[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



                  U.S. GOVERNMENT PRINTING OFFICE
74-568                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


       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, 
[email protected]).
---------------------------------------------------------------------------
    \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 [email protected].
            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

                                  
