a single service to be subject to
    both a State universal service surcharge and a Federal universal
    service surcharge. Currently, 23 states have their own complimentary
    funds that distribute over $1.5 billion each year.\2\ While the two
    universal service programs aim at a common goal, they often support
    different elements. The Federal program supports schools and libraries,
    health care, and low-income programs, while many State programs do not.
    At least one State has a universal service program that supports E-911
    services, while the Federal program does not. Moreover, even in States
    where only high-cost support is provided, the State and Federal
    programs can and should function cooperatively, not competitively.
    ---------------------------------------------------------------------------
        \2\ States with USF programs: Alaska, Arizona, Arkansas,
    California, Colorado, Idaho, Illinois, Indiana, Kansas, Maine,
    Nebraska, Nevada, New Mexico, Oklahoma, Oregon, Pennsylvania, Puerto
    Rico, South Carolina, Texas, Utah, Vermont, Wisconsin, Wyoming.
    ---------------------------------------------------------------------------
        The actual benefits of existing universal support programs have
    only tenuous connections to traditional regulatory classifications or
    the level of government that collects USF contributions. While two
    Federal high-cost programs are aimed at ``interstate'' costs,'' all the
    others aim primarily to reduce intrastate rates. Support for Schools
    and Libraries, Health Care and Low Income support is used by grantees
    to purchase an inextricable combination of interstate and intrastate
    services. Moreover, when today's service providers use high-cost
    support to extend the reach or the capability of their existing
    networks, they are not deploying an interstate or an intrastate
    product, only non-jurisdictional facilities. Today's service providers
    spend new construction dollars to meet the present and future demands
    of their customers, and jurisdictional distinctions have little to do
    with that process. The Commission, State Members and carriers all seek
    to maximize the deployment of the best infrastructure to meet the
    future needs of our Nation and achieve the goals of universal service.
        Efforts to broaden the base of the Federal universal service
    programs should necessarily clarify that States have equal authority to
    broaden their assessment base and, if done by the FCC, should specify
    that such assessments do not ``burden'' the Federal funding mechanism.
    Contribution Mechanism Methodologies
        Question 3. Some industry groups and companies have advocated for
    the adoption of a numbers-based contribution mechanism. They have
    stated that such format would provide a more stable, predictable and
    nondiscriminatory funding mechanism that would affect all providers and
    end-users of voice services equitably, irrespective of the particular
    technology used to provide that service.
        However, the major goal of the ABC proposal and the FCC's effort to
    reform USF are to transition today's voice-focused high-cost Universal
    Service Fund into a broadband-focused fund. So a numbers-based--
    particularly phone number based--contribution mechanism would not
    necessary properly map to a more broadband-centric fund.
        What are your views on the benefits and disadvantages of both a
    numbers-based contribution mechanism and a general revenue-based
    methodology, where a carrier would be assessed based on their total
    gross communications services (telecommunications and information two-
    way services) revenue?
        Answer. Absent new legislation, as long as the contributing carrier
    is providing an ``interstate telecommunications service''--an argument
    could be constructed to justify either approach under the existing
    statute. Moreover, the Commission has to clarify the threshold legal
    issues involving ``telecommunications services'' and ``information
    service'' in order to provide clear guidance to both the communications
    service providers and the states that administer USF programs. Without
    sufficient legal authority and clear guidance, the carriers and states
    may continue to be quite constrained with regard to how broadly the new
    contribution is defined, and how it is to be collected and
    administered--by either USAC as the Federal Administrator, or the state
    USF Administrator. As I stated above, the Boucher-Terry draft
    discussion legislation provided a menu of options from which you could
    choose including gross revenues, working telephone numbers, or a
    network (Internet) connections-based methodology. One can conceive of a
    ``hybrid'' methodology in which each of the various approaches could be
    incorporated in to an overall mechanism. A numbers-based approach seems
    more likely to survive judicial review as there is court precedent that
    suggests the FCC may not calculate fees based upon intrastate revenues.
    Yet working telephone numbers may have their own disadvantages as well,
    in terms of the technology assessed, and incentives (depending on how
    high the surcharge is set per working telephone number--some analysts
    have suggested $1.00 per number, but no definitive study has been
    conducted to my knowledge) for carriers to ``arbitrage'' around this
    number by adopting new switches, routers, or technologies.
        There are arguments both for and against the above approaches. Two
    things are obvious--if more contribute--the per contribution amount is
    reduced and if a larger revenue base is assessed--even if the raw fee
    is the same--the percentage number will be smaller. It is clear to me
    that the present trend of an increasing contribution factor--now
    approaching 20 percent--on interstate toll revenues is not sustainable.
    I have not yet formed an opinion on what might be the best approach. If
    new legislation is contemplated, one could also consider if it might be
    appropriate for funding for this program to come from general tax
    revenues rather than from an agency administered variable phone
    surcharge. Such an approach could eliminate the costs of the current
    separate collection mechanisms and might lead to greater efficiencies.
    Voucher Program for USF
        Question 4. Various parties have suggested reforming the USF
    program's disbursement process. Instead of the USF collecting money
    from telecommunications carriers and then distributing the funds to
    households that need assistance paying for phone service, some have
    suggested giving the low-income households direct vouchers that they
    could use for communications services. Such arrangement would be
    similar to the Housing Choice Voucher Program (Section 8) provided by
    the Department of Housing and Urban Development (HUD) to subsidize
    housing for low-income families and individuals. The participant is
    free to choose any housing that meets the requirements of the program
    and is not limited to units located in subsidized housing projects.
    Could such modification to a direct voucher program improve the
    effectiveness of the Fund as well as help reduce waste, fraud, and
    abuse? Is this something that Congress should examine and possibly
    implement?
        Answer. I do not have a comparable experience base to evaluate this
    idea. Let me point out some pros and cons of each approach.
        Arguing in favor of a carrier-based subsidy program is the
    following. First, carriers of great knowledge and expertise in building
    out advanced communication networks, and dealing with phone
    subscribers, namely their customers. Secondly, they are usually quite
    familiar with the terrain and geography of each particular state and
    region, and know how to adapt their network to the needs of these
    communities. Third, despite the challenges (including waste and abuse)
    involved in the current program that is administered by USAC for
    eligible telecommunications carriers, we have an established program in
    place that in many respects has done an admirable job of building out
    voice and advanced telecommunications services to rural America.
        Arguing in favor a direct voucher program is the following. First,
    the consumer would have the ability to choose his or her particular
    carrier, instead of a government agency or the carrier. Second, one may
    be able to economize on administration and overhead costs (as well as
    possible margin for the ETC carrier) if one moves to a direct voucher
    system, thereby freeing up more funds for the whole program. Third, in
    a time of increasing choices given to consumers through applications
    carried out advanced networks, it seems timely to give the consumer
    more choice and authority to select the carrier and level of services.
        Yet each approach has shortcomings as well. The shortcomings of the
    carrier-based system are well-known and documented, and the subject of
    numerous Congressional and GAO inquiries. Yet one can anticipate
    certain challenges with a voucher-based system as well, such as
    administrative complexity, the lack of familiarity with a non-
    telecommunications agency (whether it be housing, social services, or
    whatever) with administering a telecommunication network subsidy
    program, and so forth. Also, as opposed to a fee-based approach like
    the current system, a voucher system would more likely than not be
    subject to the vagaries of the annual Congressional appropriations
    process. Moreover, one might not have the flexibility in a voucher-
    based program to match costs and revenues, which may lock in a higher
    level of payment to the recipient in a voucher when economies of scale
    and other forces are forcing costs down in a telecommunications
    network.
        In summary, I believe that the history of the universal service
    program for telecommunications back to the 1930s offers us a few
    historical pointers. In general, government agencies perform poorly
    when they seek to make technology choices through legislative or
    administrative fiat, rather than letting consumer views and the markets
    decide. It does seem that a voucher approach would at least have the
    benefit of being technology neutral and not advantaging any particular
    technology or provider--just focusing the funding on the people that
    need assistance. I recognize this ``fund company'' vs. ``fund people''
    debate has been around ever since we've had Federal and state universal
    programs to build out telephone networks starting in the Roosevelt
    Administration over eight decades ago. But if Congress is going to
    consider legislation to reform the USF contribution methodology, I
    believe a direct voucher approach should at least be considered along
    with other more traditional reform options.
                                     ______

                                                       October 18, 2011
    Senator John D. Rockefeller IV,
    Chairman,
    U.S. Senate,
    Committee on Commerce, Science, and Transportation
    Washington, DC.

            Re: Commerce Committee Hearing on Universal Service

    Dear Mr. Chairman:

        It was a privilege to testify at last week's hearing on universal
    service and intercarrier compensation reform and I thank you for the
    opportunity. Below, I provide additional information on two items
    discussed at the hearing, in accordance with the order that the record
    be held open for seven days following the hearing.
    Supplemental Response to Senator Ayotte's Question
        At the hearing, Senator Ayotte asked what the FCC should do to
    ensure a more equitable distribution of funds throughout the country,
    so that unserved households within each state have a fair opportunity
    to access technology and spur economic development. I responded that
    the FCC has on its agenda a plan to reform its distribution methodology
    throughout the states. Permit me to be more specific.
        The FCC's distribution model has frustrated us since 2008, when the
    FCC imposed an ``interim cap'' on support to wireless carriers. At that
    time, we had only recently been designated as eligible to draw from the
    fund in New Hampshire. Before we could undertake any significant
    investments, the cap took effect, limiting the state to only about
    $200,000 per year for mobile services. The cost of a single tower
    usually exceeds that amount, so our ability to accelerate investment in
    New Hampshire has been significantly curtailed for three years now, and
    counting.
        U.S. Cellular has for several years now advocated the use of a
    forward-looking cost model to determine the efficient costs of
    providing mobile broadband service throughout the country. A cost model
    has the advantage of targeting support to the areas of greatest need
    which will result in a more equitable distribution among the states.
    This summer, we submitted the basics of a cost model in the universal
    service reform proceeding and I am advised that the FCC intends to seek
    comment on whether to use our cost model to determine support levels in
    high-cost areas.
        As the FCC works through the process of vetting the model for use
    in distributing support for mobile broadband, I'm confident that it
    will identify northern New Hampshire as an area of need that should
    receive significant additional resources. We will be following this
    proceeding carefully and we'll keep you informed of its progress.
    Clarification of FCC's Intentions With Respect to Mobile Broadband
        In the course of preparing for the hearing, I learned that the
    recent history of universal service reform includes the National
    Broadband Plan, a proposal for a one-time Mobility Fund, a Connect
    America Fund (``CAF''), and a sustaining mobility fund, as described by
    Chairman Genachowski last week. I was advised that the FCC intends for
    mobile broadband to play a significant role in universal service
    reform, but that recent ABC Plan and RLEC Plan submitted by the
    wireline industry would significantly limit funding to mobile wireless.
    That formed the basis for my testimony that mobile wireless requires
    significantly more than $300 million per year, citing a recent study
    that it will take $10-20 billion to build out high-quality mobile
    broadband in rural America.
        So, it was surprising to hear that the amount set aside in the ABC
    Plan for wireless, ``is ten times what the national broadband plan
    thought was necessary for wireless mobility. Under the FCC's national
    broadband plan, $300 million was the total--and under this ABC Plan it
    is $300 million per year for ten years, so it is a much larger revenue
    stream for wireless than was ever envisioned by the FCC in its national
    broadband plan.''
        Following the hearing, I asked our advisors to report back to me as
    to whether my understanding of the FCC's intent with respect to mobile
    broadband was incorrect. The information provided proved most helpful
    to me and the record in this proceeding will benefit from having a more
    thorough response than I could have provided at the hearing.
        The National Broadband Plan, a document authored by FCC staff and
    never adopted by the Commission, recommended that the FCC create a
    Connect America Fund, with eligibility criteria that is company and
    technology agnostic. ``Support should be available to both incumbent
    and competitive telephone companies, fixed and mobile wireless
    providers. . ..Any broadband provider that can meet or exceed the
    specifications set by the FCC should be eligible to receive support.''
    Recommendation 8.2.
        These principles suggest that the National Broadband Plan intended
    that the entire $4.5 billion dollar CAF would be available to any
    carrier meeting the specifications set by the FCC. Indeed, almost all
    of the Senators at the hearing agreed that competitive and
    technological neutrality must be principles that guide decisions in
    reforming universal service. We have found no reference to a $300
    million dollar limitation in the National Broadband Plan.
        Early this year, when the FCC released its Notice of Proposed
    Rulemaking proposing to adopt the CAF (``CAF NPRM''), it made scores of
    proposals, including the use of technology-neutral reverse auctions,
    which would allow mobile wireless carriers access the entire $4+
    billion CAF, on a competitively and technologically neutral basis, free
    from rights of first refusal or other set-asides. The CAF NPRM also
    proposed an alternative that would allow incumbents to have a right of
    first refusal over a portion of the CAF funds. Again, there was no
    proposal to limit mobile wireless carriers to $300 million dollars of
    total funding.
        Last fall, the FCC proposed to create a one-time mobility fund,
    intended to provide ``an initial infusion of funds toward solving
    persistent gaps in mobile serves, through targeted, one-time support
    for the build out of current-and next-generation wireless
    infrastructure in areas where these services are unavailable.'' The FCC
    proposed to allocate $100 [million]-$300 million for this purpose and
    it sought comment on whether there is an optimal size of the mobility
    fund. The Commission also noted that its new mobility fund would be one
    of a set of initiatives to promote deployment of broadband and mobile
    services in the United States and that it would continue to pursue
    other policies that promote the availability of mobile voice services
    in as much of the country as possible.
        It is here that it appears the misunderstanding occurred. The
    reference to one-time funding was in this one item, not in the National
    Broadband Plan, the CAF NPRM, or the recent speech by Chairman
    Genachowski. Taken together, there's nothing in the record of the
    universal service reform proceeding to suggest that the FCC has ever
    intended for funding to mobile broadband providers to be limited to
    $300 million or to be subject to rights of first refusal by incumbents.
        Finally, it is important to note that the ABC Plan would provide
    between zero dollars and $300 million each year to mobile broadband.
    ABC divides the amount of mobile broadband support between mobile
    service and fixed satellite service. Moreover, funds for mobile and
    satellite depend upon whether the incumbent wireline carriers use up
    all available support. So it is possible that mobile broadband will get
    no funding under the ABC Plan, ever.
        I trust that you will find this information to be helpful in
    completing your record. Should you have any questions or require any
    additional information, please contact me directly.
                Sincerely,
                                                Mary N. Dillon,
                                                     President and CEO,
                                                             U.S. Cellular.
    cc: Hon. Kay Bailey Hutchison
    Hon. Daniel K. Inouye
    Hon. John F. Kerry
    Hon. Barbara Boxer
    Hon. Bill Nelson
    Hon. Maria Cantwell
    Hon. Frank R. Lautenberg
    Hon. Mark Pryor
    Hon. Claire McCaskill
    Hon. Amy Klobuchar
    Hon. Tom Udall
    Hon. Mark Warner
    Hon. Mark Begich
    Hon. Jim DeMint
    Hon. John Thune
    Hon. Olympia J. Snowe
    Hon. Roger F. Wicker
    Hon. Johnny Isakson
    Hon. John Boozman
    Hon. Patrick J. Toomey
    Hon. Marco Rubio
    Hon. Roy Blunt
    Hon. Kelly Ayotte
    Hon. Dean Heller

                                     ______

             Washington Utilities and Transportation Commission
                                          Olympia, WA, October 19, 2011

    Hon. Jay Rockefeller,
    Chairman,
    Committee on Commerce, Science, and Transportation,
    Washington, DC.
    Hon. Kay Bailey Hutchinson,
    Ranking Member,
    Committee on Commerce, Science, and Transportation,
    Washington, DC.

    Re: Senate Commerce Committee Hearing on ``Universal Service Reform:
                Bringing Broadband to All Americans''--October 12, 2011

    Dear Chairman Rockefeller and Ranking Member Hutchison:

        Thank you again for inviting me to testify on universal service
    reform. I am submitting this letter for the record to provide (i) a
    revised attachment outlining the net flow of USF dollars by State, (ii)
    a list of States that operate their own universal service programs, and
    (iii) clarification of responses to a few questions posed by members of
    the Committee during the hearing.
        My October 12 written testimony contained an attachment that
    estimates the flow of Federal USF funds by State.\1\ Members should pay
    the most attention to the column which describes the net flow of high
    cost Federal dollars to or from their States. I have edited the
    attachment to allow each member to easily determine the net impact on
    their State. The FCC's proposed modifications will unquestionably--over
    the next 5-10 years--change this number significantly. The amount your
    State contributes is unlikely to be reduced. The amount that is most
    likely to change is how much your State receives (or does not receive).
    But to really understand the impact of the FCC's proposals on
    constituents in your State, please consult with in utility commission
    which has jurisdiction over ETC designations and often administers a
    State-sponsored universal service fund as well. These experts can
    provide you with detailed State-specific insight. Staff with the
    National Association of Regulatory Utility Commissioners can put you in
    touch with them. (NARUC Contact Brian O'Hara at (202)898-2205,
    bohara@naruc.org).
    ---------------------------------------------------------------------------
        \1\ See, The chart was based on the FCC 2010 USF Monitoring Report,
    December 2010 (which has the most recent data publicly available,
    online at http://transition.fcc.gov/wcb/iatd/monitor.html.

    ---------------------------------------------------------------------------
        My written testimony points out that over 20 States have
    complementary universal service programs that distribute over $1.5
    billion each year: Alaska, Arizona, Arkansas, California, Colorado,
    Idaho, Illinois, Indiana, Kansas, Maine, Nebraska, Nevada, New Mexico,
    Oklahoma, Oregon, Pennsylvania, Puerto Rico, South Carolina, Texas,
    Utah, Vermont, Wisconsin, and Wyoming (23).\2\ Whatever action the FCC
    takes is long term likely to impact the both the operation of and the
    financial support needed (provided by your constituents) to maintain
    such State programs.
    ---------------------------------------------------------------------------
        \2\ Information obtained from a 2009 information survey of State
    PUCs.
    ---------------------------------------------------------------------------
        Finally, I would like to take this opportunity to expand on my
    answers to two questions posed at the hearing.

       Sen. Warner expressed grave concern with the ability of all
            carriers to interconnect.

        States have long played an important role in arbitrating
    intercarrier interconnection disputes. As communications moves over to
    IP we are still seeing the same problems as we did before. In short,
    there are problems currently with IP-to-IP interconnection which the
    FCC doesn't appear to address in its draft order. We understand the FCC
    is planning on asking questions in a further notice about the
    application of the duty/negotiation/State-arbitration process to IP-to-
    IP interconnections under Sections 251 and 252 of the 1996 Act. I
    believe seeking further comment is not a good policy choice, since
    these statutory provisions apply on their face to such traffic. Given
    the rapid movement from a circuit-switched to an IP network, we should
    recognize that reality and use the good-faith efforts of state
    commissions to arbitrate disputes of interconnection when they arise,
    and most certainly they will. If a competitive carrier can't get
    interconnection to the network, whether it be the PSTN or an IP
    network, competition will not develop as robustly as it should, and
    ultimately consumers will suffer. There is no need for the FCC to seek
    further comment. The FCC should simply clarify the existing obligations
    of IP providers to interconnect under Section 251(c)(2).

       Sen. Pryor asked how the proposed ABC plan would hurt
            consumers.

        There are several portions of the plan that I believe will harm
    consumers. First is the increase in the subscriber line charge (SLC)
    (and the separate access charge replacement fee) add-ons to local phone
    rates. In these economically troubling times, the very last thing the
    FCC should be suggesting is rate increases on a basic service that
    people rely upon in emergencies and to find and keep employment. Also,
    the failure of the FCC to classify VoIP fee based services as
    ``telecommunications services'' is long overdue. I understand why the
    carriers want to delay and obstruct a proper classification decision,
    which allows them to continue to press flawed arguments that State
    Carrier-of-last-resort obligations (COLR), State service quality/outage
    oversight, and other State consumer protection laws have no application
    to the service. But it makes no sense for consumers to continue to
    suffer from this ``regulatory gap'' and the lack of regulatory clarity.
    In fact, as in other industries that have some type of regulatory
    construct, I believe the telecommunications/information markets today
    need regulatory certainty in order to build out advanced broadband
    networks and applications; uncertainty leads to delays in investment
    decisions and continued litigation at both the Federal and state
    levels. Proper, effective regulation should allow markets to function
    properly with adequate competition, and hopefully eliminate arbitrage
    opportunities, while providing us with the means to protect consumers
    at the State level.
        I appreciate your leadership on this important issue. The WUTC
    stands willing to work with Congress, the FCC, and other stakeholders
    to ensure all Americans have access to advanced services. If you have
    questions or would like to discuss it further, please contact me at
    360-664-1169 or pjones@wutc.wa.gov.
                Sincerely,
                                                  Philip Jones,
                                                          Commissioner,
                                                   Washington Utilities and
                                                 Transportation Commission.
    cc: Members of the Commerce, Science and Transportation Committee

    ----------------------------------------------------------------------------------------------------------------
                                                                         High-Cost Support
                                             -----------------------------------------------------------------------
                                                 Payments from USF to     Estimated Contributions    Estimated  Net
              State or Jurisdiction               Service Providers         by Carriers to USAC        Dollar Flow
                                             -----------------------------------------------------------------------
                                                                  % of                       % of
                                                   Amount        Total        Amount        Total        Amount
    ----------------------------------------------------------------------------------------------------------------
    Alabama                                       $100,061,000     2.3%       $68,579,000     1.6%       $31,482,000
    Alaska 8[BEGICH]0                             $168,272,000     3.9%       $11,250,000     0.3%    8$157,022,0000
    American Samoa                                  $3,939,000     0.1%          $298,000     0.0%        $3,641,000
    Arizona                                        $67,204,000     1.6%       $84,352,000     2.0%     ($17,148,000)
    Arkansas 8[PRYOR/BOOZMAN]0                    $148,253,000     3.5%       $39,246,000     0.9%    8$109,007,0000
    California 8[BOXER]0                          $107,508,000     2.5%      $474,280,000    11.0%  8($366,772,000)0
    Colorado                                       $79,397,000     1.8%       $76,670,000     1.8%        $2,727,000
    Connecticut                                     ($390,000)     0.0%       $57,085,000     1.3%     ($57,475,000)
    Delaware                                          $226,000     0.0%       $15,761,000     0.4%     ($15,535,000)
    Dist.of Columbia                                        $0     0.0%       $19,773,000     0.5%     ($19,773,000)
    Florida 8[NELSON/RUBIO]0                       $70,396,000     1.6%      $285,907,000     6.7%  8($215,511,000)0
    Georgia 8[ISAKSON]0                           $136,139,000     3.2%      $140,561,000     3.3%    8($4,422,000)0
    Guam                                           $16,650,000     0.4%        $2,251,000     0.1%       $14,399,000
    Hawaii 8[INOUYE])0                             $58,416,000     1.4%       $21,298,000     0.5%     8$37,118,0000
    Idaho                                          $50,779,000     1.2%       $21,336,000     0.5%       $29,443,000
    Illinois                                       $74,939,000     1.7%      $177,462,000     4.1%    ($102,523,000)
    Indiana                                        $74,418,000     1.7%       $83,888,000     2.0%      ($9,470,000)
    Iowa                                          $127,435,000     3.0%       $38,837,000     0.9%       $88,598,000
    Kansas                                        $230,301,000     5.4%       $37,973,000     0.9%      $192,328,000
    Kentucky                                      $101,805,000     2.4%       $55,949,000     1.3%       $45,856,000
    Louisiana                                     $156,494,000     3.6%       $61,345,000     1.4%       $95,149,000
    Maine 8[SNOW]0                                 $27,443,000     0.6%       $18,209,000     0.4%      8$9,234,0000
    Maryland                                        $3,966,000     0.1%       $94,073,000     2.2%     ($90,107,000)
    Massachusetts 8[KERRY]0                         $2,413,000     0.1%       $97,758,000     2.3%   8($95,345,000)0
    Michigan                                       $63,193,000     1.5%      $122,460,000     2.9%     ($59,267,000)
    Minnesota 8[KLOBUCHAR]0                       $127,037,000     3.0%       $68,112,000     1.6%     8$58,925,0000
    Mississippi 8[WICKER]0                        $281,267,000     6.6%       $38,489,000     0.9%    8$242,778,0000
    Missouri 8[MCCASKILL/BLUNT]0                  $108,639,000     2.5%       $82,943,000     1.9%     8$25,696,0000
    Montana                                        $79,855,000     1.9%       $14,539,000     0.3%       $65,316,000
    Nebraska                                      $116,611,000     2.7%       $24,051,000     0.6%       $92,560,000
    Nevada 8[HELLER]0                              $25,570,000     0.6%       $39,948,000     0.9%   8($14,378,000)0
    New Hampshire 8[AYOTTE]0                        $8,576,000     0.2%       $20,901,000     0.5%   8($12,325,000)0
    New Jersey 8[LAUTENBERG]0                       $1,058,000     0.0%      $143,512,000     3.3%  8($142,454,000)0
    New Mexico 8[UDALL]0                           $71,391,000     1.7%       $27,820,000     0.6%     8$43,571,0000
    New York                                       $44,967,000     1.0%      $277,114,000     6.5%    ($232,147,000)
    North Carolina                                 $85,635,000     2.0%      $130,102,000     3.0%     ($44,467,000)
    North Dakota                                   $94,452,000     2.2%        $9,478,000     0.2%       $84,974,000
    Northern Mariana                                $1,309,000     0.0%          $465,000     0.0%          $844,000
    Ohio                                           $33,858,000     0.8%      $149,536,000     3.5%    ($115,678,000)
    Oklahoma                                      $142,547,000     3.3%       $45,232,000     1.1%       $97,315,000
    Oregon                                         $78,826,000     1.8%       $51,882,000     1.2%       $26,944,000
    Pennsylvania 8[TOOMEY]0                        $57,770,000     1.3%      $177,475,000     4.1%  8($119,705,000)0
    Puerto Rico                                    $74,387,000     1.7%        39,829,000     0.9%       $34,558,000
    Rhode Island                                   $34,000,000     0.0%       $14,102,000     0.3%     ($14,068,000)
    South Carolina 8[DEMINT]0                      $98,376,000     2.3%       $63,774,000     1.5%     8$34,602,0000
    South Dakota 8[THUNE]0                         $97,338,000     2.3%       $11,053,000     0.3%     8$86,285,0000
    Tennessee                                      $58,896,000     1.4%       $91,074,000     2.1%     ($32,178,000)
    Texas 8[HUTCHISON]0                           $262,049,000     6.1%      $299,043,000     7.0%   8($36,994,000)0
    Utah                                           $19,221,000     0.4%       $32,031,000     0.7%     ($12,810,000)
    Vermont                                        $21,208,000     0.5%       $10,415,000     0.2%       $10,793,000
    Virgin Islands                                 $15,986,000     0.4%        $2,961,000     0.1%       $13,025,000
    Virginia 8[WARNER]0                            $72,933,000     1.7%      $120,689,000     2.8%   8($47,756,000)0
    Washington 8[CANTWELL]0                        $94,459,000     2.2%       $89,779,000     2.1%      8$4,680,0000
    West Virginia 8[ROCKEFELLER]0                  $58,640,000     1.4%       $28,323,000     0.7%     8$30,317,0000
    Wisconsin                                     $139,287,000     3.2%       $72,198,000     1.7%       $67,089,000
    Wyoming                                        $50,740,000     1.2%        $8,709,000     0.2%       $42,031,000
    Total                                       $4,292,179,000
    ----------------------------------------------------------------------------------------------------------------
    This chart is based on the FCC 2010 USF Monitoring Report, December 2010 (which has the most recent data
      publicly available, online at http://transition.fcc.gov/wcb/iatd/monitor.html).

                                     ______

                                                        Ocober 25, 2011
           Comments to October 12 hearing on Universal Service Reform

        As a member of a Wireless Safety Organization I am concerned about
    the physiological effects of radio frequency on people and the
    environment, I urge this subcommittee to consider that all Broadband is
    not ``Technology Neutral''. Rather, numerous studies, independent of
    industry funding, have found biological outcomes including an increase
    in breast cancer, sleep disorders and Alzheimer's disease.
        Please see the Bionitiative Report at www.bioinitiative.org (2007)
    and the Journal of Pathophysiology (August 2009), for more information.
    It is extremely unfortunate that the United States has yet to publicly
    acknowledge the health risks associated with RF microwave radiation
    sources, as other countries have done so to protect their citizens.
        European governments and the World Health Organization, IARC
    (International Agency on Research and Cancer) recognized in May 2011
    that radiation frequencies are Class 2B carcinogens, in the same
    category as lead, DDT, and gasoline exhausts. In May 2011 the European
    Parliament recommended that strong precautionary measures be taken to
    avoid exposures from RF radiation sources primarily by vulnerable
    sectors of the population, such as children, pregnant women and the
    elderly. They recommended the establishment of Wireless Free Zones for
    those electrically sensitive or for those who wish other living
    options.
        I ask that this sub-committee urge the FCC to scale down its goals
    for the Advanced Mobility USF plan and dedicate some of those wireless
    un-served/under-served areas of the country as Wireless Free Zones.
    Wired or fiber optic technology should be implemented in these areas.
        There is a significant portion of the population who find
    themselves physically compromised from the microwave overload in our
    living environment (headaches, sleep disorders, cancer, etc.) that seek
    out these unserved wired areas of the country as a place of refuge and
    relief from their physical sensitivity to ambient microwave exposures.
        My wife is severely electrically sensitive due to radiation
    exposure. It is estimated that 5 percent of the population suffers from
    this phenomenon and the numbers are growing daily as radiation exposure
    levels keep increasing. Our need for Wireless Free Zones should and
    need to be considered in the total scheme for meeting societies
    broadband needs. Why is it that Europe is taking leadership in this
    arena? Our United States officials ought to take responsibility and
    ensure and protect the future health of our citizens. Please do not
    wait for millions of people to be adversely affected as we did with
    smoking, asbestos, lead, DDT and chlordane!
        Thank you for your time and consideration regarding this matter. I
    am looking forward to your response.
                Kind regards,
                                                Charles Bubnis.
                                     ______

                                                       October 21, 2011
    Dear Sirs and Madams,

        As someone whose life is entirely affected by microwave radiation,
    please do not go forward with any plan to increase wireless
    communication.
        I am an Air Canada pilot living in Canada. Since last year when a
    two cell towers were placed behind my home I have become sensitive to
    all forms of microwave radiation along with electric and electro-
    magnetic fields. I imagine you can see how this would impact my life
    and career without me having to go into much detail. It's only through
    an exhausting effort that I am currently still able to work.
        This technology, which I understand quite well, is not safe and
    shouldn't be forced on the entire population. Scientists in Canada have
    done studies at the Universities here and conclude that 5 percent of
    the entire population is severely affected by this technology and about
    30 percent are moderately affected. This number is growing as well due
    to the increased exposure to this technology. Even my occupational
    health doctor has 10 other patients in his own practice here in my
    smaller city. At Air Canada where I work there are at least two other
    pilots with this condition that have had to stop working entirely.
        This is all totally avoidable. The world is focusing on cancer and
    whether or not microwave radiation conclusively causes cancer or not.
    There is much more than cancer that is affecting people. My condition
    is called electro-sensitivity. It is a permanent condition and it has
    essentially ruined my life. My only solution, even according to my
    doctor, is to find a place with no cell towers around. So far I have
    been looking all summer and have yet to find something. Since this
    condition causes sensitivity to electric field and electro-magnetic
    fields it makes it even harder to find somewhere to live that you don't
    have to have the power off all the time, since most homes are built
    without shielding cables. I shouldn't have to be doing this. It is an
    entire waste of my and family's time for an illness that it totally
    preventable.
        Please do not go forward with any plans concerning this. It will be
    a costly mistake that will affect the health of many American for the
    rest of their lives. Wired connections are much safer and money should
    be allocated for their use.
                Thank you for listening,
                                               Melissa Chalmers
                                     ______

                                                       October 20, 2011
    Dear Sirs:

        I am opposed to forced Broadband, especially in rural areas, just
    as I am opposed to forced Smart Meters, WiFi and Cell Phone Towers. The
    microwave fueling these ever stronger devices is very bad for people's
    health, not to mention wildlife and the environment. All also open the
    door to universal, 24/7 surveillance of every move people make.
        These initiatives are being forced on us by the Obama
    administration ``to do people a favor''. Since when is being sick and
    depressed and microwaved, and surveilled a favor????? Many people
    choose to live in rural environments for the purity of the air and
    water, the peace and quiet, the privacy and tranquility . . .
    ``deploying'' these and ``accelerating'' this, and we are talking about
    4G networks--the latest and strongest, possible links with Smart Meter
    networks, which compound the radiation, and WiMax . . . produces the
    result that no one in any natural environment can escape being
    poisoned!!!
        I live in the country, and I can FEEL the toxins whenever I go into
    the nearest town, which has Cell Phone Towers every few hundred feet,
    everyone on wireless, and WiFi in all public places (plus,
    coincidentally, everyone is sick) . . . it is terrible. Please listen
    to those sensitive to this, and to the many courageous and admirable
    researchers who have studied the effects. We are talking about--long
    term--cancer, DNA damage, sterility, damage to the blood-brain barrier
    and to the brain, headaches, sleep disorders, cataracts, depression,
    confusion, memory loss, damage to cells, disruption of the electronic
    signaling and rhythms of the human body (as well as that of pollinating
    insects, birds, and other creatures), suppression of the immune system,
    susceptibility to mind control, and many other horrors.
        There is a reason microwave is the latest ``non-lethal'' weapon of
    the military. And, the frequencies that they know cause harm are those
    being forced upon us.
        There is a large group of people who WANT landline phones . . .
    they are the safest. Analog meters are the most durable, unhackable,
    and safest for health and privacy. We DO NOT WANT LANDLINE OR WIRED
    DEVICES PHASED OUT FOR WIRELESS. We DO NOT need lightening speeds or
    sexy propagandizing . . . if there is a group who thinks the world
    cannot live without these death traps, let them use them for themselves
    . . . only. . . . It is beyond arrogance to assume that the whole
    earth, all the air, all natural environments, and all people must have
    these artificial, and harmful, creations mandated with taxpayer money.
        Fiber Optics, although more expensive than wireless, is,
    apparently, completely safe. High frequencies over power lines (spikes
    . . . dirty electricity) and wireless, with the RF radiation, is not.
        I close with a few quotes from Zbigniew Brzezinski's Between Two
    Ages (1970), which he wrote for the Trilateral Commission at the behest
    of the Club of Rome (both institutions founded by the Rockefellers on
    orders of the Rothschild banking family, long-term Luciferians):

            ``The technetronic era involves the gradual appearance of a
            more controlled society. Such a society would be dominated by
            an elite, unrestrained by traditional values. Soon it will be
            possible to assert almost continuous surveillance over every
            citizen and maintain up-to-date complete files containing even
            the most personal information about the citizen. These files
            will be subject to instantaneous retrieval by the
            authorities''.

            ``By the year 2018, technology will make available to the
            leaders of the major nations, a variety of techniques for
            conducting secret warfare, of which only a bare minimum of the
            security forces need be appraised. One nation may attack a
            competitor covertly by bacteriological means, thoroughly
            weakening the population (though with a minimum of fatalities)
            before taking over with its own armed forces. Alternatively,
            techniques of weather modification could be employed. . . .''

            ``In addition . . . chemical and biological weapons, death
            rays, and still other forms of warfare. . . .''

            ``In addition, it may be possible--and tempting--to exploit for
            strategic-political purposes the fruits of research on the
            brain and on human behavior. Gordon J. F. MacDonald, a
            geophysicist specializing in problems of warfare, has written
            that timed artificially excited electronic strokes could lead
            to a pattern of oscillations that produce relatively high power
            levels over certain regions of the earth. . .In this way one
            could develop a system that would seriously impair the brain
            performance of very large populations in selected regions over
            an extended period. . . . No matter how deeply disturbing the
            thought of using the environment to manipulate behavior for
            national advantage is to some, the technology permitting such
            use will very probably develop within the next few decades''.

        It is clear that this technology is not ``for our benefit'', and it
    never has been. It is the responsibility of our representatives to
    adhere to the Constitution, practice The Precautionary Principle, and
    not mandate anything that will do harm . . . at least, to large
    segments of the population. Please do not force this wireless Broadband
    on the public, do not pollute our air and harm our earth, and please
    start considering already safe technologies, or technologies that do no
    harm to any living thing.
                Thank you.
                                                 Cynthia Price,
                                                             Woodville, VA.
                                     ______

                                                       October 19, 2011
    RE: Comments to the Oct 12th Hearing on Universal Service Reform--
            Bringing Broadband to All Americans

        As a member of a Wireless Safety organization I urge this
    subcommittee to consider that all Broadband is NOT `Techology Neutral'
    The public health and environmental impacts of the technology need to
    be taken into account. Wireless RF/Microwave linked communications
    technologies has a long scientific history of physiological and
    biological effects on people and the environment.
        Although U.S. has yet to acknowledge publicly the health risks
    associated RF/microwave radiation sources, the FCC's own website states
    ``. . . there is no federally developed national standard for safe
    levels of exposure to radiofrequency (RF) energy . . .'' European
    governments and World Health Organization IARC (International Agency on
    Research and Cancer), have recently recognized that RF radiation
    frequencies pose potential health risks. IARC in May declared RF
    frequencies as Class 2B carcinogens, in the same category as Lead, DDT,
    fuel oils, gasoline exhausts. In same month European Parliament
    recommended that strong precautionary measures be taken to avoid
    exposures from RF radiation sources primarily by vulnerable sectors of
    population, primarily children, pregnant women, elderly etc. They also
    recommended the establishment of wireless free zones for those
    electrically sensitive or wish other living options.
        I ask the Subcommittee to urge the FCC to scale down its goals for
    Advance mobility USF plan and dedicate some of those wireless unserved/
    underserved areas of the country as Wireless Free Zones. Target
    exclusively those zones with Wired broadband technology.
        Many of us who find ourselves physically compromised from the
    microwave overload in our living environment seek out these unserved
    wireless areas of the country as places of refuge and relief from our
    physical sensitivity to ambient microwave exposures. We are Consumers
    too. Our needs for wireless free zones should be considered in the
    total scheme for meeting society's broadband needs.

                                                 Evelyn Savarin