    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                       IS THE BROADBAND STIMULUS WORKING?

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

                                    HEARING

                                   BEFORE THE

                 SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 27, 2013

                                   __________

                                Serial No. 113-9

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman
    RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
    JOE BARTON, Texas                      Ranking Member
      Chairman Emeritus                  JOHN D. DINGELL, Michigan
    ED WHITFIELD, Kentucky                 Chairman Emeritus
    JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
    JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
    GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
    LEE TERRY, Nebraska                  ANNA G. ESHOO, California
    MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
    TIM MURPHY, Pennsylvania             GENE GREEN, Texas
    MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
    MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
      Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
    PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
    STEVE SCALISE, Louisiana             JIM MATHESON, Utah
    ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
    CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
    GREGG HARPER, Mississippi            DORIS O. MATSUI, California
    LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin
    BILL CASSIDY, Louisiana                  Islands
    BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
    PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
    DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
    CORY GARDNER, Colorado               BRUCE L. BRALEY, Iowa
    MIKE POMPEO, Kansas                  PETER WELCH, Vermont
    ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
    H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
    GUS M. BILIRAKIS, Florida
    BILL JOHNSON, Missouri
    BILLY LONG, Missouri
    RENEE L. ELLMERS, North Carolina
                 Subcommittee on Communications and Technology

                              GREG WALDEN, Oregon
                                     Chairman
    ROBERT E. LATTA, Ohio                ANNA G. ESHOO, California
      Vice Chairman                        Ranking Member
    JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
    LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
    MIKE ROGERS, Michigan                DORIS O. MATSUI, California
    MARSHA BLACKBURN, Tennessee          BRUCE L. BRALEY, Iowa
    STEVE SCALISE, Louisiana             PETER WELCH, Vermont
    LEONARD LANCE, New Jersey            BEN RAY LUJAN, New Mexico
    BRETT GUTHRIE, Kentucky              JOHN D. DINGELL, Michigan
    CORY GARDNER, Colorado               FRANK PALLONE, Jr., New Jersey
    MIKE POMPEO, Kansas                  BOBBY L. RUSH, Illinois
    ADAM KINZINGER, Illinois             DIANA DeGETTE, Colorado
    BILLY LONG, Missouri                 JIM MATHESON, Utah
    RENEE L. ELLMERS, North Carolina     G.K. BUTTERFIELD, North Carolina
    JOE BARTON, Texas                    HENRY A. WAXMAN, California, ex
    FRED UPTON, Michigan, ex officio         officio

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, opening statement......................................     1
        Prepared statement...........................................     3
    Hon. Anna G. Eshoo, a Representative in Congress from the State
      of California, opening statement...............................     4
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, opening statement.......................................     5
    Hon. Robert E. Latta, a Representative in Congress from the State
      of Ohio, opening statement.....................................     6
    Hon. Cory Gardner, a Representative in Congress from the State of
      Colorado, opening statement....................................     6
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................     7
    Hon. Leonard Lance, a Representative in Congress from the State
      of New Jersey, prepared statement..............................   163
    Hon. Bruce L. Braley, a Representative in Congress from the State
      of Iowa, prepared statement....................................   163

                                   Witnesses

    Lawrence E. Strickling, Assistant Secretary for Communications
      and Information, and Administrator, National Telecommunications
      and Information Administration (NTIA), U.S. Department of
      Commerce.......................................................     9
        Prepared statement...........................................    12
        Answers to submitted questions...............................   243
    John Padalino, Acting Administrator, Rural Utilities Service
      (RUS), U.S. Department of Agriculture..........................    28
        Prepared statement...........................................    30
    Peter Kirchhof, Executive Vice President, Colorado
      Telecommunications Association.................................    70
        Prepared statement...........................................    72
        Answers to submitted questions...............................   251
    Ann Eilers, Principal Assistant Inspector General for Audit and
      Evaluation, Office of Inspector General, U.S. Department of
      Commerce.......................................................    82
        Prepared statement...........................................    84
    Michael K. Smith, State President-Vermont, Fairpoint
      Communications.................................................   107
        Prepared statement...........................................   109
        Answers to submitted questions...............................   253
    Bruce Abraham, Board of Directors, North Georgia Network.........   115
        Prepared statement...........................................   118
    Joe Freddoso, President and CEO, MCNC............................   126
        Prepared statement...........................................   128

                               Submitted Material

    Letter of February 26, 2013, from the School, Health & Libraries
      Broadband Coalition, submitted by Ms. Matsui...................   165
    Article entitled, ``Why a one-room West Virginia Library runs a
      20,000 Cisco router,'' submitted by Mr. Walden.................   173
    Letter of February 26, 2013, from the National Association of
      Telecommunications Officers and Advivors, submitted by Mr.
      Walden.........................................................   178
    Article entitled, ``Waste is Seen in Program to Give Internet
      Access to Rural U.S.,''February 11, 2013, the New York Times,
      submitted by Ms. Eshoo.........................................   181
    Letters of support, submitted by Ms. Degette.....................   185
    Chart entitled, ``75 percent of schools in North Caroline have
      broadband over 50 Mbps compared to 4 percent of schools in
      Colorado,'' submitted by Ms. DeGette...........................   229
    Statement of Christopher Thurow, Sr., submitted by Mr. Kinzinger.   230
    Letters of support, submitted by Mr. Gardner.....................   232

                       IS THE BROADBAND STIMULUS WORKING?

                                  ----------

                          WEDNESDAY, FEBRUARY 27, 2013

                      House of Representatives,
         Subcommittee on Communications and Technology,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:03 a.m., in
    room 2322 of the Rayburn House Office Building, Hon. Greg
    Walden (chairman of the subcommittee) presiding.
        Members present: Representatives Walden, Latta, Shimkus,
    Gardner, Pompeo, Kinzinger, Long, Ellmers, Barton, Eshoo,
    Doyle, Matsui, Welch, Pallone, DeGette, and Waxman (ex
    officio).
        Staff present: Ray Baum, Senior Policy Advisor/Director of
    Coalitions; Sean Bonyun, Communications Director; Matt Bravo,
    Professional Staff Member; Andy Duberstein, Deputy Press
    Secretary; Neil Fried, Chief Counsel, Communications and
    Technology; Debbee Hancock, Press Secretary; Heidi King, Chief
    Economist; Brian McCullough, Senior Professional Staff Member,
    Commerce, Manufacturing, and Trade; Gib Mullan, Chief Counsel,
    Commerce, Manufacturing, and Trade; Andrew Powaleny, Deputy
    Press Secretary; David Redl, Counsel, Telecom; Charlotte
    Savercool, Executive Assistant, Legislative Clerk; Roger
    Sherman, Democratic Chief Counsel; Shawn Chang, Democratic
    Senior Counsel; Margaret McCarthy, Democratic Staff; Patrick
    Donovan, FCC Detailee; and Kara van Stralen, Democratic Special
    Assistant.

      OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. Walden. We will call the Subcommittee on Communications
    and Technology hearing to order. Our hearing today is entitled,
    ``The Broadband Stimulus: Is It Working?''
        Good morning, everyone. I want to welcome our witnesses
    today for this hearing, which will look at all these issues
    related to how the stimulus money was spent on building out
    broadband.
        I am just going to tell you, at a time when President Obama
    and his administration is threatening to lay off meat
    inspectors, FAA controllers, TSA agents, throw Head Start
    students out of class, and cut teachers as the best way to deal
    with the sequester, our subcommittee will look at how parts of
    the Obama administration have allowed millions, perhaps
    hundreds of millions of dollars in overspending, overbuilding,
    and waste in their rush to spend the 7 billion in broadband
    stimulus money for underserved and unserved areas of this
    country.
        To be sure, some of the money may be being spent as
    intended while other awards have been revoked and the money
    returned to the Treasury. When this bill was rushed through
    this committee, my Republican colleagues and I raised questions
    about how prudent it was to spend the money before the
    broadband maps were completed showing where it was spent, where
    would be appropriate to spend it in unserved areas. They wanted
    to get the money out the door before the maps were drawn.
    Republicans pointed out that the private sector was investing
    an order of magnitude more extending service all across
    America. For the government, which borrows 40 cents of every
    dollar it spends, to get in this game seemed unnecessary.
        Today, we know that the private sector has spent $65
    billion a year on broadband for the past decade, but the
    government meanwhile can't find the money to cover veterans who
    have to wait in line 2 years to get their claims for benefits
    approved because it says it doesn't have the funds.
        So the Obama administration's priority was to fund routers
    designed to support more than 200 simultaneous users to a
    library in West Virginia housed in a single-wide trailer with
    just one internet connection. Here is a picture of that
    library. To put this in context, even accounting for 100 times
    growth in the number of internet users at the library, routers
    capable of handling 100 users each cost at least $16,000 less
    than were purchased. $16,000 less.
        The NTIA and RUS likely made some good choices. In many
    areas of the country, the money may have been spent
    appropriately, probably was. And that is a good thing. That is
    what we would all want. After all, if the money was going to
    get spent, then we would all hope it would get spent
    appropriately.
        However, approximately $611 million of the funding covering
    42 projects has been revoked, relinquished, or suspended.
    Advocates of the law said it needed to be rushed through
    Congress to infuse money into the troubled economy and that the
    funding would go to shovel-ready projects. Yet we know even in
    West Virginia some of these routers are sitting idle for 3
    years. Yet 4 years in to the program only 60 percent of the
    broadband funds have been put to use. And of the 553 projects
    funded, only 58 are finished or in the finishing stages, even
    though all were originally supposed to be completed by next
    September.
        Allegations of overbuilding persist. Indeed, a spate of
    national stories in recent weeks have pointed to the $100
    million EAGLE-Net grant in Colorado as a quintessential example
    of overbuild. According to the New York Times, the currently
    suspended project built a third fiber connection--a third fiber
    connection--to an 11-student elementary school in Agate, which
    the school said it didn't want or need, instead of to rural
    mountain communities desperate for access. The Department of
    Commerce Inspector General and the state auditor have both
    recently concluded that West Virginia overspent hundreds of
    thousands or even millions of dollars on enterprise-grade
    servers for small libraries with only a few computers.
        By contrast, the private sector has built out broadband to
    96 percent of the population last decade and 70 percent of the
    country now subscribes. The number of Americans with broadband
    at home grew from 8 million to 200 million between 2000 and
    2009. Another 20 million signed up by 2011. There was no need
    to reinvent this wheel. Doing so is not only inefficient; it is
    counterproductive. First, overbuilding provides ``seconds'' or
    ``thirds'' to some parts of the country before others have even
    had ``firsts.'' Second, it unfairly subjects to government-
    subsidized competition businesses that have invested their own
    funds.
        So in conclusion, promoting broadband is a laudable goal.
    But there are many laudable goals in our government. And when
    the government is borrowing 40 cents on every dollar to fund
    government services, we cannot afford them all, especially if
    the private sector is succeeding without government
    involvement. From what we now know, the government has spent
    millions if not hundreds of millions on equipment it did not
    need and on stringing fiber to areas that already have it.
    Republicans won't tolerate wasteful government spending, and it
    appears we have uncovered millions that fit that category. If
    the Obama Administration was going to spend this money wisely,
    it would have targeted it to the 4 percent of the country where
    there is no economic business case to be made for private
    sector investment. Increasing stories of overbuilding and waste
    suggest the administration has failed to adequately do so.
        And I understand as result of our work and other audits and
    investigations, there may be deals in the works to actually
    reclaim some of this money or at least make other adjustments.
    My suggestion to both Colorado and West Virginia, if the money
    wasn't supposed to be spent the way you spent it, the federal
    taxpayers deserve to have it all back.
        And with that I recognize the gentlelady from California.
        [The prepared statement of Mr. Walden follows:]

                     Prepared statement of Hon. Greg Walden

        At a time when President Obama and his administration is
    threatening to lay off meat inspectors, FAA controllers, TSA
    agents, throw head-start students out of class and cut teachers
    as the best way to deal with the sequester, our subcommittee
    will look at how parts of the Obama administration have allowed
    millions--perhaps hundreds of millions--of dollars in
    overspending, overbuilding and waste in their rush to spend the
    $7 billion in broadband stimulus money for underserved and
    unserved areas of the country.
        To be sure, some of the money may be being spent as
    intended while other awards have been revoked and the money
    returned to the treasury. But when this bill was rushed through
    this committee, my Republican colleagues and I raised questions
    about how prudent it was to spend the money before the
    broadband maps were completed showing where the unserved areas
    were. Republicans pointed out that the private sector was
    investing an order of magnitude more extending service all
    across America. For the government, which borrows 40 cents of
    every dollar it spends, to get in this game seemed unnecessary.
    Today, we know that the private sector has spent $65 billion a
    year on broadband for the past decade, but the government makes
    veterans wait years to get their claims for benefits approved
    because it says it doesn't have the funds.
        So the Obama administration's priority was to fund routers
    designed to support more than 200 simultaneous users to a
    library housed in a single-wide trailer with just one Internet
    connection. To put this in context, even accounting for one
    hundred times growth in the number of Internet users at the
    library, routers capable of handling 100 users each costs at
    least $16,000 less than what was purchased.
        The NTIA and RUS likely made some good choices. In many
    areas of the country the money may have been spent
    appropriately. That's a good thing. After all, if the money was
    going to get spent, then we would all hope it would get spent
    well.
        However, approximately $611 million of the funding covering
    42 projects has been revoked, relinquished, or suspended.
    Advocates of the law said it needed to be rushed through
    Congress to infuse money into the troubled economy and that the
    funding would go to shovel-ready projects. Yet four years into
    the program, only 60 percent of the broadband funds have been
    put to use. And of the 553 projects funded, only 58 are
    finished or in the finishing stages, even though all were
    originally supposed to be completed by September 30, 2013.
        Allegations of overbuilding persist. Indeed, a spate of
    national stories in recent weeks have pointed to the $100
    million EagleNet grant in Colorado as the quintessential
    example. According to the New York Times, the currently
    suspended project built a third fiber connection to an 11-
    student elementary school in Agate-which the school says it
    does not need or want-instead of to rural mountain communities
    desperate for access. The Department of Commerce Inspector
    General and a state auditor have both recently concluded that
    West Virginia overspent hundreds of thousands or even millions
    of dollars on enterprise-grade servers for small libraries with
    only a few computers.
        By contrast, the private sector has built out broadband to
    96 percent of the population in the last decade and 70 percent
    of the country now subscribes. The number of Americans with
    broadband at home grew from eight million to 200 million
    between 2000 and 2009. Another 20 million signed up by 2011.
    There was no need to reinvent the wheel. Doing so is not only
    inefficient, it's counter-productive. First, overbuilding
    provides ``seconds or thirds'' to some parts of the country
    before others have even had ``firsts.'' Second, it unfairly
    subjects to government-subsidized competition businesses that
    have invested their own funds. This potentially divides the
    customer base from which the company can recover costs,
    jeopardizing its business and the jobs it created. Third, it
    puts the federal dollars at greater risk, since the subsidized
    entity must similarly compete with the existing private
    businesses.
        Promoting broadband is a laudable goal. But there are many
    laudable goals. When the government is borrowing almost 40
    cents on every dollar to fund government services, we cannot
    afford them all, especially if the private sector is succeeding
    without our involvement. From what we know now, the government
    has spent millions on equipment it did not need and on
    stringing fiber to areas that already had it. Republicans won't
    tolerate wasteful government spending, and it appears we've
    uncovered millions that fit that category. If the Obama
    administration was going to spend this money wisely it would
    have targeted it to 4 percent of the country where there is no
    economic business case for private sector investment.
    Increasing stories of overbuilding and waste suggest the Obama
    administration failed to adequately do so.

                                    #  #  #

     OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Eshoo. Good morning, Mr. Chairman, members of the
    committee. And to our witnesses, welcome.
        I didn't have this in my prepared remarks but I can't help
    but say so. What is the answer, sequester? I think that, number
    one, the President of the United States, with all due respect
    to the Chairman, is not the purchasing agent for this program.
    So let us keep things in context.
        I think the title of today's hearing--``Is the Broadband
    Stimulus Working?''--I believe that it is. Are there some
    issues that we need to discuss? Do we need to do serious
    oversight of everything to track taxpayer dollars? Of course we
    do. That is the responsibility of the Congress. The investments
    made in broadband infrastructure are having, I believe, a
    profound impact in local communities around the country.
        The Chairman said that approximately $611 million of the
    BTOP and BIP funding covering 42 projects has been revoked,
    relinquished, or suspended. The fact of the matter is, is that
    the terminated BTOP projects have spent approximately $11
    million representing 0.3 percent of BTOP funds. Should we track
    those down? Sure we should. But let us keep things in context.
    I mean it is kind of like down boy. We don't need hair on fire
    here.
        And additionally, approximately $200 million in previously
    suspended BTOP grants are now back on track. So thanks to BTOP
    funding, the rural Iowa Telehealth Initiative is enabling
    Iowans living in rural and medically underserved areas to
    receive the affordable healthcare they need. In Oregon the
    Monroe Telephone Company has used BIP funds to bring fiber to
    the premises to more than 2,300 residents, 29 local businesses
    and 7 local institutions. And at the College of Menominee
    Nation in Wisconsin, BTOP funding has enabled the reservation
    to open a community technology center where previously only
    dial-up internet was available. These are real-life stories in
    real-life States in real-life communities of how the Act is
    working.
        As we have discussed in oversight hearings throughout the
    last two Congresses, there are always challenges along the way.
    I have never seen a program in a Republican administration or a
    Democratic administration or a Republican Congress or a
    Democratic Congress that doesn't have issues. They are sticky
    wickets. Life is not tidy. But it is our responsibility to
    track all of that down.
        I don't think the solution is to attack the overall merits
    of a program. Instead, as I said previously, rigorous oversight
    by NTIA, RUS, and the Inspector General of these respective
    agencies is necessary to ensure that the projects remain on
    track and achieve their intended goals. There is no doubt that
    we have much more work ahead of us because something that still
    dogs us is the following: 19 million Americans remain unable to
    obtain a broadband connection. This is not a source of pride to
    our country. So should we blow up what we have set out to do? I
    don't think so. I don't think so.
        The problem is particularly pervasive in rural and tribal
    areas where between \1/4\ and \1/3\ of the population remains
    without access to broadband. The BTOP and BIP programs are
    helping to tackle these challenges, and with this
    subcommittee's continued focus on broadband, we can and one
    day, I think, be able to meet the challenge, be the envy of the
    world in availability and speed of service.
        I am very grateful to each of the witnesses for your
    commitment to expanding the deployment and adoption of
    broadband nationwide. And in particular, I would like to offer
    a special thanks to Bruce Abraham and Joe Freddoso who have
    traveled to Washington, as many witnesses do, to share the
    successes of the BTOP program. And I don't know. Do I have any
    time remaining?
        Do you want 14 seconds, Ms. Matsui? You are fine? OK.
        With that I will yield back the balance of my time.
        Mr. Walden. Gentlelady yields back the balance of her time.
    The chair now recognizes the gentleman from Texas, Mr. Barton.

       OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Barton. Thank you, Mr. Chairman. I apologize for being
    a little bit late, but I am here. So that is good.
        The American Reinvestment and Recovery Act was signed into
    law in 2009. I didn't support that Act at that time. That law
    drastically increased spending. It also created some
    opportunities in my opinion for wasteful spending. It appears
    that both the Broadband Technology Opportunities Program, which
    most people call BTOP, and the Broadband Incentive Program,
    which most people call BIP, have fallen victim to the hated
    government waste.
        During the time that I served as ranking member of the full
    committee, I questioned both the National Technology and
    Information Administration and the Rural Utility Service
    Corporation over their ability to carry out the Broadband
    Initiative. When executed correctly--and I want to emphasize
    correctly--I believe that both BTOP and BIP are programs that
    can add value to the lives of our citizens. The goal of these
    programs are to ``provide access to broadband services to
    consumers residing in underserved areas.'' Yet, it doesn't
    appear to me that the results so far have achieved that goal.
        The complaints of overbuilding, we hear from the carriers
    and the facts that we see regarding the actual number of
    projects, which is abysmal in my opinion, that have been
    completed, leads to me to believe that this is a program that
    needs to be reviewed very strongly and perhaps restructured.
        And with that, Mr. Chairman, I thank you for your time and
    I yield back.
        Mr. Walden. I now recognize the vice chair of the
    subcommittee, Mr. Latta.

    OPENING STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Mr. Latta. Thank you very much, Mr. Chairman. And thank you
    very much for holding the hearing today. And I also welcome our
    distinguished panel of guests for testifying today.
        High-speed broadband has become a necessity of life. It has
    already transformed our economy and the possibilities for the
    future are endless. I represent not only rural areas of the
    State of Ohio but also suburban, and I am keenly aware of the
    importance that broadband deployment plays in economic
    development and the nexus this access has to job creation. I
    feel very strongly that the country's free market private
    investment approach to broadband expansion has been very
    successful. It is outstanding that the private sector wired and
    wireless broadband providers have invested billions each year
    since 2002 through 2011.
        While there are many positive stories of BTOP and BIP
    projects, including several in the state of Ohio, the stories
    of waste, fraud, and abuse are alarming. As with all of our
    government programs, taxpayers deserve thorough oversight of
    the billions of dollars spent on these programs.
        And with that, Mr. Chairman, I yield back. Thank you.
        Mr. Walden. I now recognize the gentleman from Colorado,
    Mr. Gardner.

      OPENING STATEMENT OF HON. CORY GARDNER, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF COLORADO

        Mr. Gardner. Thank you, Mr. Chairman. And thank you very
    much for the time to hold this hearing today, and thank you,
    Mr. Strickling, and the other witnesses today. Mr. Kirchhof
    from Colorado, thank you for being here.
        I guess I had some prepared comments yesterday that we were
    going over to talk about this morning's hearing. And then I
    spent an hour yesterday listing to a Legislative Audit
    Committee in the Colorado State Legislature. It is a bipartisan
    committee, equal amount of Republicans and Democrats on this
    committee where the end statement by a leading State Senator, a
    Democrat, was this: the more we hear about EAGLE-Net, the more
    questions we have.
        I just read some comments from constituents that I have
    before we get into this about EAGLE-Net. And that is the
    subject of this hearing. What is happening, what is going on,
    and why do we have so much overbuild in Colorado out of $100
    million at a time when this government is trying to scrape
    money together?
        One constituent, PC Telecom, having overbuilt nearly 100
    percent of PCT's fiber-optic facilities in Colorado, and we
    have another company in Colorado. All of C-Com's network
    information was available to EAGLE-Net in advance of their
    overbuilds. We have another company, private company in
    Colorado. Blanca was more than willing to offer NTIA reasonable
    terms that would have saved them an estimated $20 million, but
    NTIA, with full knowledge that Blanca served almost every
    community institution in its service territory, chose instead
    to duplicate their high-speed internet services.
        These are private sector jobs. At a time when the White
    House, at a time when all of us talk about creating middle-
    class jobs, good-paying jobs, we have a $100 million grant that
    went to the State of Colorado that is putting at risk private
    sector jobs, the very good, middle-class-paying jobs that we
    are trying so desperately to create and preserve.
        In the Denver Post yesterday there was a story, 96 million
    out of the $100 million has already been tied up in this grant,
    yet only 25 percent of the more than 220 K through 12 school
    districts, libraries, community colleges and other educational
    institutions that are supposed to be wired into the network are
    actually connected. At the hearing yesterday, the
    representatives of EAGLE-Net couldn't tell us who they served,
    who their members were, how much has been built, how much money
    they have. When a non-partisan audit committee says the more we
    hear, the more questions we have, something has gone
    dramatically wrong. And the fact is, when we hear statements
    from the intergovernmental entity itself that they don't know,
    they can't provide the answers, but they have spent almost all
    of this and are 25 percent completed, this isn't working.
        Mr. Walden. The gentleman's time has expired. The chair
    recognizes the ranking member of the committee, Mr. Waxman.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Waxman. Thank you, Mr. Chairman.
        Today is the Committee's seventh oversight hearing
    regarding the Broadband Technology Opportunities Program, or
    what we call BTOP, and the Broadband Initiative Program, or
    BIP. I may not agree with the chairman's conclusions, but I
    commend him for his diligence. When we ask questions as part of
    our congressional oversight, it helps protect the taxpayers.
        I would like to welcome all of our witnesses. In the case
    of Assistant Secretary Strickling, welcome back. To our other
    witnesses, we appreciate your willingness to share your
    perspectives. I am particularly pleased to have two grantees
    who can speak directly to the success of the Broadband Recovery
    Act Programs. Bruce Abraham is here from North Georgia Network,
    a project that is bringing economic and educational benefits to
    rural areas of his state. And on behalf of Mr. Butterfield, I
    would like to offer a special welcome to Mr. Freddoso, who has
    worked extensively with Mr. Butterfield to bring broadband to
    unserved and underserved areas of eastern North Carolina.
        Oversight of BTOP and BIP began as soon as the ink was dry
    on the Recovery Act. Indeed, Congress built oversight into the
    very structure of these programs by providing millions of
    dollars to the Inspectors General at the Departments of
    Commerce and Agriculture in order to conduct vigorous audits
    and reviews of the programs. We knew that NTIA and RUS had a
    daunting task--investing taxpayers' dollars both quickly and
    wisely in a manner that was fair, open and transparent to the
    American people. Assistant Secretary Strickling and Acting
    Administrator Padalino, your agencies are meeting this
    challenge.
        The projects funded by BTOP and BIP are transforming
    communities across the country. We all recognize and applaud
    the billions of dollars in private investments that has
    delivered broadband to millions of Americans. But as
    demonstrated by the overwhelming demand from applicants when
    the programs were launched, public investments are also needed
    to connect persistently unserved and underserved areas of our
    Nation. Without these investments, some Americans would be
    excluded from today's digital economy.
        As this committee's continued interest in the broadband
    program indicates, we expect NTIA and RUS to be careful
    stewards of public dollars. Assistant Secretary Strickling,
    NTIA has been a model of transparency and accountability. As
    you stated in your testimony, the majority of BTOP projects are
    meeting and exceeding their project timetables. And we have
    every reason to expect they will be completed on schedule.
        Acting Administrator Padalino, as I have said before, I
    believe RUS still has work to do on this score. The GAO
    recently recommended that your agency collect more reliable
    data to assess progress of BIP. I am interested to hear what
    your agency is doing to respond to the GAO's recommendations,
    and in particular, what steps you are taking to make such
    information publicly available.
        I am also disappointed that the Office of the Inspector
    General from the Department of Agriculture is not testifying
    today to update the Committee on its work to ensure BIP funds
    are being well-managed.
        I thank everybody who is going to be testifying today, and
    I want to yield the balance of my time to my fellow Californian
    member from Sacramento, Ms. Matsui.
        Ms. Matsui. Thank you, Ranking Member Waxman, for yielding
    me time and I thank the witnesses for being with us today.
        Throughout the BTOP process, I have advocated for broadband
    adoption and digital literacy grants for urban underserved and
    anchor institutions. In addition to adoption, I believe digital
    literacy will be even more important as more and more Americans
    rely on their mobile devices, Smartphones and tablets for their
    daily communications.
        In my opinion, the BTOP program has laid a foundation for
    advancing our internet economy. It has connected more than
    11,000 community anchor institutions to high-speed broadband
    internet services. As a result of the State of California's
    Broadband Adoption Grant, community colleges like Los Rios
    Community College are now able to provide training and digital
    literacy skills for local residents in my district of
    Sacramento. Additionally, a BTOP grant allocated to the
    California Emerging Technology Fund will initiate an innovative
    program that provides computers to low-income middle school
    students in Sacramento. While I continue to strive for
    universal broadband adoption, I do believe the BTOP program has
    provided a path towards helping to close our Nation's digital
    divide.
        Finally, I would like to ask unanimous consent to enter
    into the record a letter from the Schools, Health, and
    Libraries Broadband Coalition.
        Mr. Walden. Without objection.
        [The information appears at the conclusion of the hearing.]
        Ms. Matsui. Thank you, and I yield back my time.
        Mr. Walden. The gentlelady yields back her time.
        I think that covers the scope of opening statements so we
    will proceed into the questions. I request--oh, I am sorry.
    That is right. We are so eager to get into our questions.
        Mr. Strickling. I know you are anxious to ask me questions,
    but I----
        Mr. Walden. If you want to waive your opening statement, we
    can just get right at this. You are right. We are going to go
    to opening statements.
        And so I want to welcome Hon. Lawrence E. Strickling,
    Assistant Secretary for Communications and Information, and
    Administrator of the National Telecommunications and
    Information Administration--which is a mouthful--U.S.
    Department of Commerce; and John Padalino, the Acting
    Administrator of Rural Utilities Service (RUS), U.S. Department
    of Agriculture.
        Mr. Strickling, we welcome both you and Mr. Padalino here
    and we look forward to your testimony.

     STATEMENTS OF LAWRENCE E. STRICKLING, ASSISTANT SECRETARY FOR
      COMMUNICATIONS AND INFORMATION, AND ADMINISTRATOR, NATIONAL
    TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION (NTIA), U.S.
           DEPARTMENT OF COMMERCE; AND JOHN PADALINO, ACTING
     ADMINISTRATOR, RURAL UTILITIES SERVICE (RUS), U.S. DEPARTMENT
                             OF AGRICULTURE

                  STATEMENT OF LAWRENCE E. STRICKLING

        Mr. Strickling. Well, thank you, Mr. Chairman, and to you,
    and to Ranking Member Eshoo, and members of the subcommittee.
        I am here today to update this subcommittee on NTIA's work
    to expand the availability and adoption of broadband in the
    United States. And I am pleased to welcome a new partner to the
    witness table, John Padalino, the Administrator of the Rural
    Utility Service, who has taken over for Jonathan Adelstein, and
    I look forward to working with Administrator Padalino in his
    new capacity.
        Four years after the American Recovery and Reinvestment
    Act, I am pleased to report that our broadband efforts are
    delivering substantial and meaningful benefits across the
    country. Our grantees are delivering on their promises to
    create jobs, stimulate economic development, spur private
    sector investment, and open up new opportunities in employment,
    education, and healthcare. And they are exceeding the program's
    goals for deploying new fiber-optic infrastructure,
    constructing new public computer centers, and encouraging
    greater internet adoption.
        To date, our grantees have deployed or upgraded more than
    86,000 miles of broadband infrastructure. They are building
    more than 2,300 network nodes in 1,400 communities, and over 80
    percent of these communities will receive speeds greater than a
    gigabit per second. Our grantees have connected almost 12,000
    schools, libraries, and other community anchor institutions to
    high-speed broadband. Eventually, they will connect more than
    20,000 community anchors in 5,100 communities, and more than 20
    percent of these institutions will receive bandwidths greater
    than a gigabit per second. They have entered into more than 600
    interconnections agreements with other companies and
    organizations to allow them to provide new or improved services
    to their homes and businesses that they serve.
        Our grantees have installed more than 40,000 public
    computer workstations, provided nearly 10 million hours of
    training to 2.8 million people, and have generated over 500,000
    new broadband subscribers. These projects are directly funding
    thousands of jobs and delivering training that has allowed
    thousands more Americans to find jobs of their own.
        From the beginning of this program, NTIA has been cognizant
    of the need to design and administer this program in the most
    efficient manner possible. And indeed, our costs of
    administration are among the lowest of any comparable program
    in the government.
        Similarly, the need to protect taxpayer funds against
    waste, fraud, and abuse and to ensure that the projects deliver
    their promised benefits has been of paramount importance to us.
    We have performed extensive and diligent oversight of these
    projects without micromanaging them. We have provided technical
    assistance to recipients to help them perform well and deliver
    the benefits they have promised. And this oversight involves a
    significant level of effort and requires hard decision-making
    at times when necessary to protect taxpayer investments.
        The vast majority of our projects have performed well. You
    will hear from representatives of two of these projects in the
    second panel; Joe Freddoso of MCNC in North Carolina; and Bruce
    Abraham of the North Georgia Network. But as with any program
    of this size and complexity, we have had cases where
    intervention by us was necessary. Fortunately, because we work
    hard to identify issues as early as possible, we have been able
    to get projects back on track.
        One of our oversight tools is project suspension. We use it
    sparingly and only after efforts to improve performance with
    improvement plans or corrective action programs have not
    deliver the desired results. Over the history of this program--
    keeping in mind that we have about 220 some grantees--we have
    suspended a total of nine projects. But a suspension does not
    mean the project is lost. In four cases we worked with the
    grant recipients to get their projects back in shape and we
    lifted the suspensions after the grantees addressed our
    concerns. As a result, those projects are stronger, more
    successful, and more responsible stewards of taxpayer dollars
    due to our interventions.
        And, Mr. Chairman, of the figure you gave of, I think, 600
    million of projects suspended/revoked, those projects--those
    four projects--account for $221 million, which means those
    dollars are back at work in their communities.
        The North Florida Broadband Authority Wireless
    Infrastructure Project offers a prime example. Our oversight
    identified concerns regarding project management and vendor
    oversight. We froze distribution of funds to the project,
    conducted several site visits, and provided extensive technical
    assistance to the grantee. We lifted the project suspension
    once the recipient implemented management and vendor changes,
    and now, about a year later, that project is nearing completion
    and benefiting dozens of communities in rural North Florida.
        Currently, we have three projects on suspension for
    performance-related issues. And this accounts for $158 million
    of the total number that the Chairman presented in his opening
    remarks. We are working closely with the recipients and we are
    hopeful that they will get their projects back on track at
    which time we would be able to lift the suspensions and allow
    the grantees to complete their projects. One of those three
    projects is EAGLE-Net, which I am sure we will be talking about
    in greater detail through the course of the questioning.
        There have been two situations where, despite our best
    efforts, we had to terminate projects. However, in those cases
    our early intervention allowed us to make the difficult
    decision to terminate before either grantee had spent much of
    its grant award. These projects account for $139 million of the
    Chairman's total, but when we terminated, they had only spent
    about $11 million of federal funds, which represents
    substantially less than even 1 percent of the total grant
    dollars awarded under the Recovery Act.
        Mr. Chairman, I am grateful to this subcommittee for its
    efforts to ensure that NTIA has had the resources it needs to
    oversee this program. I look forward to answering your
    questions and to continuing to work together to increase
    broadband access and adoption across the country in the most
    effective and efficient manner possible. Thank you.
        [The prepared statement of Mr. Strickling follows:]

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        Mr. Walden. Thank you, Mr. Strickling.
        We will now go to Mr. John Padalino, the Acting
    Administrator, Rural Utility Service. We welcome you here and
    look forward to your testimony.

                       STATEMENT OF JOHN PADALINO

        Mr. Padalino. Thank you, Mr. Chairman. And Mr. Chairman,
    Ranking Member Eshoo, and members of the subcommittee, thank
    you for the opportunity to testify on the U.S. Department of
    Agriculture's Broadband Initiative Program, or BIP, and the
    progress of the Rural Utility Service broadband investments
    under the American Recovery and Reinvestment Act of 2009.
        Because access to affordable broadband is crucial for
    economic development, the Rural Utility Service remains focused
    on the Recovery Act projects. We continue to work to expedite
    delivery of affordable, robust broadband service. Broadband
    creates jobs when projects are planned and built, adds jobs
    when these projects become operational, and again as
    communities continue economic expansion.
        The Rural Utility Service leveraged its budget authority
    appropriated by the Recovery Act to make grants, loans, and
    loan/grant combination awards to 320 projects totaling $3.5
    billion. The agency targeted grant funds to the most rural
    areas and to those in greatest need of service. The Rural
    Utility Service also leveraged grant dollars with additional
    private investments in broadband infrastructure projects to
    help communities gain sufficient access to high-speed broadband
    service, to facilitate rural economic development as directed
    by the Recovery Act statute.
        Rural broadband systems may take 5 years to build out. All
    of our U.S. projects must comply with federal and state
    environmental, historic preservation, and in some cases, tribal
    or intergovernmental reviews that can require significant
    consultation with the public prior to receiving loan and/or
    grant funds. To ensure recipients comply with the broadband
    program's requirements, including the budget and network system
    design submitted during the application process, the Rural
    Utility Service technical and financial staff review requests
    for funding advances and continue to provide technical and
    financial oversight throughout the project's life and beyond.
    Our rigorous project oversight has led to the rescission of 38
    Recovery Act awards and nearly $266 million returned to the
    U.S. Treasury.
        Under the Recovery Act, contracts signed by awardees
    require that all loan grant funds must be advanced by September
    30, 2015. Funds not advanced will be rescinded and returned to
    the U.S. Treasury. The Rural Utility Service and senior USDA
    officials have repeatedly encouraged awardees to complete
    Recovery Act projects as quickly as possible. Our 19 technical
    assistance awards have been fully disbursed. The Satellite
    Broadband Program has now dispersed 86 percent of its $100
    million to date.
        Infrastructure projects continue to progress. Over 98
    percent of the projects have drawn funds. The Rural Utility
    Service continues to closely oversee and work with the few
    awardees that have not yet drawn down funds.
        Since 1949, the Agency has played an important role in
    financing rural telecommunications. Our current rural broadband
    expansion efforts were initiated through the Rural Utility
    Service Telecommunications Infrastructure Loan Program, which
    has required that financed projects be broadband-capable since
    1995. The 2002 Farm Bill authorized the Rural Broadband Loan
    Program, which has provided broadband service to more than half
    a million rural subscribers. And the community connect grants
    are available to areas completely lacking broadband service.
        For this reason, the Recovery Act gave priority in funding
    to RUS infrastructure borrowers. For example, Baca Valley
    Telephone Company in New Mexico received their first loan in
    1979. Today, Baca Valley Telephone Company covers over 2,600
    square miles providing rural residential and cellular service,
    local internet access, business telephone and security systems,
    and network cabling throughout northeastern New Mexico and
    southeastern Colorado. Baca Telephone received Recovery Act
    funding to provide fiber optic connectivity and deploy a last
    mile access system, to provide broadband services to households
    and businesses in the northeast area of New Mexico.
        Now fully operational, contract savings allowed the project
    to expand into unserved areas and provide a solid framework for
    future needs. In Oregon, the Confederated Tribes of Warm
    Springs received an award for a broadband network on the
    reservation to improve public safety, enhance educational
    opportunities, and allow access to medical professionals on the
    reservation. The new network continues to assist employment
    growth as community members start online, home-based
    businesses.
        With a combined loan portfolio of over $6 billion, the
    Rural Utility Service Telecommunications Programs help deliver
    affordable, reliable, advanced telecommunication services
    critical to the future prosperity of rural communities.
        Despite Rule Utility Service investment, rural areas lag
    urban and suburban areas in broadband deployment. The RUS
    continues to address challenges to bring broadband to rural
    communities, yet we remain concerned over the impacts slow
    broadband investment may have on rural economies.
        Mr. Chairman, I thank the Committee and its members for its
    continued interest in the Recovery Act and other Rural Utility
    Service broadband programs.
        [The prepared statement of Mr. Padalino follows:]

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        Mr. Walden. Mr. Padalino, thank you. And Mr. Strickling,
    thank you for your testimony.
        I request unanimous consent to submit for the record the
    Ars Technica story about allegations West Virginia wasted
    millions of dollars putting enterprise-grade routers in small
    libraries like the one that I held up the picture for earlier.
        Without objection.
        [The information appears at the conclusion of the hearing.]
        Mr. Walden. Assistant Secretary Strickling, the West
    Virginia auditor concluded, ``The decision to spend the federal
    funds on oversized routers resulted in millions of dollars in
    federal funds not being spent on expanding the states fiber-
    optic broadband network.'' The auditor said that ``A capacity
    and a user's need survey prior to the procurement of the
    routers would have determined the appropriate router size, but
    such surveys were not conducted.'' The Commerce IG's report
    also concluded that West Virginia overspent, noting that West
    Virginia ``did not perform a study to determine which size
    router would most effectively and efficiently meet its needs.''
        Did the NTIA require any kind of site assessment or use-
    case analysis before approving a grant or authorizing the
    purchase? And if not, should it have? And will you do so going
    forward? Are you reviewing any other grants with questionable
    purchases? And how are you monitoring these grant recipients to
    prevent this from happening again?
        As you know this came up in a hearing we had back in May--
    --
        Mr. Strickling. Yes.
        Mr. Walden [continuing]. and we sparred back and forth
    about this very situation. And so it is a matter of keen
    interest to me and this subcommittee.
        Mr. Strickling. Yes, sir. Well, to answer the second part
    of your question, as you know, we don't have any more grant
    dollars to be giving out. So the issue of what we would do in
    terms of looking at a new application is a moot question
    because we are not in the business of giving out any new money.
    Now, with respect to these findings in West Virginia, I have
    had a chance to look over the auditor's report and I am
    certainly familiar with the Inspector General's report at the
    Department of Commerce. I think it is not at all clear from
    those reports that what West Virginia did was unreasonable in
    terms of its choice of a platform, a single platform, the Cisco
    router, at the time they made it.
        And I think part of the confusion we are having here, and
    it is reflected in the articles about this project, is we are
    confusing cost with capability. There is no question that the
    routers that West Virginia chose through its process that it
    used are providing superior capabilities. And there is no doubt
    that there are places in West Virginia that if those routers
    are installed, they are going to have far more capability than
    one would expect they would need now and probably in the next
    10 years. But what West Virginia did was they were looking in
    terms of, how do we do this in the future-proof way?
        Because the question we have here is not what do you need
    today to serve these facilities? What do we need for the next
    10 years?
        Mr. Walden. Mr. Strickling, with all due respect, hold up
    that library. The Market Public Library is open Thursdays--what
    does is it say here--Thursdays, Fridays, and Saturdays--in a
    single-wide trailer with one internet connection. Do you really
    think that is going to build out to where they have the need
    for a couple hundred internet connection router in a community
    of 1,500?
        Mr. Strickling. I don't know, Mr. Chairman. But I do know
    that that community has plans to build a 5500 square foot
    library to replace the temporary one that is in your picture.
    So----
        Mr. Walden. A 5,500 square foot library in a town of 1,500
    needs a $20,000 router?
        Mr. Strickling. Well, sir, the $20,000 is a list price and
    I am not in any way suggesting that every one of these
    locations in West Virginia will make full use of these
    capabilities. But it still comes back to the cost question. The
    question is, how did they waste money if they wasted money? And
    the fact is that the financial analysis of this shows that the
    prices that were paid in the aggregate by West Virginia are
    pretty close to what they would have paid under an alternative
    model.
        Mr. Walden. So you have read the audit from the West
    Virginia.
        Mr. Strickling. Our Inspector General did a review of this
    project and said that if you assume that they would have gotten
    the same level of discount on the lower-class router and if
    they had gotten 100 free routers, there might have been a
    savings of 2 to 5 percent----
        Mr. Walden. Mr. Strickling----
        Mr. Strickling [continuing]. but our Inspector General
    finally just finished, Mr. Chairman, concluded that if either
    of those assumptions wasn't true, if in fact they couldn't get
    the 100 free routers, then the cost would have been a wash.
        Mr. Walden. So you are happy with the outcome in West
    Virginia is what I hear you defending. Is that correct?
        Mr. Strickling. I am saying----
        Mr. Walden. You believe that what they did is accurate and
    a good use of taxpayer money? Have you read the West Virginia
    audit itself? The IG didn't dig as the as the West Virginia
    auditor did.
        Mr. Strickling. The West Virginia auditor used list prices.
    They didn't use the actual prices----
        Mr. Walden. And they identify that there was no competitive
    that process--just a moment, sir.
        Mr. Strickling. Sir----
        Mr. Walden. Did they use a competitive bidding process in
    West Virginia in accordance with their statutes? No, they did
    not according to the auditor. Correct?
        Mr. Strickling. Well, I think we need to hear from the
    State on that. My understanding is they use a process that they
    have used in the past in terms of the----
        Mr. Walden. I don't believe that is true. I don't believe
    that is true at all. Have you read the West Virginia audit?
        Mr. Strickling. I have, sir. But I am telling you that it--
    --
        Mr. Walden. That clearly identifies the problem and the
    waste here and calls for future investigations?
        Mr. Strickling. It used list prices, not the actual prices.
        Mr. Walden. So you are oK with this little single-wide
    trailer having a $15 or $20,000----
        Mr. Strickling. That is not what I said, Mr. Chairman.
        Mr. Walden. But I believe it is.
        Mr. Strickling. I have indicated to you that what we are
    talking about is the decision of West Virginia to make----
        Mr. Walden. We are talking millions and millions of dollars
    being wasted here that we don't have that I expect you to go
    after if they have been wasted in West Virginia to give back to
    us.
        Mr. Strickling. That is my point, sir. There is no real
    showing of wasted dollars expended here.
        Mr. Walden. Wow.
        Mr. Strickling. Look at our IG's report.
        Mr. Walden. I have.
        Mr. Strickling. Our IG concluded a possible 2 to 5 percent
    savings had they used different routers if they would have
    gotten 100 free routers, which they got by buying the higher-
    capacity gear and if they had gotten the same level of
    discount. If they wouldn't have gotten the free routers, the
    price of buying the lower capable routers would have been the
    same as what they bought. So that is what we are confusing
    here, Mr. Chairman. We are confusing the capabilities of what
    they are getting with the cost that they paid.
        Mr. Walden. Well, it is interesting that we have gotten a
    letter from the Chief of Staff of the Governor asking for all
    kinds of flexibility now going forward to deal with this issue
    of routers that have overcapacity.
        My time has expired. I recognize the gentlelady from
    California.
        Ms. Eshoo. Thank you, Mr. Chairman. I think that if this
    little town--wherever it is in West Virginia--had their 5,500
    square foot library built with not only capacity for today but
    capacity for the future that was purchased that we wouldn't be
    having this discussion. It is the shed that doesn't look good.
    Because when you look at what is going on, I mean you don't
    just buy something with capacity for today. You shortchange
    yourself. And there is--if you want to get into the weeds, and
    it is important to--that the pricing of these routers are very
    important.
        Now, just for the record, I have spoken to some of the
    companies that are a part of this. Well, first of all, Cisco
    did not write up the order. They responded to the customer and
    sold them what they asked for. Number two, if there is any kind
    of shadow over these dollars, Cisco is willing to refund the
    federal program. I don't think that is going to be the case,
    but nonetheless, I think it is important to state that.
        Now, the GAO recently raised concerns about the quality of
    the data being collected by BTOP and BIP. Have your agencies
    taken any action to respond to the GAO's recommendations? You
    want to be brief because I have got a lot of questions to ask.
        Mr. Strickling. In fact there weren't any recommendations--
    --
        Ms. Eshoo. There weren't?
        Mr. Strickling [continuing]. directed at us. In fact they
    used us, I think, as a model of a good way to collect data.
    They did----
        Ms. Eshoo. Terrific.
        Mr. Strickling. They did raise some questions about how
    they collected data.
        Ms. Eshoo. I hope all of the members are listing to this. I
    mean we have a tendency to insulate ourselves from any kind of
    good news.
        Mr. Padalino?
        Mr. Padalino. Yes, the recommendation in the GAO audit was
    directed at the Rural Utility Service and the Broadband
    Initiative Program.
        Ms. Eshoo. So what are you doing with it?
        Mr. Padalino. At the time the audit was published, we had
    at that point developed a dashboard and required project-by-
    project reporting so that we could----
        Ms. Eshoo. I don't know what that means. What are you doing
    with it?
        Mr. Padalino. Well, what we are now collecting is the data
    similar to what NTIA is collecting as far as network miles,
    wireless access points, number of----
        Ms. Eshoo. When are you going to finish with your
    absorption of that and what you are going to do with
    recommendations?
        Mr. Padalino. We plan to try to make that data publicly
    available.
        Ms. Eshoo. But don't try. You need to. You just need to do
    it.
        Mr. Padalino. Yes, ma'am.
        Ms. Eshoo. Try is not good enough. OK? Really. We are in
    the public business, all right, or the business of the public.
        Now, the RUS has been, I think, less than forthcoming than
    NTIA about publicly reporting on the progress of your grantees.
    So what are you doing to make sure or ensure that the public
    has access to information where BIP projects are building and
    whether they are on track to meet their milestones?
        Mr. Padalino. One of the first things we do even before an
    award is made is have each of the applicants go out for public
    comment. And they notify the public that they are seeking RUS
    funds. And the public has an opportunity to comment on that
    application. Afterwards, as I said, we developed a dashboard so
    we are----
        Ms. Eshoo. But my question is about the progress of the
    grantees. You are talking about who is bidding and the public
    knows that Company A, Company B, Company C. That is not what I
    asked you.
        Mr. Padalino. Earlier this year, we had a webinar with all
    of the Broadband Initiative Program awardees, and the very same
    question was asked of how we can make this information
    available. We are working to get that information available
    online so we can report on the progress of our projects.
        Ms. Eshoo. Yes, I mean the public needs to know, and in a
    very clear way, how they can track the progress of this. That
    is essentially what the hearing is about. All right? And it is
    very important that you do that.
        At the Subcommittee's last hearing on BTOP and BIP in May
    of last year, USDA's Deputy Inspector General identified that
    the IG had begun an audit of the BIP application process. And
    he estimated that the audit would be complete in September of
    last year and that a second phase examining the post-award
    process would be completed by December of last year. Has either
    of these audits been released?
        Mr. Padalino. Those audits have not been released yet.
        Ms. Eshoo. Why?
        Mr. Padalino. I am not sure.
        Ms. Eshoo. Do you know?
        Mr. Padalino. We could look to the Inspector General's
    office to ask why. I think they will be coming out shortly, and
    when they are publicly available, we would be happy to discuss
    it with you.
        Ms. Eshoo. Well, if they are publicly available, then we
    will get them, too. Let me ask you this. Are you pressing them
    for it?
        Mr. Padalino. Yes, we have been working closely with them
    on the audit.
        Ms. Eshoo. Are you? Good. OK. Do you have a timeline of
    when--well, you just said you think it is going to be made
    available publicly shortly. Shortly in government time is what,
    in the next 6 months or the next 6 weeks?
        Mr. Padalino. I think in the next few months. I can't speak
    for the Inspector General----
        Ms. Eshoo. I know. It is a guess. It is a guess.
        I just want to also request, Mr. Chairman, while I still
    have some time, that a unanimous consent request that the
    letter dated February 26 from the National Association of
    Telecommunications Officers and Advisors be made part of the
    record.
        Mr. Walden. Without objection.
        [The information appears at the conclusion of the hearing.]
        Ms. Eshoo. Thank you, Mr. Chairman.
        And I would also like the majority to follow up on
    something that was said at the beginning of the hearing, that
    there is documented fraud. And if there is documented fraud, we
    need to know about it. I don't know, you know, if it is
    documented, if it is speculative, then say if it is speculative
    and we will look into it. But fraud is a heavy charge. Some of
    these issues, obviously, you can debate them. You know, I don't
    think the Cisco router look so great in the shed. You know, it
    kind of pulls down, I think, the value of the brand. But on the
    other hand, if there is documented fraud, we need to cast a
    spotlight on that and examine it.
        And with that I yield back.
        Mr. Walden. The gentlelady's time has expired and she
    yields back.
        The Chair recognizes the vice chair of the subcommittee.
        Mr. Latta. Mr. Chairman, I will yield 2 minutes to you.
    Thank you.
        Mr. Walden. I thank the gentleman for yielding.
        I want to go to this point of the West Virginia audit. I
    will quote from the audit, page 29 of the audit. ``The State
    Office of Technology used a purchasing process which is
    unauthorized by West Virginia statute or legislative rule to
    purchase 1164 Cisco model 3945 branch routers at a cost of 24
    million on behalf of the Broad and Technology Opportunity
    Program, BTOP, Grant Implementation Team.'' The Office of
    Technology used a ``secondary bid process'' on an existing
    contract approved by the state purchasing division instead of a
    competitive bid process open to non-Cisco vendors as required
    by law.
        Now, if you go back to some of the points I was making
    earlier, according to the audit, ``The auditors research, some
    conclusions can be readily drawn. Smaller, less-extensive
    routers could have been purchased for the State's 172
    libraries. If the average cost savings was 16,265 less per
    router, 2.8 million could have been saved.'' Smaller, less-
    extensive routers, if necessary, could have been purchased for
    the state police for $15,000 less per router saving $1 million
    more. Several of the State's public schools are presently able
    to meet the 2017 broadband standards set by the State
    Educational Technology Directors Association, and in the
    opinion of the legislative auditor, routers significantly
    smaller than the Cisco model 3945 could have been purchased to
    ensure almost all the state schools meet the standards.
    Purchasing approximately sized routers, which could have cost
    $10,000 less for at least the 368 schools with enrollment less
    than 500 which received Cisco 3945 routers could have achieved
    the same result for $3.68 million less.''
        So these are issues that we are reading in an independent
    auditor's report from the State of West Virginia that went much
    deeper than the IG's report did--are disturbing.
        I yield back to the vice chair.
        Mr. Strickling. But if I could just say, Mr. Chairman, they
    are still using list prices. They didn't focus on the actual
    discounts that were provided.
        Mr. Walden. We will look forward to getting the data that
    you have.
        Mr. Latta. Thank you very much, Mr. Chairman. Reclaiming my
    time.
        Mr. Padalino, if I could ask you, could you explain the
    criteria and application process for the BIP awards, please?
        Mr. Padalino. When we are reviewing a BIP award
    application, we are looking to see if this is a project that
    can promote rural economic development and if it is in an area
    to be served is at least 75 percent rural. Then, we take a look
    at the technical and financial feasibility of the project. The
    project applicant will go out for public comment. They will,
    you know, notify the public that they are seeking RUS funding.
    We will take those comments, we take application, and then do
    the technical and financial feasibility review to see if, based
    on the totality of the application, if one, if it is
    technically feasible; and two, if it is financially feasible,
    and basically, can this loan be repaid?
        Mr. Latta. OK. In your testimony you state that nearly $266
    million were turned back into the Treasury because after you
    had done your oversight there was a rescission of 38 of the
    Recovery Act awards. How long did it take you to find that
    these 38 awards weren't up to the standards that had been set?
        Mr. Padalino. We have a rigorous oversight process even
    after the award is made. We continue to work with each and
    every project through the life of the construction and even
    afterwards. We have auditors and field representatives who
    regularly meet with these individual projects as those 38
    came--and different reasons. Each one has a slightly different
    story. As they would come up to the Agency, a decision at some
    point was made that this project couldn't move forward. And
    maybe in some cases the applicant just decided they did not
    want to pursue it even after the award was made. So those funds
    were rescinded and returned to the Treasury.
        Mr. Latta. OK. So had the money already been allocated out
    to those 38 or how is that done?
        Mr. Padalino. The funds had been obligated but they had not
    been----
        Mr. Latta. They had been allocated. Let me ask this, too.
    Now, after these award grants have been rescinded, can those
    organizations, groups, et cetera, come back to you and reapply?
        Mr. Padalino. They can reapply if they are--well, they can
    always reapply under the regular programs that we have. I
    mentioned our Traditional Infrastructure Loan Program and our
    Broadband Loan Program. The Broadband Initiative Program money,
    if those funds are rescinded, go right back to the Treasury and
    are no longer available.
        Mr. Latta. And so those should be no longer available to
    those. But you are saying they could apply it under another
    grant?
        Mr. Padalino. Under another loan program.
        Mr. Latta. But not under BIP? OK.
        Mr. Chairman, I see that my time has expired and I yield
    back.
        Mr. Walden. The gentleman yields back his time. The Chair
    now recognizes--I think Mr. Doyle is next with Mr. Waxman out
    of the room. So we welcome your comments.
        Mr. Doyle. Thank you, Mr. Chairman. To both of our
    witnesses, welcome. We appreciate you coming here today to
    update us on these important programs.
        Mr. Chairman, I think BTOP and BIP are programs we should
    be really proud of because they are creating opportunities for
    our constituents to have faster, cheaper internet service. I
    want to say for the record that I am not happy with the
    direction this hearing is taking. I don't really understand how
    any of my colleagues can argue that providing that better,
    faster internet and more digital literacy training to unserved
    and underserved areas of this country is something we should
    criticize. Is this program perfect? Of course it is not
    perfect. In the 19 years that I have been here I have yet to
    see the first perfect government program run at this scale.
        If you want to criticize or ask questions about West
    Virginia or Colorado, you have every right to do so. And I
    support that. What you don't have the right to do is to imply
    that this program in its totality is a waste of government
    money and hasn't met its mission.
        Congress passed the Recovery Act mandating the NTIA and RUS
    support programs in unserved and underserved communities, and
    that is what they have been doing. In Pittsburgh, BTOP has
    funded four public computing centers in low-income
    neighborhoods. Mr. Chairman, I have toured these centers and I
    have seen firsthand what an important service they provide to
    my constituents who don't have computers or internet access at
    home or don't know how to use computers. And in Pennsylvania
    statewide, BTOP is funding the construction of a massive
    middle-mile fiber network called PennREN, which will connect
    anchor institutions including universities, K through 12
    schools, libraries, and hospitals to a robust internet
    backbone. Both of these programs are thriving and are on track.
        So I think rather than apologizing for these programs, we
    should be proud of them because they are providing real
    tangible benefits to our constituents.
        Gentlemen, I have question for both of you regarding
    interconnection. As you know, one of the requirements put in
    place by the Recovery Act is the ability for other providers to
    interconnect to BTOP- and BIP-funded facilities on a reasonable
    and nondiscriminatory rates and terms. Can you share with us
    whether other broadband providers have used interconnection
    agreements to leverage the investment being made by BTOP and
    BIP?
        Mr. Strickling. I will start. And thank you for the
    question. Yes, it has been a fundamental feature of our program
    from the start that we wanted to use this investment to prime
    the pump for additional private sector investment. And as a
    result, we do have interconnection and nondiscrimination
    obligations that apply to any facilities built with federal
    dollars. It is a very clear standard. These dollars come from
    the public; the public should benefit from it. And therefore,
    the facilities should be open to anyone who wants to use them
    to offer new or improved services to their constituents.
        To date, we have had 600 interconnection agreements signed
    with our various grantees. And what these people are able to do
    then is get cheaper backhaul to internet exchange points, which
    may allow them to better serve homes and residences that they
    want to serve. Our projects, for the most part, do not serve
    end-user homes and businesses. We do serve anchor institutions,
    but for the most part, we have left it to the private sector to
    serve homes and businesses and we think that is the appropriate
    way to do it.
        What we have done for all those companies, whether they are
    incumbents or new entrants, is offering them a lower-cost
    middle-mile to get back to the internet exchange points. That
    cost for many of these providers is a barrier to expanding or
    even entering the business. And we have been able to see
    successes with that by virtue of the middle-mile capacity that
    we offer.
        And I know there has been a lot of comment about overbuild
    and I am sure we will hear more, but I say fundamentally, the
    construction of middle-mile facilities is not overbuilt in this
    country. The amount of internet usage is expanding at a rate so
    great that we need as much middle-mile as we can get. And in
    fact, the last statistics that I saw is that we expect internet
    usage to double from what we had last year to 2016. In 2011 we
    had 1 billion devices connected to the network. That is
    projected to be 3 billion in 2016.
        So what our projects are doing is laying these facilities
    out there for anybody to use to help future-proof and improve
    our opportunities in the global economy by having this capacity
    available as we need it.
        Mr. Doyle. I agree totally. Mr. Padalino?
        Mr. Padalino. Thank you, Congressman.
        Where our projects under the Broadband Initiative Program
    focus was on the last mile, the connections to the home. And
    many of our awardees are providing service where there was no
    service available. And so in many cases they are the only
    provider out there.
        We heard a number earlier in the testimony or in the
    opening statements of 19 million Americans who lack access to
    broadband today; 14.5 million of those Americans are in rural
    America. And so what we see in our applications are
    applications that propose to provide broadband to new areas, to
    areas where there has been no service before.
        As Assistant Secretary Strickling mentioned, we are aware
    of the issues of overbuild and we take those issues very
    seriously and work with our federal partners and local
    borrowers to ensure that we are dealing with those issues as
    they come up.
        Mr. Doyle. Thank you, Mr. Chairman. I yield back.
        Mr. Walden. The gentleman yields back.
        The Chair recognizes the gentleman from Texas, Mr. Barton.
        Mr. Barton. Thank you, Mr. Chairman.
        I am going to have some technical questions for the record
    for some of the FirstNET or NetOne projects down in Texas I
    would ask unanimous consent that we have those in the written
    format.
        Mr. Walden. Without objection.
        Mr. Barton. I want to focus on a little bit broader issue.
    I am so glad that Congressman Doyle got to go right before me
    because he gave a very passionate defense of the program and
    how it is helping constituents in his district. And I don't
    doubt that for a minute. I don't doubt that for second. If you
    spend or are obligated to spend over $7 billion you darn sure
    better help somebody. And it is good that that some people in
    Pennsylvania have been helped.
        But I looked at this, and I haven't focused on the math of
    the program, but we obligated or authorized over $7 billion to
    be spent on these two programs, and it looks to me like we
    spent about $4.5 billion. And it looks like for that $4.5
    billion, NTIA has provided access to about a half a million
    homes and the RUS, it says, has access--it doesn't say
    connections--to about 2.8 million. So I don't know how many of
    those people actually signed up.
        But it looks like per recipient--and the gentleman from RUS
    said that we are not really trying to connect homes; we are
    trying to provide that middle mile and then let the private
    market do the rest of it. And I don't have a problem with that.
    But if you looked at the end result, it is about $100,000 a
    home. Now, we could have given everyone of Mike Doyle's
    constituents $25,000, and I bet they would have been able to go
    out and find some sort of broadband. When 220 million Americans
    have access to broadband in their homes and on their iPhones
    and iPads, 96 percent of the country has access in some shape,
    form, or fashion. It really calls into question why we need the
    program. It is not that it is a bad program. It is not that it
    is even a wasteful program, but is it a necessary program when
    this weekend we are going to have sequestration kick in? It is
    going to cut $85 billion, and if you believe President Obama,
    the sky is falling.
        You know, we are borrowing $1.5 trillion a year. We don't
    need the program. We don't need it. It is not that it is a bad
    program. It is not that these are bad administrators. These
    gentlemen look to me to be very credible, competent, government
    servants. I think we could have taken at $7 billion, set up
    some sort of a voucher program for people that really needed
    it, and we would have been much better off.
        So here is my question. We spent over 4.5 billion which
    means there is still about 2.5 billion that hasn't been spent.
    What would be the harm of just rescinding the funding that has
    not yet in been spent saying game over, save the taxpayers $2.5
    billion.
        Mr. Strickling. Well, first, I wouldn't be a credible and
    competent administrator if I didn't at least ask you about your
    math. How did you arrive at that number? You used the 500,000
    number for NTIA.
        Mr. Barton. I just use the numbers provided----
        Mr. Strickling. That is the results of our adoption
    program. That has nothing to do with the infrastructure
    program.
        Mr. Barton. Well, it says that NTIA has provided access to
    510,000 homes or something like that or has signed up for it.
        Mr. Strickling. No. What we report----
        Mr. Barton. That number----
        Mr. Strickling [continuing]. And what was in my testimony
    was the fact that our adoption programs, the digital literacy
    training, the low-cost computers, those programs have reported
    adding 500,000 adopters as new subscribers to already existing
    services.
        Mr. Barton. Well, give me your number.
        Mr. Strickling. We don't have number for infrastructure
    projects.
        Mr. Barton. Give me a guess. Give me guess. How many homes?
        Mr. Strickling. I don't know because our focus has been on
    building the middle-mile infrastructure for private industry.
        Mr. Barton. How much money have you spent? Do you accept
    the $2.8 billion? Is that a good number?
        Mr. Strickling. We have spent 2.8 of the 4.1 we had. But--
    --
        Mr. Barton. All right. How many people should be getting
    service for $2.8 billion?
        Mr. Strickling. But you are misapprehending the focus of
    our program. Our program focused on----
        Mr. Barton. I thought it is to serve people in underserved
    areas?
        Mr. Strickling [continuing]. Comprehensive community
    infrastructure projects where we were extending middle-mile to
    try to bring a gigabit into as many communities as we could to
    allow private industry--from that, use those facilities to
    offer improved and new services to homes and businesses. We
    have had 600 interconnection agreements but we don't have any
    control over those 600 companies.
        Mr. Barton. Well----
        Mr. Strickling. I don't know what they have actually
    delivered.
        Mr. Barton [continuing]. Let me go at it a different way.
    Do you dispute the number that 220 million homes have access to
    broadband and 96 percent of the population has access to
    broadband? Do you dispute that number?
        Mr. Strickling. No, sir. Depending again on----
        Mr. Barton. So you accept that number?
        Mr. Strickling [continuing]. Using a fairly low speed to
    define broadband. But what that ignores is the need----
        Mr. Barton. Well, we are using the speed----
        Mr. Strickling [continuing]. Of our anchor institutions.
    Our schools cannot get by with the 3 or 4 megabits per service
    that might work perfectly fine in the home of a, you know, a
    single family. When we are talking about schools and we are
    talking about libraries and were talking hospitals, we are
    talking about dozens and in some cases hundreds of students or
    people in the library----
        Mr. Barton. But you can't justify----
        Mr. Strickling [continuing]. Trying to be online the same
    time. Those folks need much----
        Mr. Barton. You give me----
        Mr. Strickling [continuing]. Greater bandwidth than what
    can be supplied with 4 megabits per second.
        Mr. Barton. You give me your number. Don't accept my
    number; give me your number.
        Mr. Strickling. But what I am telling you is that our
    program is attempting to----
        Mr. Barton. What have we got for $2.8 billion?
        Mr. Strickling [continuing]. Increase the level of
    broadband capacity in these very important anchor institutions
    like schools and libraries and hospitals and government
    facilities as a way to then serve as anchors for the rest of
    the community.
        Mr. Barton. I don't know the number but I expect----
        Mr. Strickling. I am telling you that your number is only a
    piece of what we are trying to accomplish with this program.
        Mr. Barton. Except for some very remote rural schools,
    every school in America has access to broadband. It is closer
    to 100 percent than it is to 70 percent.
        Mr. Strickling. But again----
        Mr. Barton. It is probably closer to 100 percent than is to
    95 percent. Whatever it is, it is a high number. Do you dispute
    that?
        Mr. Strickling. The technology directors of the schools in
    this country believe that we are in a crisis in terms of
    getting broadband to schools because again 4 megabits per
    second does not meet our need for schools.
        Mr. Barton. If that is the case, sir, give me the number of
    the schools that don't have it.
        Mr. Strickling. Well, I can----
        Mr. Barton. Give us a number. Then, we can have a debate.
        Mr. Walden. The gentleman's time has expired.
        Mr. Strickling. Well, I know with our national broadband
    map, when we issued it, we said that only 25 percent of schools
    at that time, 2 years ago, had access to even 25 megabits-per-
    second speeds. The state education technology directors say
    that today, schools of 1,000 students need at least 100
    megabit-per-second service, and in a couple of years, they are
    going to need a gigabit-per-second service. Very few schools
    have access to that in this country except in those States that
    have taken the initiative to deliver that kind of statewide
    network.
        Mr. Walden. The gentleman's time has expired.
        Mr. Barton. Give us the number. Give us the number.
        Mr. Walden. The gentleman's time has expired.
        The Chair recognizes the gentleman from California, Ms.
    Matsui for 5 minutes.
        Ms. Matsui. Thank you, Mr. Chairman.
        Let me just say that no program of this magnitude will be
    perfect. But I do believe that these programs have achieved
    laudable goals, most notably, expanding broadband access to
    more Americans.
        Now, let me switch to the BTOP program, Secretary
    Strickling. You will be releasing soon a digital literacy
    toolkit that is to serve as best practices for promoting
    digital literacy. Can you explain the reason and goals for such
    a digital literacy plan?
        Mr. Strickling. Yes. As you know, Congress provided us $250
    million for sustainable broadband adoption projects. So we have
    had a number of very exciting and innovative, very creative
    programs performed around the country in terms of delivering
    digital literacy training to people to provide job skills
    training, to work on providing low-cost computers, finding
    discounted service. We are finding that all of these different
    elements are required to have an effective adoption strategy to
    get people to subscribe to broadband. But we only reached those
    communities we could reach with the $250 million in grants we
    had. Yet we know this is still a national problem.
        As Mr. Barton said, we have got 96 percent availability of
    broadband, but today, only about 68 percent of people
    subscribe.
        Ms. Matsui. Yes.
        Mr. Strickling. So the toolkit is an effort to get our best
    practices out to the entire country so that other communities
    can take advantage of what we have learned from the programs we
    have done.
        Ms. Matsui. Certainly. And I just want you to expand on
    this, too. What do we stand to lose if we leave underserved
    areas behind? And I am thinking about all underserved areas.
    Will these communities have the same ability to attract
    economic development and benefit from educational and
    healthcare opportunities that require high bandwidth?
        Mr. Strickling. Well----
        Ms. Matsui. And I want you to expand on this because anchor
    institutions are important. I have advocated for that
    previously. And I understand what you are saying about not all
    schools have the technology that we believe they should have.
    So could you expand on all that?
        Mr. Strickling. Sure. So in terms of the question of the
    adoption issue in the underserved areas, yes. There is no
    question that people who have not been able to adopt broadband
    service are going to be left behind in the modern economy. If
    you don't know how to go online and write a resume and submit a
    job application, you are going to find it hard to get a job. So
    we have felt that moving that adoption needle from 68 percent
    up to a higher number is critical if we are going to have all
    of our citizens able to fully participate in today's economy.
    So we do think it is an area of emphasis.
        The good news is that it doesn't take a lot of money to
    expand adoption. The bad news is you really need a very
    comprehensive individualized approach in terms of meeting the
    needs of individuals as they are trying to get over that hurdle
    of becoming an adopter of broadband service. But it is an
    absolutely important area and one in which we want to continue
    to work in even after the grant program is completed.
        Ms. Matsui. Well, isn't it true that even though we might
    say, you know, 95 percent of Americans have access to
    broadband, that is not true across the Nation. It depends on
    where you live. And I think that that is a situation where you
    cannot--it is just apples and oranges. And I would like you to
    explain further about some of the differences that occur on,
    you know--and I would also think the other witness can chime
    in, too--about the difficulties to have broadband access across
    the Nation as a whole so all Americans have access.
        Mr. Strickling. Right. So we know that businesses look at
    this issue and they determine where to locate a plant and to
    get new jobs. We have several cases through our State Broadband
    Initiative which collects the data for the national broadband
    map where we know businesses have been able to use that data
    and make decisions only to go into communities that have
    adequate broadband infrastructure. And that is where the jobs
    are going come.
        Ms. Matsui. Right.
        Mr. Strickling. So if you are a community that doesn't have
    this, you risk being left behind in terms of when companies are
    deciding where to locate.
        Mr. Matsui. Mr. Padalino, would you like to chime in on
    this, too?
        Mr. Padalino. I would, and thank you. I mentioned earlier
    of the 19 million Americans who lack access to broadband, 14.5
    million of those Americans are in rural America. And we applaud
    the efforts that NTIA has focused on the anchor institutions.
    And at the Rural Utility Service, we also focus on the anchor
    institutions. But we also want to focus on those rural
    household and rural businesses and all the other subscribers
    out there who can take advantage of increased access to
    broadband.
        Assistant Secretary Strickling mentioned all the benefits
    that can come from that, but in rural America, it is so much
    more. That means a 2- or 3-hour trip to the metro area could be
    avoided because you can take advantage of a telehealth
    facility. It means that children can take advantage of distance
    learning opportunities and receive educational opportunities
    that they may not have been able to benefit from without having
    to move from home or take an hour-long drive or 2-hour-long
    drive to get to that educational facility. In addition, in the
    ag sector where we are seeing a lot of--right now, we have
    tractors that--if they had access to all of the broadband
    technologies that are available--could, on a square-meter
    basis, be able to determine the amount of fertilizer, the
    amount of seed, all the different variables that go into
    keeping our ag sector the most prosperous, most abundant,
    affordable food supply in the world.
        Ms. Matsui. Well, thank you very much.
        And I see my time has expired. Thank you.
        Mr. Walden. Thank you. The gentlelady yields back.
        The chair now recognizes the gentleman from Colorado, Mr.
    Gardner.
        Mr. Gardner. Thank you, Mr. Chairman.
        And Mr. Padalino, to your response, I mean we are a farm
    equipment dealership. We sell tractors. We have never once
    relied on the government to provide our GPS signal. That comes
    from satellites; that comes from a tower that we ourselves put
    up. That is a private sector solution.
        Mr. Strickling. I believe, sir, that GPS satellites are
    government satellites, but----
        Mr. Gardner. Mr. Chairman, I would request unanimous
    consent to submit for the record this New York Times story
    describing how EAGLE-Net used its 100 million BTOP award in
    Colorado to overbuild existing providers, including building a
    third fiber line to an 11-student elementary school that it
    says it neither needs nor wanted.
        Mr. Walden. Without objection.
        [The information appears at the conclusion of the hearing.]
        Mr. Gardner. I have several other letters that I would ask
    to be unanimous consent.
        Mr. Walden. Without objection.
        Mr. Gardner. Thank you. Administrator Strickling----
        Mr. Walden. Suspend. I am sorry?
        Mr. Gardner. Letters from companies in my district and
    throughout Colorado, PC Telecom, C-COM, Blanca, one from----
        Mr. Walden. Without objection.
        [The information appears at the conclusion of the hearing.]
        Mr. Gardner. Thank you, Mr. Chairman.
        Administrator Strickling, Administrator Padalino, at prior
    broadband stimulus oversight hearings, the NTIA and the RUS
    have claimed overbuilding is not occurring. Do you still
    maintain that position? Mr. Strickling?
        Mr. Strickling. Sorry?
        Mr. Gardner. Is overbuilding occurring?
        Mr. Strickling. Well, that depends on what you mean by
    overbuilding. But as I said earlier----
        Mr. Gardner. All right. It is just a simple question. Are
    we overbuilding? Are you laying fiber where existing fiber
    exists?
        Mr. Strickling. That is not necessarily overbuilding as I
    explained in my previous answer.
        Mr. Gardner. Are you laying fiber where existing fiber
    exists?
        Mr. Strickling. I am sure that some of our grantees are
    doing that.
        Mr. Gardner. Has EAGLE-Net in Colorado put fiber in the
    ground where existing fiber exists?
        Mr. Strickling. Yes. But that doesn't tell you whether or
    not it is needed or not.
        Mr. Gardner. Let me tell you a story about a school in my
    district. I spoke at a graduation in southeastern Colorado
    several years ago. The graduating class was one. There was one
    graduating senior. That school that had one graduating senior
    when I spoke there has three fiber connections, C-COM,
    FairPoint and EAGLE-Net. Three of them to a school that I spoke
    to that had one graduating senior.
        I have got a map that I would like to display and it talks
    about the overbuild that is occurring, $100 million in
    Colorado.
        Now, the other question I had yesterday at the hearing in
    Colorado before the Audit Committee with EAGLE-Net, they said
    that a federal--this is EAGLE-Net testifying--that a federal
    handler watches every move we make and are onsite from the
    beginning. Yet their grant was suspended. If there is a federal
    handler--and they identified NTIA--watching every move they
    make, why after several years, after $96 million was committed
    out of the 100 million, why did NTIA wait so long to suspend
    the grant?
        Mr. Strickling. Well, I am not sure what they mean by a
    federal handler. We certainly have provided oversight to this
    project. But then to the specific question of the suspension--
    --
        Mr. Gardner. Why were they suspended?
        Mr. Strickling. They were suspended because they wanted to
    take advantage of the economies of using fiber where originally
    they had proposed using microwave. Now, this is a good change.
        Mr. Gardner. They blame----
        Mr. Strickling. Because this means that they will be able
    to have greater capacity than they otherwise would have, but by
    doing so, it changes their environmental approval.
        Mr. Gardner. In testimony before the State Legislature
    yesterday, they blamed the clay-loving buckwheat in Montrose
    and the Pagosa Springs blooming plant.
        Mr. Strickling. Right. So what happens is when you come off
    of the radio towers from microwave and come down to the ground
    for fiber, you now have the potential of passing through areas
    of habitats of endangered species.
        Mr. Gardner. So if you provided oversight, why were they--
    and the other comments that they made were that they have to
    get a permit from every jurisdiction. Why did they not know
    about the clay-loving buckwheat?
        Mr. Strickling. Well, I think it is been discovered as part
    of the process.
        But there are two separate issues here. One is the
    permitting that they need to get whether or not they are
    federal grantee, but as a federal grantee, they also have to
    get an overall environmental assessment.
        Mr. Gardner. Let me show you a little bit about this. This
    map shows and identifies EAGLE-Net's current route in pink. The
    green identifies existing routes of CenturyLink. The purple
    identifies existing routes of businesses represented in this
    room with the Colorado Telecommunications Association. Look at
    the duplication. PC Telecom, a company 60 miles away from my
    hometown in rural Colorado, 100 percent overbuilt by EAGLE-Net.
    100 percent overbuilt by EAGLE-Net. This is the eastern plains.
    Yesterday, they testified, they said that it is built on the
    eastern plains first because this is the easiest to get to. But
    that is also why you have all of these other companies that
    have built existing fiber in the ground while places on the
    Western Slope that truly need it because of the mountainous
    terrain have received nothing.
        Mr. Strickling. Well, that is not true. There has been
    plenty of construction on the western part of the State.
        But let us back up a second. The EAGLE-Net project is a
    statewide educational network----
        Mr. Gardner. This is off of Eagle-Net's Website. I mean
    this is----
        Mr. Strickling. I understand that, sir. But what we are
    trying to accomplish with this project is to improve
    educational opportunities in the State of Colorado. The fact is
    that in Colorado only 4 percent of schools in Colorado are able
    to get or subscribe to services of greater than 50 megabits per
    second. You are going to hear from----
        Mr. Gardner. Let me just interrupt you real quick.
        Mr. Strickling [continuing]. Mr. Freddoso at North Carolina
    that his network----
        Mr. Gardner. So you are saying that this is not----
        Mr. Strickling [continuing]. A statewide network is able to
    provide much greater speed.
        Mr. Gardner [continuing]. Overbuilding; this was all
    necessary?
        Mr. Strickling. It is not true. If you are going to have a
    statewide----
        Mr. Gardner. This is not overbuild?
        Mr. Strickling. No, I disagree wholeheartedly.
        Mr. Gardner. So you are saying that PC Telecom that sent a
    letter saying that there is 100 percent overbuild isn't true?
        Mr. Strickling. No.
        Mr. Gardner. You are saying----
        Mr. Strickling. You are missing my point, sir. What I am
    trying to say is that what is trying to be accomplished in
    EAGLE-Net is to figure out why Colorado--and fix the problem
    that Colorado is so far behind the rest of the Nation----
        Mr. Gardner. I live in rural Colorado----
        Mr. Strickling [continuing]. In terms of broadband at
    schools. This has to be accomplished through statewide network.
        Mr. Gardner. I live in a town of 3,500 people 30 miles away
    from the border of Kansas.
        Mr. Strickling. I am sorry?
        Mr. Gardner. I live 30 miles away from the border of
    Kansas, a town of 3,000 people. I have high-speed DSL. I have
    4G connections. I have an incredible--I have two, three other
    high-speed internet connections that I can choose from. My
    daughter goes to school there. I have never once heard them
    come to me saying we don't have the internet that is necessary
    for our kids to learn. And my daughter goes to school there.
    Now, this----
        Mr. Strickling. Well, sir, can I put into the record this
    chart that shows that Colorado is behind States like North
    Carolina? I mean your problem is that 4 megabits per second to
    a school----
        Mr. Gardner. Why did EAGLE-Net turn down $20 million? Why
    did EAGLE-Net turn down the opportunity to use it, $20 million
    worth of technology that a private telecom in Colorado had
    offered them instead of overbuilding?
        Mr. Strickling. Well, let us go through the facts here
    because I think--let us take just a moment to go through this.
    At the time at which EAGLE-Net went out to build the eastern
    part of the State they went out on an RFP. And a group of the
    carriers who are now complaining about this put in a bid to
    deal with this. We didn't hear anything about overbuild at that
    point in time.
        Mr. Gardner. They support EAGLE-Net.
        Mr. Strickling. But they put in a bid that was hundreds of
    thousands of dollars higher than the lower bidder.
        Mr. Gardner. Because of absolute miscommunication from
    NTIA.
        Mr. Strickling. I disagree. But more importantly most of
    the network.
        Mr. Walden. Gentleman. Gentlemen. The gentleman's time has
    expired.
        Mr. Gardner. It is actually using existing----
        Mr. Walden. The gentleman's time has expired. The
    gentleman's time has expired.
        The Chair recognizes the gentleman from California, Mr.
    Waxman.
        Mr. Waxman. Thank you, Mr. Chairman. I want to move to a
    different issue if I might, Mr. Strickling.
        Mr. Strickling. I have plenty more to say about EAGLE-Net
    if you like to stay there. But----
        Mr. Waxman. Well, if I have any time left, I will let you
    expand on that because you were interrupted many times.
        It is critical that the administration implement the
    provisions of the law that set up the Public Safety Response
    Program, and your agency is tasked with hosting the First
    Responder Network Authority, also known as FirstNET.
        NTIA has a critical role in ensuring the success of the
    Public Safety Network. In May 2012, NTIA partially suspended
    funding for seven public safety BTOP awardees. And I was
    encouraged that FirstNET recently adopted a resolution that
    could lead to NTIA lifting that partial suspension of these
    BTOP Public Safety Program funding.
        Can you explain the path forward for the seven public
    safety BTOP awardees? What can we tell cities like Los
    Angeles--which is of particular interest to me--San Francisco
    and Charlotte, as well as States like New Jersey about the
    likelihood of retaining their BTOP grants, and how quickly do
    you expect FirstNET at NTIA to make their decisions?
        Mr. Strickling. Yes, sir. We suspended the projects a year
    ago because when FirstNET came into being, we wanted to make
    sure FirstNET had an opportunity to evaluate these projects and
    make sure that they would continue to be a prudent use of
    taxpayer money to build out. These projects were originally
    approved in 2010 based on a totally different concept about how
    do public safety broadband that was changed in the Middleclass
    Tax Relief Act last year where Congress directed this be done
    as a single, nationwide network.
        So before we spent another dollar on this technology, we
    wanted to make sure what was planned would fit in with
    FirstNET's plan. So the Board has completed its review. They
    have visited every one of these locations and their initial
    recommendation is they believe all of these projects can add
    value to the ultimate FirstNET build-out, and they would like
    to see all of the projects reinstated. They intend to spend the
    next 90 days negotiating the spectrum conditions because each
    of these localities has to get a spectrum license from
    FirstNET.
        So they are going to negotiate some conditions on that. And
    if they are successful in that, they are then--as I understand
    it--going to recommend to us at NTIA to go ahead and lift the
    suspensions. And at that point in time when we receive that
    information, it is certainly our hope and intent that we would
    like to see all those projects continue if they are able to
    negotiate the appropriate conditions with FirstNET going
    forward.
        Mr. Waxman. Thank you. I want to go to this West Virginia
    BTOP grant. Did the Inspector General's review of the grant
    awarded to the Executive Office of the State of West Virginia
    discover any fraud? And was the grantee in noncompliance with
    any of the terms of its BTOP grant?
        Mr. Strickling. There was no fraud found. The IG certainly
    made some recommendations in terms of inventorying and
    management of the equipment, all of which West Virginia--as I
    understand it--has agreed to do and has either done or is the
    process of doing. I don't know that any of those were findings
    of noncompliance with grant conditions but they were certainly
    improvements that were appropriate and which the IG was fit to
    recommend and which West Virginia has gone on to implement.
        Mr. Waxman. What is the typical application and award-
    monitoring process for these BTOP grantees? Were those
    processes followed in the case of the West Virginia BTOP grant?
        Mr. Strickling. Yes.
        Mr. Waxman. OK. You were asked about overbuilding in areas
    where there is already lines or communication systems set up,
    in this situation in Colorado particularly. Does that mean if
    they have something in place, there is no need for something
    else to be in place?
        Mr. Strickling. I think some people would like that to be
    the definition, but that goes back what I said earlier. I don't
    believe any addition of middle-mile capacity to our Nation's
    infrastructure should in any way be considered overbuild. And
    that is the vast, vast majority of our projects are spending
    dollars on. The two towns that Congressman Gardner mentioned--
    at least the two towns mentioned in the New York Times article,
    Agate and Flagler--sit right on Interstate 70. Maybe it will
    become internet 70. And that is, you know, a major east-west
    route. This country is going to need lots of capacity along
    that highway to allow--as people continue to use more and more
    wireless devices, as schools, as homeowners continue to use
    more and more bandwidth, we need that.
        And the fact is, in 70 percent of the build that EAGLE-Net
    is doing in Colorado, they are using existing facilities to do
    it. It is part of our program that people should do this in the
    lowest-cost manner and use existing facilities where we can.
    What we have here is a group of companies that bid on this
    project, lost the bid, and then we started to hear about
    overbuilding.
        Mr. Waxman. I see. Well, my time is expired and I thank you
    for that response.
        Mr. Walden. The gentleman yields back.
        And the chair recognizes the gentleman from Illinois, Mr.
    Shimkus, for 5 minutes.
        Mr. Shimkus. Thank you, Mr. Chairman.
        I guess I have missed some exciting testimony. So I was
    another hearing. So I apologize for being absent.
        Welcome back, Mr. Strickling. Mr. Padalino, welcome.
        And Mr. Strickling, you and I talked about the West
    Virginia case last time.
        Mr. Strickling. Right, we have talked about a lot here this
    morning, too.
        Mr. Shimkus. Oh, oK. And I am not going to spend a lot of
    time on it, but you did say don't believe everything you read
    in the newspaper. And after government review and oversight,
    the reality is you can believe what you read in that newspaper
    article.
        I think the best way to get out of this mess is to just
    owning up to when there is problems and also bragging about the
    successful deployment. And that is where I hope we go because
    we are going to have people on the second panel that actually
    have been very appreciative. But there are also problems. It is
    oK, you know. We are human. We make mistakes. It is oK. So I am
    sorry about the emotionalism, but we are emotive people here.
        Mr. Strickling. And actually to your point, Congressman, if
    I could just add, there are steps underway to do just that in
    West Virginia.
        Mr. Shimkus. Excellent.
        Mr. Strickling. We sent a letter to them after our IG
    issued a report and asked them to do another look at their
    long-term capacity requirements, and I understand that----
        Mr. Shimkus. Well, that is a great segue----
        Mr. Strickling [continuing]. Us today----
        Mr. Shimkus [continuing]. Into my question.
        Mr. Strickling. Then, I will leave today's news to you.
        Mr. Shimkus. So, you know, what can West Virginia do to
    remedy this situation? Can West Virginia trade in or sell back
    their routers, or does it need NTIA approval to do so?
        Mr. Strickling. Well, my understanding is that the governor
    and Cisco, who is the supplier of the routers, are going to be
    working together along with perhaps some other people as part
    of a group the Governor is pulling together.
        Mr. Shimkus. But you don't think you have to have a role in
    this?
        Mr. Strickling. I think it will depend on what they are
    able to work out.
        Mr. Shimkus. Will you exercise oversight over this as what
    they decide to do and make sure that it makes sense----
        Mr. Strickling. Yes, sir.
        Mr. Shimkus [continuing]. And in the taxpayers' interest
    and that--I mean our biggest concern is--there is a lot of
    concerns, especially when you are from rural America. One is
    that we want the unserved areas served. We really hate
    overbuilding of systems that are providing service to rural
    America because there are so few people there that to have the
    government come in with taxpayers dollars compete against the
    private sector is really un-American is the problem. And we
    appreciate our people who roll out and assume the risk, raise
    the capital, assume the risk to provide access to rural America
    and we don't want them competing against the government. So you
    understand that. We have talked about that before. Let me----
        Mr. Strickling. That guided us in our whole philosophy.
    That is why we have chosen the middle-mile approach to
    projects.
        Mr. Shimkus. OK. Not always, right? Not always.
        Let me talk about a specific provider, and this goes to
    both of you. Frontier in Illinois has requested wholesale
    services for access to the BTOP-funded project. But according
    to the rules and fact sheet online, recipients should offer
    wholesale broadband services at rates and terms that are
    reasonable and nondiscriminatory. The Illinois BTOP recipient,
    who is Clearwave, came back with an offer of wholesale prices
    that were about 100 percent higher than its retail offering.
    The rules state that ``recipients that failed to accept or
    comply with the terms listed above may be considered in default
    or breach of their loan or grant agreements.'' RUS and NTIA may
    exercise all available remedies to cure the default. Assuming
    the parties do not work this out--and of course that is the
    best solution--what are the next steps for NTIA to remedy the
    situation?
        Mr. Strickling. Well, I am not going to speculate on that,
    but I will say this, that this is a hallmark of our program. We
    are going to make every effort to ensure that Frontier is able
    to get the wholesale service that they are entitled to under
    the rules of our program. I mean, it goes right to the heart of
    why we want to use these investments to prime the pump for
    private investment. And it doesn't work if our grantees are not
    offering wholesale services at reasonable prices. That is why
    that is a requirement of our program.
        And the case you described was one we first heard about
    last summer. We had urged the parties to work it out, and
    frankly, we hadn't heard back from Frontier until yesterday,
    the day before the hearing. Everybody kind of gets their house
    in order the day before a hearing.
        Mr. Shimkus. As we receive testimony sometimes, even the
    day of, so it comes both ways.
        Mr. Strickling. Yes, sir. So we are on this. We will go
    right back and look at this but this is a very serious issue
    for us because it is part of the whole philosophy of our
    program.
        Mr. Shimkus. Please do. Thank you.
        Mr. Walden. The gentleman's time has expired and yields
    back.
        And next is the gentlelady from Colorado, Ms. DeGette.
        Ms. DeGette. Thank you very much, Mr. Chairman.
        Mr. Strickling, I am going to be honest. Some of the facts
    of this EAGLE-Net project don't look very good. And I want to
    ask you a series of questions. I feel like the questions you
    have been asked so far have not really been designed to get
    answers from you. So what I am trying to do in the 5 minutes
    that I have is get some answers. If you could listen closely to
    these questions and if possible, answer yes or no, or short as
    you can, that would be helpful because I want to clear up the
    record. I think it is important.
        Now the first thing is, this program that EAGLE-Net has its
    funding under is approximately, I believe, a $4 billion
    program. Is that correct?
        Mr. Strickling. Yes.
        Ms. DeGette. And the EAGLE-Net program is $100 million. Is
    that correct?
        Mr. Strickling. Of federal dollars. The state will supply a
    match.
        Ms. DeGette. Of federal dollars. It is $100 million of
    federal dollars. And I am going to assume that your agency--
    part of your oversight obligation--is to make sure that that
    $100 million, or for that matter the $4 billion, is not
    misspent in any way. Is that correct?
        Mr. Strickling. Yes.
        Ms. DeGette. And the NTIA has been aware of difficulties--
    many of them political--around the EAGLE-Net project for many
    months now. Is that correct?
        Mr. Strickling. We first started hearing about this late
    last summer.
        Mr. DeGette. So you have been aware of these problems for
    many months?
        Mr. Strickling. Yes.
        Ms. DeGette. And you are investigating these allegations in
    a robust manner, aren't you?
        Mr. Strickling. Yes. We have made a number of trips out
    there. I personally----
        Ms. DeGette. OK.
        Mr. Strickling [continuing]. Was on the ground a couple of
    weeks ago with some of the parties.
        Ms. DeGette. And you have also asked for a lot of data
    around this. Is that correct?
        Mr. Strickling. Yes.
        Ms. DeGette. And EAGLE-Net's grant is under suspension
    right now. Is that correct?
        Mr. Strickling. Yes.
        Ms. DeGette. And it is under suspension because--and you
    tried to say this before but you got cut off--it is under
    suspension because the original application was for microwave
    technology and EAGLE-Net decided to abandon that and go to
    fiber. Is that right?
        Mr. Strickling. In part, that is right.
        Ms. DeGette. And you like fiber better. I think that is
    what you were trying to say, right?
        Mr. Strickling. Absolutely.
        Ms. DeGette. But the problem is EAGLE-Net didn't get the
    environmental approvals to lay that fiber. That is also what
    you were trying to say. Is that right?
        Mr. Strickling. And that is why it was suspended.
        Ms. DeGette. And so that is why you put them under
    suspension, right?
        Mr. Strickling. Yes. And we are working through those
    issues now with the hope the suspension will be lifted shortly.
        Ms. DeGette. OK. So now I have got to admit, I don't
    understand either. And Mr. Gardner, my colleague from the
    Eastern Plains, was asking you this question. Why would EAGLE-
    Net be going so much into these markets in eastern Colorado
    where there is already fiber laid and not going into the areas
    in western Colorado which are underserved? Can you please
    explain clearly why that is happening and why the NTIA approves
    of that or doesn't approve of that? Or, what is your position
    on that?
        Mr. Strickling. Well, that is not a true statement in terms
    of----
        Ms. DeGette. OK.
        Mr. Strickling [continuing]. Not going into western
    Colorado. This is a statewide project. The reason western
    Colorado is underserved is because there has never been an
    economic case for serving it. What we have is we had a group of
    educational organizations that wanted to deal with educational
    needs on a statewide basis. So that means building the entire
    State or providing network in the entire State. In order to be
    able to economically serve the western part of the State, you
    need to have enough people on this network that you are able to
    have the project be sustainable.
        Ms. DeGette. So it is for economics? That is why they are
    building in the east first?
        Mr. Strickling. In part. Sustainability is key, but there
    are huge advantages to a State they can bring all of their K to
    12 schools onto a single network. There are advantages in terms
    of the speeds that can be provided, in terms of the security
    that can be provided, in terms of the applications--the ability
    for schools to be connected with each other, to have distance-
    learning, to have, you know, courses from colleges provided.
    There are huge advantages to a statewide approach to this. And
    you will hear about that in the next panel from Joe Freddoso,
    because he is doing exactly that in North Carolina.
        Ms. DeGette. OK. So what you are saying is that duplication
    doesn't necessarily mean waste, fraud, and abuse.
        Mr. Strickling. That is right.
        Ms. DeGette. And if there was a waste, fraud, and abuse,
    you feel that your agency has the procedures in place to
    identify that and to either suspend or eliminate the funding.
    Is that correct?
        Mr. Strickling. Yes. But if I could just say, having said
    all of this, we would like to see peace in Colorado. I have
    been out--I have worked with the Congressman--we would like to
    find a way to accommodate everybody out there even those
    bidders who were unsuccessful before. If there is a way to find
    a win-win here, which is the goal of all of our projects, we
    want to do that.
        Ms. DeGette. Mr. Strickling, I will say to date I really
    haven't been part of those discussions, but as a senior member
    of this committee, I will make you the offer and I will make
    Mr. Gardner the offer. I would be happy to sit down on a
    bipartisan basis with him and with your office and see if we
    can make peace in Colorado. I think that would be a win-win
    situation for everybody, especially these school children.
        And I yield back.
        Mr. Walden. The gentlelady yields back and her time has
    expired.
        The gentleman from Kansas, Mr. Pompeo, is recognized for 5
    minutes.
        Mr. Pompeo. Thank you, Mr. Chairman.
        You know, as I am sitting here listening to this discussion
    today, this reminds me an awful lot of the Solyndra hearings
    where you had enormous amounts of federal money being rushed
    out the door under tight deadlines and constraints, and it just
    went scattershot. And you see the GAO report, you see your
    efforts, and I take you at good faith that you are trying to
    collect data and make sure that you are overseeing these funds
    in a way. You all were given a task that was darn near
    possible.
        Mr. Strickling. I disagree.
        Mr. Pompeo. But no, you haven't succeeded. I will say that
    much. In my judgment, you have not succeeded.
        Mr. Strickling. Well, I disagree.
        Mr. Pompeo. I understand. I haven't asked a question yet.
    You will get a chance to talk. You have a different view. You
    think it has been wildly successful. I have a fundamentally
    different view of this.
        Let me ask a couple of yes or no questions because I want
    to be as quick as I can today. Yes or no, do you both think
    that teaching someone to create an email account is a proper
    task for the United States Federal Government?
        Mr. Strickling. Yes.
        Mr. Padalino. Yes.
        Mr. Pompeo. Wow. So you don't think a city could do that?
    You don't think a school board could do that? You don't think a
    county could do that, a state could do that? You think Kansans
    ought to teach people from New Mexico to create an email
    account and folks in Alaska ought to pay to teach someone in
    Illinois to create an email account? Is that correct also?
        Mr. Strickling. Well, maybe I didn't understand your
    question. We have funded programs to let local institutions do
    just that.
        Mr. Pompeo. It is federal taxpayer dollars, sir. With all
    due respect----
        Mr. Strickling. Yes.
        Mr. Pompeo [continuing]. This is federal money that is
    going for the tasks that I----
        Mr. Strickling. Right. So I think it is appropriate to use
    federal money. Who actually does the teaching, we have left up
    to the local communities to do that.
        Mr. Pompeo. Great. You talked, Mr. Strickland, for a moment
    about how much speed was there, and I have heard this
    discussion--I am amazed that the chairman's not here--but you
    had the discussion about the right size of routers in
    broadband. To see Members of Congress discussing this at the
    federal level when I have trouble figuring it out at Best Buy,
    and so does every one of my constituents. But they can make
    good value decisions for themselves and cities can, too,
    whether it is in Hays, Kansas, where this program was overbuilt
    just like we are talking about Colorado today. And that was
    from a previous hearing. I don't really want to spend much time
    going back into that today.
        To hear that discussion here, how do you know what the
    right speed is? You said, well, they don't have enough
    megabits, or in the case of schools, gigabits. How do you know
    what the right speed is?
        Mr. Strickling. Well, I am relying on the experts--the
    state educational technology directors. These recommended
    speeds are based on the work that they have done. But it is
    also based on some simple math. If we agree that 4 megabits per
    second is an appropriate speed for a homeowner today in terms
    of their day-to-day needs, all you have to do is now project
    that to a library or project it to a school where you now have
    several hundred people all trying to use that bandwidth at the
    same time. Just do the math. It is not hard to see how we are
    up to 100 megabits per second as a basic need for schools.
        Mr. Pompeo. I don't dispute that. It might be 1,000
    tomorrow. And the challenge here----
        Mr. Strickling. It is going to be a----
        Mr. Pompeo. The challenge is you have no idea and you have
    no incentive to get it right because you don't have your own
    personal skin in the game. You have no risk. You have the
    taxpayers' money making arbitrary decisions about the proper
    speed at the proper location instead of risk-taking people
    making evaluations for themselves about the right risk to take.
        And with that I will yield the balance of my time to Mr.
    Gardner.
        Mr. Walden. The gentleman yields.
        Mr. Gardner. I thank the gentleman from Kansas for his
    additional time.
        And I just want to read a House Joint Resolution that was
    passed in Colorado back in 2010 ``whereas every effort should
    be made to prioritize the provision of broadband service to
    unserved customers throughout the efficient distribution of
    resources to avoid overbuilding of existing facilities and to
    strongly encourage the use of private sector local
    telecommunication providers.'' Has that been achieved in
    Colorado?
        Mr. Strickling. It has been attempted.
        Mr. Gardner. Has that been achieved? If you can grade
    EAGLE-Net on a scale of A to F, what would you give EAGLE-Net?
        Mr. Strickling. I wouldn't speculate on a grade, but what I
    can tell you is that the process that was used gave everybody
    an opportunity to bid on this project to provide these
    services. Not everybody could be selected. But the fact is
    there was an open competitive process to do just this. And
    again, in light of that resolution, as I said earlier, 70
    percent of the build-out there is on existing facilities.
        Mr. Gardner. But you have 100 percent build-out of PC
    Telecom. The town that I mentioned that had one graduating
    senior, that wasn't on I-70. That is in Kiowa County out by the
    Kansas border. It is a long way away from I-70.
        Mr. Strickling. Yes.
        Mr. Gardner. It is closer to Kansas. Three fiber
    connections. But yet EAGLE-Net is providing service to the
    Denver Museum of Natural History, to Cherry Creek School
    District in the Denver Metro area----
        Mr. Strickling. Yes.
        Mr. Gardner [continuing]. One of the State's largest and
    wealthiest school districts. They have approached the City of
    Lone Tree, which has a Nordstrom's in it, about whether or not
    they should receive EAGLE-Net Service. After a build-out in
    Yuma County, Colorado, of the local private internet provider,
    EAGLE-Net went and approached them about peeling off their
    anchor institutions. You were asked earlier whether or not you
    believed there was waste in West Virginia. Is there waste in
    Colorado?
        Mr. Strickling. I can't answer that. But I do believe that
    the process----
        Mr. Gardner. NTIA has oversight.
        Mr. Strickling. Yes.
        Mr. Gardner. You know this project. Is there waste in
    Colorado?
        Mr. Strickling. I can't answer that yes or no today.
        Mr. Walden. The----
        Mr. Strickling. What we know is that the process that has
    been used has gotten us to result where we have people who are
    complaining about the project. We have been working to try to
    resolve those complaints. I absolutely believe this is a
    critical project for the future of education in Colorado. We
    would like to see it succeed to deal with the fact it Colorado
    has such slow speeds across the state in terms of broadband
    into its schools. That is what we are trying to accomplish
    here. What we would like to find is an opportunity for
    everybody to come together in support of this project. And we
    are still committed to doing that.
        Mr. Walden. Thank you. The gentleman's time has expired.
        The chair now recognizes the gentleman from New Mexico, Mr.
    Lujan, for 5 minutes.
        Mr. Lujan. Thank you very much, Mr. Chairman. And Mr.
    Chairman, I look forward to the day when consumers across
    America are able to go to that Best Buy and make decisions on
    those routers because they can go home and use them. It doesn't
    matter which one they may get their hands on, that they can go
    home--they have speeds--the ability to use the pipe, the
    bandwidth, the amount of information and data that can stream
    in this magical realm sometimes that is lit up by light rather
    than an old copper wire that provides plain old telephone
    service that oftentimes is paired, which means is split over
    and over and over and loses its capacity.
        There is a reason why we pave our roads in America. I still
    come from rural America. We have a lot of dirt roads. But a lot
    of people don't drive their cars on those dirt roads. They
    drive bigger pickup trucks or vehicles they don't mind getting
    beat up a little bit. I am hoping that we can pave the
    information highway for America. We have talked about this a
    lot, and that is what this is.
        Mr. Strickling, I very much appreciate your willingness
    based on the questioning from Ms. DeGette to go and make peace
    in Colorado. That is all we should ever want. And for you to go
    and solve this problem out there and be willing to do that is
    important.
        Ranking Member Eshoo talked about the importance of
    cracking down on waste, fraud, and abuse. We can't emphasize
    that enough. I hope that that is something we both share as
    Democrats and Republicans in this Congress. And I appreciate
    your willingness to help us work on that.
        To the witnesses, I am going to read a few statements and
    ask you if you agree or disagree that these statements support
    the goals of what this program was. All-encompassing and
    affordable broadband connectivity will go a long way toward
    returning our region to long-term growth and productivity for
    which it is known. Would you agree that that is the goal of the
    program?
        Mr. Strickling. Yes.
        Mr. Padalino. Yes, I agree.
        Mr. Lujan. A BIP grant to extend broadband service would
    help the poor and underserved areas become highly productive.
    Would you agree?
        Mr. Strickling. Yes.
        Mr. Padalino. Yes.
        Mr. Lujan. With these grants, providers could expand
    educational opportunities; assist hospital patients, families,
    and nurses; improve services for the disabled; empower the
    elderly to use technology; offer job training and retraining;
    help displaced workers in the area; and establish additional
    libraries. Do you agree?
        Mr. Strickling. Yes.
        Mr. Padalino. Yes.
        Mr. Lujan. Could bring us into true integrated
    technological advances that we ask our communities to strive
    for but are unable to achieve since they are at the mercy of
    companies only looking for densely populated areas. Do you
    agree?
        Mr. Padalino. Yes.
        Mr. Strickling. I guess I don't want to castigate industry.
    I think industry is doing the economically reasonable thing
    here. But when they do that, it is still going to leave behind
    areas where they just can't find the economic case to serve
    them.
        Mr. Lujan. I appreciate that, Mr. Strickland.
        Mr. Padalino. And if I could expand on that little bit.
        Mr. Lujan. Please.
        Mr. Padalino. I think that touches on the issue of
    overbuild. And, you know, we take that issue very seriously. I
    mentioned earlier that we go out for public comment and at
    times we will receive a comment from a provider who may provide
    service in that densely populated rural town but not in the
    outer reaches, on those dirt road areas that you mentioned. And
    that is a lot of times what the applications that we are
    entertaining at the Rural Utility Service.
        Mr. Lujan. I appreciate that.
        This project is part of a larger plan to not only upgrade
    and extend high-speed broadband access across the State but
    transform our State's economy. Would you agree?
        Mr. Padalino. Yes.
        Mr. Strickling. Yes.
        Mr. Lujan. And I will just read one more. These areas
    either do not have high-speed access to the internet or it is
    available only at speeds that are insufficient for the
    bandwidth intensive applications essential for delivering
    programs such as telemedicine, distance learning, public
    safety, economic development that will create and maintain jobs
    and improve the lives of all of our constituents.
        Mr. Padalino. Yes, I agree.
        Mr. Strickling. Yes.
        Mr. Lujan. I was intrigued, Chairman, when I saw the title
    of the hearing--named ``Is the Broadband Stimulus Working''--
    and thought that that is something that we would be tackling
    and talking about today. The statements that I read were from
    my Republican colleagues in support of these projects to you
    guys to your departments. It is working. The instances where we
    found fraud and abuse or problems or where peace needs be found
    and healed, we need to work on. But in the same way that RUS
    benefits rural America from electrifying it, because there are
    places in America that still raise our crops and produce our
    beef or lamb like our family raises, these areas of the country
    need a little bit of help. And that federal investment goes a
    long way. These are immense benefits.
        And Mr. Chairman, I certainly hope that we can find more
    common ground as we talk about the commonalities and the kind
    words that I just read, which I agree with wholeheartedly,
    where different parts of America have benefited, let us talk
    about those areas and let us work together to make sure that we
    go and heal and help our brothers and sisters up in Colorado.
        And if there is anything that I can do, Ms. DeGette and Mr.
    Gardner, to provide some assistance from a neighbor to the
    south, you got it.
        With that, Mr. Chairman, I yield back the balance of my
    time.
        Mr. Walden. Thank you very much. The gentleman yields back.
        And the chair now recognizes the gentleman from Missouri,
    Mr. Long, for 5 minutes.
        Mr. Long. Thank you, Mr. Chairman.
        Mr. Strickling, when a baseball player gets suspended for
    steroids or something like that, normally they have done a bad
    thing. Suspension in this case, I believe you said there are
    three contracts under suspension at this time?
        Mr. Strickling. That is correct.
        Mr. Long. Is that a good thing or a bad thing? When you
    were talking about EAGLE-Net, you described it as they have
    come up with better technology. They want to from microwave to
    fiber. So it is like we suspended them because they are going
    to do a good thing. So is suspension normally--and the other
    two cases--is that a good thing or bad thing?
        Mr. Strickling. Well, the reason for the suspension in the
    case of EAGLE-Net is, having made that good decision to move to
    fiber, it had consequences in terms of their compliance with
    the grant conditions, in particular, the need to go back and do
    an environmental review, which brought us into the two
    endangered species that Congressman Gardner talked about. So
    they have to work that through with the Fish and Wildlife
    Service in order to be able to resume construction. And they
    are in the process of doing that right now.
        Mr. Long. And the other two instances, do you know off the
    top of your head whether they are good things or bad things
    they have been suspended for?
        Mr. Strickling. I think in the case of the other two
    projects, we have some management challenges that we need to
    see fixed there in order to allow them to continue to spend
    money. Yes. And so----
        Mr. Long. So we might have one good thing and two bad
    things?
        Mr. Strickling. I am not sure how to respond to that. But
    it is not----
        Mr. Long. I am not trying to be argumentative. I am just
    trying to--because my original question was going to be how
    does one get suspended? But then, as I sat here waiting for all
    my other colleagues to go ahead of me, I came to realize that
    EAGLE-Net, who we have heard a lot of complaints about today--I
    don't know if their proven or not--but we have heard a lot of
    complaints about them. And when I heard they were suspended, I
    thought, oh, they have done something bad. But now we have
    learned that they are suspended because they are doing
    something good. So I am just trying to get a handle on how one
    would get suspended.
        Mr. Strickling. Well, it is not something you should aspire
    to do. I guess I would say that.
        Mr. Long. OK. Let us see. You also referenced two her three
    times--you seem to be upset with one of my colleagues; I can't
    remember which one--but the fact that they were using----
        Mr. Strickling. Sir, I am not upset with anybody. We are
    just having an active discussion.
        Mr. Long. Then, don't come back when you are upset. But you
    have mentioned two or three times that--you spoke in a louder
    tone, perhaps--that they----
        Mr. Strickling. Guilty as charged.
        Mr. Long [continuing]. Were not using discounts and they
    should of been or should not have been using a discounted
    figure on the equipment cost, I presume.
        Mr. Strickling. What we were talking about was the West
    Virginia auditor's report and the way the auditor came up with
    the alleged millions of dollars of overspend was, I believe--I
    am not entirely certain because the report is a little
    ambiguous on this--but it looked to be based on list prices of
    routers. And I only say that because when we did our
    calculation, we came up with an average price, including the
    discounts, for what they bought at about $12,000. That doesn't
    even include the 100 free routers they got. And in one case the
    auditor referred that they could of save $16,000 per router.
    Well, that suggests to me they weren't using a discounted price
    when they did that analysis.
        Mr. Long. And this was in West Virginia, correct?
        Mr. Strickling. Yes, we are talking about West Virginia.
        Mr. Long. OK.
        Mr. Strickling. Now, if you look, our Inspector General did
    a report where they looked at the same exact issue and
    concluded that possibly West Virginia could have saved 2 to 5
    percent on the router purchases had they bought lower capacity
    routers. But our IG made an assumption that they would have
    still gotten the 100 free routers even under that scenario. And
    they acknowledged that, if in fact the 100 free routers weren't
    available under the alternative purchase, that there would have
    been no net savings by going to the lower-capacity routers.
        Mr. Long. But my question that I am trying to lead up to is
    that in West Virginia, which we are speaking now, we agree they
    used no competitive bid process?
        Mr. Strickling. That has been raised by the West Virginia
    auditor in its report.
        Mr. Long. Right. OK. So the West Virginia auditor believes
    they used no competitive bid process. Later----
        Mr. Strickling. We understood that they certainly got
    multiple bids on Cisco routers----
        Mr. Long. Later in your----
        Mr. Strickling [continuing]. But I think it is correct that
    they didn't have bids from other company gear.
        Mr. Long. Later in your testimony, you said EAGLE-Net went
    out on an RFP, Request for Proposal. So are these contracting
    things handled differently in different States? I mean, if
    somebody goes out on an RFP, they have to prove their worth.
    That is a request to earn the proposal but yet then we go to
    West Virginia and they don't even bid competitively,
    apparently, according to their auditor.
        Mr. Strickling. So each State has to--if it is a state
    government organization--has to comply with their own
    procurement rules. We don't have a set of federal procurement
    regulations for our grants other than you have to follow the
    rules that apply to you in your State.
        Mr. Long. OK.
        Mr. Strickling. So, yes, you could have different
    procurements happening in different States based on differences
    in their laws and regulations.
        Mr. Long. OK. I was going to yield to someone else but I
    have taken up too much of my time.
        So Mr. Chairman, I yield back.
        Mr. Walden. The gentleman yields back. Mr. Welch, I
    believe, is next.
        Mr. Welch. Thank you very much, Mr. Chairman.
        Mr. Strickling, I would like to clarify some of the
    discussion about the West Virginia project. Did NTIA approve
    individual contracts executed by West Virginia or any grantee?
        Mr. Strickling. I am sorry. Could you repeat that? I am not
    sure I understand the question.
        Mr. Welch. Well, does the NTIA approve every purchase made
    by every grantee----
        Mr. Strickling. No, no.
        Mr. Welch [continuing]. Or do grantees have to follow
    guidelines set by the NTIA?
        Mr. Strickling. So we approve the grantee's budget at the
    beginning of the project, and then we would look at their
    quarterly spend reports to see if there had been anything that
    got out of line. But no, for the typical project we don't
    review individual purchases. Now, in some cases when we get a
    project that is somewhat challenged, we will put them on a
    reimbursement-basis only at which point we are looking at
    individual invoices and making sure those are appropriate to be
    paid.
        Mr. Welch. OK. And we have heard the suggestion today that
    because 95 percent of the population already has access,
    government action to extend broadband is unnecessary. That is
    an argument some folks are making. But is it the case that
    extending infrastructure to every corner of our country, and
    especially in rural areas--and a lot of us on this committee
    represent rural areas--always require some public resources in
    participation?
        Mr. Strickling. I am not sure that I can give you a
    categorical answer to it. But what I can tell you is that the
    95 or 96 percent figure is a figure for the mass market. We
    know from our program, and it is been well documented, that
    these anchor institutions have much higher needs for broadband,
    much greater speed requirements. Those aren't factored into
    that 96 percent. And as I said before, we know that schools
    overall have been at the low end of what their needs are. So
    our program has been trying to deal with some of these specific
    needs of anchor institutions which was set out as a standalone
    obligation or purpose under the Recovery Act. It was to serve
    unserved and underserved areas and to serve anchor
    institutions. And we have taken that to heart in the philosophy
    of our program.
        Mr. Welch. Good. Yes. And, you know, the private sector has
    spent billions and that is tremendous. But I believe it is the
    case that these investments have been enabled, to some extent,
    by public resources including the Universal Service Fund and
    the RUS loans. Is that your sense as well?
        Mr. Strickling. Well, there is no question that in rural
    areas the USF money and the RUS support has definitely had an
    impact. Yes.
        Mr. Welch. OK. Thank you.
        I yield back, Mr. Chairman.
        Mr. Walden. The gentleman yields back the balance of his
    time. Does that cover----
        Ms. DeGette. Mr. Chairman?
        Mr. Walden. Oh, Ms. DeGette.
        Ms. DeGette. I ask unanimous consent to place the documents
    that Mr. Strickling was referring to----
        Mr. Walden. Oh, absolutely.
        Ms. DeGette [continuing]. The charts into the record.
        Mr. Walden. Yes, without objection. Of course.
        [The information appears at the conclusion of the hearing.]
        Mr. Walden. And I think we have covered everybody who had
    to step out. Right? Or have you gone, Mr. Kinzinger? Oh, oK.
    Mr. Kinzinger, for 5 minutes.
        Mr. Kinzinger. Thank you, Mr. Chairman.
        Mr. Walden. Oh, but before you start.
        Mr. Kinzinger. Uh-oh.
        Ms. DeGette. Yes, we want to----
        Mr. Walden. This is his birthday.
        Ms. DeGette. This is his birthday so we have----
        Mr. Strickling. Do we get to sing, and does it come off his
    time?
        Mr. Walden. What is that? Yes, it comes off as questioning
    time, Mr. Strickling. So happy birthday to our colleague, Mr.
    Kinzinger.
        Mr. Kinzinger. Thank you. I am now old enough to have----
        Mr. Walden. I look good for 70; he looks good for 35.
        Mr. Kinzinger. Well, thank you. And thank you all for
    coming out. I know this was touched on a bit. I want to change
    gears from what we have been talking about, talking about
    FirstNET. Our subcommittee did help to create this authority in
    order to establish a nationwide interoperability public safety
    broadband network. But there were some differences of opinion
    on what this board, among other things, should look like. That
    being said, it is now our job to have a bit of oversight on the
    activities of this board with respect to the NTIA. In the most
    recent FirstNET board meeting, there were a couple of
    resolutions adopted in order to move forward with last year's
    previously suspended public safety BTOP projects. These
    resolutions stated that the suspensions were to be resolved
    within 90 days. And I was glad to hear this since there are
    States and localities who have committed vast amounts of
    resources to these now dormant projects.
        My concern in these resolutions is the special award
    conditions being required to end the suspensions, specifically,
    the condition which ensures BTOP projects systems from
    interoperability problems and the requirement that a State's
    BTOP public safety assets be transferred to FirstNET. The
    former seems like an overly broad indemnification, while the
    latter seems a bit premature since States don't even know what
    options they will have in regards to a FirstNET network. My
    question to Secretary Strickling is this: Why has the
    reinstatement of these BTOP public safety project awards taken
    so long and are those special conditions really necessary?
        Mr. Strickling. Well, the board only met a week ago.
        Mr. Kinzinger. Yes. It is 2013 so I was just, like, you
    know----
        Mr. Strickling. Right. So they were on suspension to give
    the board an opportunity to go visit the projects and to make
    their recommendation. The board didn't come into being until
    last September when they had their first meeting. One of the
    first tasks they organized to do was to conduct a review of the
    projects. They have now been out; they have been on the ground
    to visit every one of them, and that led to recommendation that
    they just passed last week.
        Mr. Kinzinger. We are hoping then that can move forward
    very quickly.
        Mr. Strickling. Yes. And again, they are going to take the
    90 days to sit down with each of these projects.
        Mr. Kinzinger. And then, what are your thoughts on the
    special conditions on them?
        Mr. Strickling. I will reserve judgment on those until they
    are presented back to us as part of the process.
        Mr. Kinzinger. Then I can submit that for the record, if
    you wouldn't mind getting back to me on them.
        Mr. Strickling. Yes. Sure.
        Mr. Kinzinger. And also, while your testimony highlights
    the ability to get grants back on track after suspensions, we
    have been contacted by a number of people who remain very
    concerned about the grant to the North Florida Broadband
    Authority. Mr. Chairman, I seek unanimous consent to enter into
    the record a letter from Mr. Chris Thurow, Sr., a former North
    Florida Broadband Authority board member raising concerns about
    the program.
        Mr. Walden. Without objection, so ordered.
        [The information appears at the conclusion of the record.]
        Mr. Kinzinger. My understanding is it has had problems from
    the start and NTIA suspended the grant for a period in 2011----
        Mr. Strickling. Yes.
        Mr. Kinzinger [continuing]. Requiring a corrective action
    plan. The outside contractor, law firm, and compliance firm
    have been replaced. Additionally, 7 of the 14 counties have
    dropped out of the project. We have been told the project has
    very few paying customers left and its revenue is only a
    fraction of the monthly operating expenses. A few questions on
    this. Is the project financially sustainable? If not, what
    happens next? Because, specifically, 7 of the 14 counties have
    withdrawn because they see a project. So what is it that the
    NTIA sees regarding its viability that the local counties are
    missing?
        Mr. Strickling. Well, as of right now, we still think it is
    a good project and it is sustainable. And I will tell you that
    even in the case of at least one of the counties, the project
    is still picking up customers within that county even though
    that county might have dropped out. It is the Suwannee County,
    but the City of Live Oak has remained a customer and is very
    interested in the project. So I think the fact that the 7
    counties have left--while not a great event for us or for North
    Florida--doesn't necessarily mean that those counties are not
    going to continue to supply customers.
        Mr. Kinzinger. You still see this to be a financially
    feasible venture?
        Mr. Strickling. Yes. At this time, yes.
        Mr. Kinzinger. All right, then we will obviously see how
    this goes over time.
        Mr. Strickling. Right.
        Mr. Kinzinger. With my remaining minute I would like to
    yield to Mr. Gardner of Colorado.
        Mr. Gardner. I would like to thank the gentleman from
    Illinois for the time. And just a couple of follow-up questions
    on what he asked.
        Mr. Padalino, are you concerned that these rural telecoms
    in Colorado that have RUS loans may be unable to pay their
    loans due to competition from EAGLE-Net?
        Mr. Padalino. We have been monitoring the situation
    closely. We have heard from some of the borrowers in Colorado.
    We forwarded that correspondence over to NTIA. The rural
    development undersecretary Mr. Strickling met I think late last
    summer and we allowed NTIA to take the lead as it was there
    awardee.
        Mr. Gardner. So that is a concern?
        Mr. Padalino. Well, we are concerned with all of our
    borrowers to make sure that the loans are repaid.
        Mr. Gardner. Thank you. And Mr. Strickling, is EAGLE-Net
    sustainable financially?
        Mr. Strickling. I think that is still to be determined.
        Mr. Gardner. Wasn't that a condition of the grant, that
    they be sustainable?
        Mr. Strickling. As presented to us, yes. But I think we
    certainly are watching it carefully. The events of the
    suspension, the events of the controversy clearly could have an
    impact on its ultimate sustainability, which is why I would
    like to work with you and Congresswoman DeGette and the entire
    delegation to find a way to make sure this project is
    sustainable and can serve the schoolchildren of Colorado.
        Mr. Gardner. Will the grant be reinstated before the issues
    are worked out in Colorado?
        Mr. Strickling. The grant suspension would be lifted once
    they work out the environmental issues. But as you know, and we
    have committed to you to work and make sure EAGLE-Net is
    working with all of the stakeholders out there to try to
    resolve these other issues as quickly as we can.
        Mr. Gardner. And the last question. I am out of time. With
    96 million out of the $109 obligated or spent, is there enough
    money to finish the west slope build-out?
        Mr. Strickling. Well, that doesn't include a bank loan that
    they also had sought and I think they are still working through
    some of the issues with the bank because of the delays in the
    project. There are some issues about whether the bank will
    continue on or not. So yes, I think ultimate financing is a
    concern, and again, that is an issue we would like to work with
    you on to make sure that the bank might carry through on that
    or that other sources of funding could be found.
        Mr. Gardner. That is a bank loan they haven't received yet.
    Or they have?
        Mr. Strickling. They haven't received all of the proceeds
    of it. I think they have received a small amount of the loan so
    far.
        Mr. Gardner. They told the audit committee about $500,000.
    I don't know if that is the same loan.
        Mr. Strickling. I think that is what they have received so
    far. Yes, sir.
        Mr. Walden. All right. The gentleman's time has expired.
        I want to thank our two public servants for being here
    today and answering our questions--or attempting to--to the
    best of your abilities. And we look forward to continuing the
    discussion. And again, thank you for your service and we
    appreciate your participation in our hearing.
        We are going to move on now to the second panel. As we
    change out here, we will have Mr. Pete Kirchhof, Executive Vice
    President, Colorado Telecommunications Association; Ann Eilers,
    the Principal Assistant Inspector General for Audit and
    Evaluation, Office of Inspector General, U.S. Department of
    Commerce; Michael K. Smith, the State President, Vermont,
    FairPoint Communications; and Bruce Abraham, Board of
    Directors, North Georgia Network; and Joe Freddoso, President
    and CEO of MCNC. I hope I got all those names correct.
        And if you all will take your seats and I will just tell
    you with regards to these microphones, they do have an actuator
    button there at the base. And the closer you are between the
    microphone and your mouth, the better we will be able to hear
    you once the light is lit.
        So we thank all of you for coming today to help enlighten
    us on what is working and what is not this program, and to how
    we can be good stewards of the taxpayers' money. So with that--
    --
        Ms. DeGette. May I take a moment, sir?
        Mr. Walden [continuing]. I would like to recognize my
    friend and colleague from Colorado, Ms. DeGette----
        Ms. DeGette. Thank you.
        Mr. Walden [continuing]. To introduce our first witness.
        Ms. DeGette. Thank you very much, Mr. Chairman.
        I am really delighted to introduce our first witness
    because he is an elementary school classmate of mine from St.
    John's Elementary School in Denver, Colorado. And he does a
    wonderful job in his current role--I am getting his exact
    title--Executive Vice President of the Colorado
    Telecommunications Association. And we are hoping he can sort
    all this out for us in 5 minutes or less. Thanks, Mr. Chairman.
        Mr. Walden. So Mr. Kirchhof, if you would like to lead off.
    We are delighted to have a fellow westerner out here. And
    please go ahead.

        STATEMENTS OF PETER KIRCHHOF, EXECUTIVE VICE PRESIDENT,
    COLORADO TELECOMMUNICATIONS ASSOCIATION; ANN EILERS, PRINCIPAL
    ASSISTANT INSPECTOR GENERAL FOR AUDIT AND EVALUATION, OFFICE OF
      INSPECTOR GENERAL, U.S. DEPARTMENT OF COMMERCE; MICHAEL K.
    SMITH, STATE PRESIDENT-VERMONT, FAIRPOINT COMMUNICATIONS; BRUCE
      ABRAHAM, BOARD OF DIRECTORS, NORTH GEORGIA NETWORK; AND JOE
                   FREDDOSO, PRESIDENT AND CEO, MCNC

                      STATEMENT OF PETER KIRCHHOF

        Mr. Kirchhof. Thank you, Chairman Walden, Ranking Member
    DeGette, now, I guess it is. And I hope the elementary school
    comment does not become part of the permanent record.
        But to the rest of the committee members, my name is Pete
    Kirchhof, Executive Vice President of the Colorado
    Telecommunications Association. CTA represents 25 small rural
    communications companies that provide voice, video, and data
    service to approximately 30,000 customers located in 25,000
    square miles, a very diverse geography. That equates to
    approximately 1.2 customers per square mile, which presents
    huge challenges in providing services to these customers where
    the cost is determined by distance and density.
        Attached to my written testimony is a colored service area
    map that shows you graphically those large geographic areas
    served by our members.
        CTA members receive support from two federal programs, the
    Universal Service Fund and the Rural Utility Service. Both of
    these programs were and are instrumental in helping our members
    grow their companies, upgrade their networks, and provide high-
    quality affordable communications service. CTA members
    appreciate the confidence shown by these agencies in supporting
    service for rural Colorado.
        In 2010, NTIA was awarded a grant to an entity called
    EAGLE-Net. The purpose of the grant was to provide broadband
    service to unserved, underserved entities through construction
    of a middle-mile infrastructure and in collaboration with local
    telecommunication companies like CTA members. Several CTA
    members sent letters of support to NTIA and were referenced as
    potential partners by EAGLE-Net in their original application.
    Our members truly believed that this project would be a
    tremendous benefit to rural communities. EAGLE-Net would build
    facilities where needed, i.e. fill in the gaps or reinforce
    existing facilities or lease existing facilities from companies
    where possible to provide broadband service to these targeted
    institutions.
        It now appears to us that this project was not intended to
    serve unserved or underserved areas or to collaborate with the
    local providers but rather to build a government-owned and
    operated duplicative network, overbuilding hundreds of miles of
    existing fiber infrastructure from our members and other
    providers throughout the State to serve as many government
    entities as possible, including many in urban, highly
    competitive and densely populated areas.
        As I discussed in my written testimony, the attached maps
    also demonstrate there are several examples of where duplicate
    facilities were built. And even more troubling, they were
    funded by three different federal programs.
        In addition, facilities and services are being provided to
    customers in Denver, hardly unserved or underserved by anyone's
    definition.
        Congressman Gardner referenced the resolution passed, the
    House Joint Resolution 26. I won't read the section. He and I
    had the same sections to discuss. But the overall, I think,
    goal of the State Legislature was to make sure that there was
    not duplicating facilities and that there was use of the
    private sector facilities where possible.
        In our opinion, EAGLE-Net has done just the opposite by
    overbuilding existing networks on the eastern plains, south-
    central Colorado, the Denver Metro area, as well as Laramie,
    Wyoming, while largely ignoring the western slope communities
    where broadband facilities are desperately needed and would be
    welcomed by those communities.
        CTA member service areas have small populations, are costly
    to serve, and generate limited revenues. Supporting even one
    network under those circumstances is a challenge even with the
    subsidies. Maintaining two competitive government-funded
    networks is highly unlikely. And since most of the CTA members
    RUS funding is in terms of loans, not grants, overbuilding
    presents a serious impact to the financial stability of our
    members and ultimately to RUS if our ability to repay those
    loans is compromised.
        First and foremost in our mind, federal agencies should
    ensure that taxpayer dollars are not used to duplicate
    infrastructure development in rural communities. The Federal
    Government is the Federal Government. Any conflicts should be
    resolved through an interagency agreement or cooperation.
        I do want to publicly thank Assistant Secretary Strickling
    for his attention and for recently meeting with us in Colorado.
    But in conclusion, I would say this: CTA members still support
    the mission of EAGLE-Net as it was originally constituted, but
    I think what has happened is is it has gone far from what the
    original intent was. We respectfully ask committee members to
    encourage EAGLE-Net to negotiate with local providers in good
    faith to avoid duplicating facilities. And we would hope that
    any additional monies left over could be redirected to the
    western slope.
        Thank you, Mr. Chairman and members of the committee, for
    your time.
        [The prepared statement of Mr. Kirchhof follows:]

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        Mr. Walden. Mr. Kirchhof, thank you for your testimony. We
    appreciate your participation in our hearing.
        We will turn now to Ann Eilers, the Principal Assistant
    Inspector General for Audit and Evaluation, Office of the
    Inspector General, U.S. Department of Commerce.
        Ms. Eilers, thank you for being here this afternoon. We
    look forward to your testimony.

                        STATEMENT OF ANN EILERS

        Ms. Eilers. Great. Thank you, Chairman Walden, Ranking
    Member DeGette, and members of the subcommittee. I appreciate
    the opportunity to appear before you today to discuss our
    continued oversight of the Broadband Technology Opportunities
    Program, or BTOP.
        The American Recovery and Reinvestment Act of 2009 was
    signed into law 4 years ago. The Act provided the National
    Telecommunications and Information Administration, or NTIA,
    approximately 4.7 billion to establish BTOP. Since then, BTOP
    has developed into a program of approximately 225 projects that
    are providing broadband services. NTIA issued grants in three
    major areas: comprehensive community infrastructure, public
    computing centers, and sustainable broadband adoption. Many of
    the projects are nearing completion, with the last projects
    scheduled for September of this year. Extensions have been
    granted to a number of grantees, some through September 2013.
    Additionally, we understand NTIA has requested a waiver from
    OMB for grant funds to be spent after September 2013.
        The Recovery Act also established a central role for the
    Offices of the Inspector General to monitor their agencies use
    of funds to prevent fraud, waste, and abuse. Our oversight
    began immediately after the passage of the Act. We have
    provided over 50 sessions of compliance and controls training
    to program staff and grant recipients. We also assisted with
    the development of the program-specific Audit Guide for for-
    profit BTOP award recipients.
        Our oversight efforts have continued, and to date, we have
    both assessed the program operations of BTOP and reviewed
    specific issues with some individual awards. Our work includes
    10 published products containing over 40 recommendations
    developed to improve BTOP administration and monitoring of the
    grant awards. Additionally, our review of single- and program-
    audit reports has identified findings and questioned costs
    within the grant operations.
        Finally, we have established procedures to closely monitor,
    follow up on, and analyze complaints made to our hotline. The
    hotline is available online by telephone. It provides
    stakeholders a fast, anonymous, or confidential means to report
    fraud, waste, and abuse.
        Since appearing before the Subcommittee last May, we have
    reported that BTOP continues to face challenges with issues in
    grant match, acquisition and implementation of equipment, and
    sub-recipient monitoring. Most recently, we issued reports on
    the need for sub-recipient monitoring to be strengthened and
    problems associated with an infrastructure award to West
    Virginia.
        We reviewed the West Virginia award at the request of this
    committee. We found that the grantee had not demonstrated it
    had used award funds cost-effectively to purchase routers. We
    also identified problems with the grantee's inventory
    management.
        We currently have two BTOP reviews in progress. One is on
    assessing the internal controls NTIA has in place to monitor
    grantee equipment procurement and deployments. The other is to
    review NTIA's closeout operations as they assess that all laws,
    regulations, and grant terms are met by these projects.
        Finally, we will continue to work on BTOP hotline
    complaints and tracking audit issues identified in audits
    performed by independent accounting firms.
        Again, we appreciate the opportunity to appear before the
    Subcommittee. I am pleased to respond to any questions that you
    may have.
        [The prepared statement of Ms. Eilers follows:]

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        Mr. Walden. Ms. Eilers, thank you very much for the work
    you and your team do. We appreciate it. It is very valuable in
    the course of our activities.
        We will turn out to Mr. Michael K. Smith, State President-
    Vermont, FairPoint Communications.
        Mr. Smith, thank you for being here today. We look forward
    to your testimony.

                     STATEMENT OF MICHAEL K. SMITH

        Mr. Smith. Well, thank you very much. I want to thank the
    Subcommittee Chairman Walden and Ranking Member DeGette for
    allowing me here to testify. I also wanted to thank Hon. Peter
    Welch of my home State of Vermont for his continuing dedication
    and attention to the needs of Vermonters who are unserved and
    waiting for reliable high-speed broadband connections. He has
    been a great partner with us, especially in our efforts to
    thwart scammers who prey on our elderly.
        My name is Michael Smith and I am the Vermont State
    President for FairPoint Communications. I have more than 30
    years of experience in executive leadership positions in both
    the public and private sector, most recently as secretary of
    administration under Governor Jim Douglas, and now with
    FairPoint Communications.
        My testimony will concentrate on providing some specific
    examples of how well intentioned public policies can go off
    track when put into implementation opening the possibility of
    wasting millions of dollars of taxpayers' money and potentially
    leaving people without the promise of reliable broadband
    access.
        As a State President in Vermont, I have been very vocal
    that public money used to overbuild existing networks is
    duplicative of private sector efforts, and in many cases,
    undercuts those efforts. The key term I would ask you to focus
    is on overbuild. This practice is wasteful and does not provide
    broadband to those who are now unserved.
        Let me give you a specific example. Vermont was awarded the
    stimulus award of $33 million that went to the Vermont
    Telecommunications Authority on behalf of its private partner
    Cybernet. As an aside, I can tell you that when I was secretary
    of administration, I helped create the VTA. It was not to
    create a publicly financed competitor aimed at putting
    FairPoint and other private providers at a competitive
    disadvantage.
        The VTA Cybernet project that is underway is a middle-mile
    project. Vermont is a State unlike other States in the country
    that has plenty of existing middle-mile networks built and
    maintained by FairPoint, as well as other private sector
    providers. In my opinion, stimulus funding should be directed
    to the last mile where the need is greatest.
        The Vermont Telecommunications Authority stimulus-funded
    project simply overbuilds existing privately funded middle-mile
    networks. It is a waste of taxpayers' money and duplicates
    existing networks and does not bring meaningful last mile
    broadband to Vermonters. In fact, it actually undercuts the
    private investment that has already been made in Vermont.
        There are other examples of stimulus money being used to
    overbuild existing networks. In New Hampshire, the University
    of New Hampshire received $65.8 million to overbuild the
    existing private sector networks. What is worse is the Federal
    Government permitted UNH to essentially give away most of this
    network to a private for-profit company named Waveguide. When
    this project is complete, not a single residential or business
    customer in New Hampshire will have the ability to call UNH or
    Waveguide and request internet access service.
        In Maine there is a similar example of $25 million in
    stimulus money being used to overbuild existing private sector-
    funded networks. Between VTA and VTel, the other large
    recipient of stimulus funds, a large portion of stimulus money
    is being spent on overbuilding existing middle-mile networks.
    With that in mind, I asked our engineers to do a quick estimate
    to find out if we had been awarded all the stimulus grant funds
    that are being used for middle-mile overbuilds in Vermont,
    could we have built broadband to every last unserved location
    in the State? The answer is yes. And in New Hampshire, the
    benefits to residents and businesses would be that they could
    actually call and order services.
        So you asked me the question: Is broadband stimulus
    working? Succinctly, I don't believe it is working as
    efficiently and as effectively as it should be. And the
    programs I am familiar with actually undercut the efforts of
    private broadband infrastructure investment. In my view, the
    implementation of the program did result in ways that
    unwarranted competitive harm to companies whose networks were
    overbuilt with federal money.
        In closing, FairPoint will to continue to work with NTIA,
    RUS, FCC, Congress, U.S. Telecom, ITTA, and the BTOP and BIP
    awardees to ensure taxpayer dollars are used to better benefit
    the shared public policy goal of nearly ubiquitous broadband.
        Thank you. And I would be more than happy to answer any
    questions.
        [The prepared statement of Mr. Smith follows:]

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        Mr. Walden. Mr. Smith, I am sure we will have some and we
    appreciate your testimony. It is very enlightening.
        Mr. Welch. Mr. Chairman, just one objection. I wasn't here
    when I understand this witness said a few things about me.
        Mr. Walden. He said nice things about you.
        Mr. Welch. Well, I want it on the record that I object to
    me not being here to hear that.
        Mr. Walden. Is there any objection to his----
        Ms. DeGette. I will be happy to move to strike that
    testimony from the record because you weren't here.
        Mr. Walden. Mr. Smith said very nice things about you. We
    did have that removed from the record. No.
        Let us go now to Mr. Bruce Abraham. He is on the Board of
    Directors of the North Georgia Network.
        Mr. Abraham, thank you for being here this afternoon. We
    look forward to your testimony, sir.

                       STATEMENT OF BRUCE ABRAHAM

        Mr. Abraham. Thank you, sir, Mr. Walden.
        Mr. Walden. If you will pull that microphone close and push
    the little button.
        Mr. Abraham. There we go. I am a country boy.
        Thank you, Chairman Walden, members of the subcommittee. It
    is a great honor for me to be here today to talk about the
    effects of the National Broadband Opportunities Program on my
    home community in North Georgia. I very much appreciate this. I
    will remember this all my life and I will tell my grandkids
    about this and the great things that we did here today.
        I would also like to thank our partners in this project,
    the University of North Georgia, Habersham and Blue Ridge,
    Mountain EMCs, as well as the State of Georgia who together we
    put up $9 million in matching money to leverage $33 million in
    federal money to bring modern high-speed internet to our
    region.
        I would most like to thank my group of economic developers
    in the region, who supported this project with their money and
    their time and who, like me 4 years ago, faced a barrier to
    expanding and recruiting jobs to this region. Our region had
    lost about 22,000 jobs before this project started. And in
    Dahlonega, where I worked, we closed the doors of our largest
    employer--a textile manufacturing operation that employed 365
    people, most of who had quit school to go to work there at an
    early age. My group of economic developers and I were losing
    jobs and business prospects not only because of the national
    economic downturn, but also because our local companies told us
    they had inadequate broadband.
        My community owned a 65,000 square foot building that a
    prospective internet company walked away from because they told
    me ``it would be too painful to get the broadband that they
    needed there.'' Our local medical lab that does breast cancer
    analysis was trying to communicate with other hospitals in
    Georgia and they told me they may have to move back to Atlanta
    because they could not get patient medical information files
    back and forth on the internet.
        Our local university was doubling their student enrollment
    and their internet service from their provider was only 50
    megabits of service for 5,000 students. The college internet
    went down for 37 hours as they began a new school year, so some
    classes' course information, homework, and assignments were
    inaccessible to students and to teachers. The university tried
    to dramatically up their internet speed and reliability but
    their single provider said it was just not cost-effective.
        In rural Georgia, our local governments in economic
    development are constantly challenged to remove barriers to
    growth whether it is by improving a road, running a water line,
    or building a sewer plant. I can tell you from 20 years of
    local economic development experience that companies won't
    locate to areas where they operate off of wells or septic tanks
    or one-lane roads. And now, high-speed broadband is right up
    there with the must-haves to get jobs and growth in rural
    America.
        As part of their strategic plan, the State of Georgia made
    almost $10 million in broadband investments in Georgia. Georgia
    provided us with the original funding for a study, and this was
    no pie-in-the-sky research. We sat down with our schools,
    colleges, libraries, governments, hospitals--asked them how
    they use the internet. They said they needed more internet, and
    many of them said they need what is called redundant internet
    so if it breaks down with one provider, they can get it from
    another provider.
        When we finished our community study, the National
    Broadband Program came along and we reached out to break our
    internet barrier. Our communities in the State applied and we
    built 1,100 thousand miles of fiber optic network that we just
    finished in December. Already, we have eight school systems
    connected with the majority of them getting a gigabit of
    service, whereas before, they had less than 50 megabits. We
    provided our schools at no cost a 10 gigabit network so they
    can share distance learning with the university, they can share
    online coursework, textbooks, and meetings. The university is
    also happy because we provided them a gigabit of service at
    less cost than they would have paid for 100 megabits of service
    from their old provider.
        Now, the physician at Dahlonega Foot and Ankle does not
    have to drive over to the hospital to pick up his x-rays.
    Impulse Manufacturing fabricates products for global
    distribution can now talk to companies overseas without choppy
    internet. And they can operate in what is called the Fortune
    500 Protocol.
        Even our churches can now broadcast their services live
    online. And they are reaching the elderly, homebound, and
    hospitalized members. They report that 90 percent of their
    internet viewing is live during their church services.
        Our local community bank can now communicate between its
    branch offices and safely store their financial information on
    their network. The Louver Shop that makes louvers in Dahlonega
    can communicate with their West Coast office and conduct live
    business meetings. Telecommuters who live in our region don't
    have to wait until midnight to send their work over the
    internet to their office in Atlanta.
        We now have two technology parks in the region. And in a
    final example, we have attracted our first data center to the
    region. And because of this network--one of our local economic
    developers should announce this in March--the company proposes
    to make an $800 million investment in this facility. They will
    initially hire 10 people at $100,000 per job. The company needs
    2 gigabits of internet. This is an unheard-of investment in our
    region. This increases our local county tax base by \1/4\ and
    $1 million in payroll equals 60 jobs that would normally pay $8
    an hour in our region.
        In closing, let me say thank you again for this investment
    you made in our communities. And let me sum up what you did for
    us. We have a low-wage, low-skilled, low-tech economy in rural
    America and you helped us reach for a high-skilled, high-wage,
    high-tech economy that we all see ahead.
        We are mindful as a generation, right behind us the young
    digital Americans--the guy sitting right behind you--who were
    born under the influence of this powerful internet engine. They
    are not going to tolerate 1990s internet as they start a
    business, look for job, or move into positions of business
    leadership and public decision-making. They will move out of
    internet lazy rural towns that do not provide robust internet
    connectivity. They will go, as we all did, to where there is
    promising economic opportunity. And that opportunity, as far as
    we can see, is being created right now by the high-speed
    internet.
        Thank you very much. God bless you.
        [The prepared statement of Mr. Abraham follows:]

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        Mr. Walden. Mr. Abraham, thank you very much. Thank you for
    your very kind comments and your very valuable testimony. We
    appreciate your participation today. And no matter how much you
    shower us with compliments, we are still going to ask you
    questions.
        Mr. Abraham. That will work.
        Mr. Walden. I am just kidding.
        Mr. Freddoso, we appreciate you being here today from--let
    me get this right--president and CEO of MCNC. And so we welcome
    you and look forward to your comments as well, sir.

                       STATEMENT OF JOE FREDDOSO

        Mr. Freddoso. Well, thank you, Chairman Walden and Ranking
    Member DeGette and members of the subcommittee for this
    opportunity to present congressional testimony regarding the
    successful implementation of broadband stimulus funds in North
    Carolina. I particularly want to thank Congresswoman Renee
    Ellmers from MCNC's home State of North Carolina. She
    represents the great people of North Carolina's 2nd District
    and is a champion of better healthcare education and access to
    technology.
        Mr. Chairman, for over 25 years the private nonprofit
    organization that I lead, MCNC, has operated North Carolina's
    fiber-optic highway of innovation, the North Carolina Research
    and Education Network, or NCREN. While the roots of NCREN are
    in serving the vast research needs of the University of North
    Carolina system, the community of connectors at NCREN has grown
    in the last several years to include connections to more than
    450 community anchor institutions, including all of K through
    20 public education, many private universities, numerous
    nonprofit healthcare providers, and several state and federal
    research organizations.
        The anchor institutions that we serve require large amounts
    of low latency high-speed connectivity and collectively, their
    demand for bandwidth doubles every 2 years. A couple of
    examples: since 2011, the 58 community colleges we serve have
    reported a fivefold increase in bandwidth demand. And since
    2007, our K through 12 public school districts have recorded a
    20-fold increase in bandwidth use. Students in our community
    colleges now directly access and program advanced manufacturing
    equipment virtually over NCREN to get current skills needed in
    the workforce while the colleges avoid having to spend precious
    capital purchasing these machines directly.
        MCNC also has a long history of cooperative work with our
    incumbent service providers, telephone membership cooperatives,
    electric membership cooperatives and independent
    telecommunications companies in North Carolina. We spend about
    $9 million per year for local circuits and internet bandwidth
    with these providers.
        In 2007 in our meetings with our private sector service
    provider partners, it became evident that NCREN's need for
    bandwidth--particularly in rural North Carolina--was going to
    outstrip the capacity of the existing middle-mile fiber in the
    State. There was either no fiber available in certain sections
    of North Carolina or a limited fiber capacity to meet the
    growing needs of the anchor institutions served by our network.
        We also found that these service providers, even supported
    by a proposed $8 million investment from MCNC, lacked the
    business case to build in the areas with no fiber or to add
    fiber capacity in underserved areas.
        To serve the needs of the students, healthcare providers,
    and research institutions connected to NCREN, MCNC made the
    decision to pursue BTOP funds. For matching funds, we allocated
    $8 million from our capital refresh fund. We also raised $4
    million from private sector wholesale service provider FRC. We
    raise $24 million from North Carolina's nonprofit Golden Leaf
    Foundation, and $4 million in donated conduit and land. MCNC
    brought a total of $40 million to the table in a vision for a
    statewide network that would bring broadband to some of the
    most rural mountainous and difficult areas to reach in the
    State.
        Leveraging these matching funds, MCNC applied for and won
    two rounds of BTOP funding totaling $104 million. Today, MCNC
    is within 50 miles of completing a 2,600-mile middle-mile
    network. The network is comprised of 1,800 miles of new build
    fiber, and 800 miles of leased fiber. MCNC leased 800 miles of
    fiber from service providers, typically under 20-year terms.
    These leases are tangible demonstrations of the solid
    relationships that we enjoy with our service provider partners
    and how MCNC was able to leverage local infrastructure into its
    statewide broadband network.
        The construction phase of the project has given a badly
    needed infusion of revenue to private sector companies. Our
    fiber and conduit supply company is CommScope. CommScope is
    headquartered in Hickory, North Carolina. When we chose
    CommScope as our supplier, their conduit plant was idled.
    During the height of our project over a 2-year period, they
    operated 24/7 with more than 100 workers to keep up with
    demand.
        Much of the BTOP fiber is already in use, benefiting the
    450 community anchor institutions served by NCREN and allowing
    us to serve 1,500 more community anchor institutions. The BTOP
    award will allow us to scale connectivity to these institutions
    to the multi-gigabit level they demand as they need additional
    bandwidth. And our sustainability plan will allow this
    scalability to happen at today's costs.
        Also, MCNC is in discussions with more than 10 wholesale
    and last-mile service providers interested in the new fiber
    build. Many are looking to enter areas previously unavailable
    to them. Rural broadband is migrating quickly from wired
    services like DSL to wireless services like WiMAX, Wi-Fi mesh
    and 4G LTE as last-mile solutions. The commonality in all of
    these over-the-air last-mile services is the need for fiber-
    based backhaul and transport services.
        Mr. Chairman, our story is a great success story. It is
    based on leveraging privately raised matching funds, utilizing
    existing local infrastructure, and attracting BTOP federal
    investment to build the digital highway that directly supports
    innovative research, idea formation, equity of access to
    education, better healthcare outcomes for North Carolinians,
    and also supports the private sector as they look to put new
    wireless services into rural areas of the State.
        Thank you.
        [The prepared statement of Mr. Freddoso follows:]

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        Mr. Walden. Thank you very much to all of our panelists for
    your testimony.
        Mr. Freddoso, thank you especially for yours here at the
    end.
        In my district, 70,000 square miles--regular watchers of
    our hearings know I have used this before--but it would stretch
    from the Atlantic to Ohio, larger than just about any State
    east of the Mississippi. And so I am very familiar with very
    rural areas--remote areas--that lack broadband.
        And so my view here is that 4 percent is a lot of my
    district that didn't have access to broadband and that the
    federal money should go into those areas where it is really
    difficult to make a financial case for broadband on a
    commercial basis. If we are going to spend money out, that is
    where it should have gone. That is my point in this oversight
    hearing and in the arguments I made, frankly, when this bill
    was being marked up a number of years ago to say go serve the
    unserved areas first, the places you all have talked about, and
    avoid overbuilding where we already have commercial networks,
    which by the way will be made less viable because the
    government has come on with another competitor on top. And so
    this leads to this oversight.
        Probably most of this money has been spent appropriately.
    We will find out over time whether or not we got our money for
    it. Obviously, in your areas, you feel it has and it has got
    great benefit. And we have seen that in some projects even in
    my own district, an Indian reservation that frankly, the
    incumbent carrier hadn't done much there and, you know, they
    got one of these grants and now they got broadband. That made
    sense. And same in another area in central Oregon where it made
    sense to fill in.
        One of my questions, though, is how is this money getting
    spent? Where are the stewards of the taxpayers' dollars? I hear
    about this in every town hall I have. I have done 18 so far
    this year in 18 counties.
        And, Ms. Eilers, you have heard our discussion here today
    about the West Virginia audit. You all looked at some of these
    questions for us kind of at a top level. Have you had a chance
    to review the West Virginia audit in any detail? Because it is,
    to me--and this is my money in effect--it is pretty damning.
        Ms. Eilers. I have reviewed the West Virginia report. Yes.
        Mr. Walden. And my understanding is that there may be a
    delta here of about $9 million that maybe didn't have to be
    spent and that they didn't follow their own contracting rules
    and laws. Is that----
        Ms. Eilers. I am not going to speak for the West Virginia
    report. But yes, based on my reviews, it does appear----
        Mr. Walden. And so wouldn't it make sense whether--I know
    Mr. Strickling has said, look, we have spent this money. It is
    out. It is allocated, whatever. But going forward if one of
    these programs were to spring up again or money get put out,
    what recommendations would you have for these agencies to make
    sure that sort of waste doesn't occur that has been identified
    in the West Virginia audit? Did they need to do a site
    analysis? Does that need to be a requirement? How do we prevent
    this from happening again?
        Ms. Eilers. I mean, both the West Virginia auditor and our
    audit team cited that there should have been a detailed study
    of all the locations to size the routers appropriately. So yes,
    we were looking for that same due diligence.
        Mr. Walden. And are you confident now, knowing what we
    know, that the agencies will either have put those requirements
    into their RFPs or whatever going forward or are they still
    were they were? Or can you tell?
        Ms. Eilers. As I understand it--and I can just speak for
    how they are looking at West Virginia right now--they are going
    back and doing some due diligence on the sites to----
        Mr. Walden. Right.
        Ms. Eilers [continuing]. Make an appropriate size, if you
    will, of the communications ability. For the other grants, I
    can't speak to the other 255 grants and how this would impact
    them.
        Mr. Walden. You know this really came to our attention, as
    I recall, from a newspaper article somebody shared with me. And
    that kind of led the Committee into its look and our questions
    to you. And I don't know if that is what triggered the auditor
    or not in West Virginia, but it raises a troubling set of
    questions about how the government's money--the taxpayers'
    money--is actually being spent.
        Mr. Kirchhof, Mr. Smith, this overbuild issue is something
    that seems to me there is always going to be a little bit
    because you have got to connect somewhere, right? So you are
    always going to have some overbuild. But I was really
    concerned, Mr. Smith, especially in your Vermont discussion,
    about how the middle mile got overbuilt and the last mile
    didn't get built in effect. And aren't we really after the last
    mile that--I mean you need both. I get the notion that more
    people using the internet means you need more capacity on the
    overall internet. I get that. I understand that. It is not the
    number of subscribers per se, it is both. But it is the amount
    of data that is being transmitted back and forth so you need
    capacity, but you also need access. So from your perspective,
    is it last mile, is it middle mile, is it both but not
    overbuild?
        Mr. Smith. Mr. Chair, from my perspective, it is last mile
    in Vermont. I mean, no one has invested more in broadband in
    Vermont than FairPoint over the last few years. And I think it
    is safe to say that, you know, the horse is out of the barn
    now. I mean, this is for future reference but it is safe to say
    I would think most Vermonters feel that if you are going to use
    money, use it for the last mile and not overbuild an existing
    network that provides the same service as the networks being
    built, and actually, the fiber being put up on the same polls
    that the fiber that we are running on. So it is an issue.
        Mr. Walden. My time has expired. Do you have any
    disagreement with that, Mr. Kirchhof?
        Mr. Kirchhof. I don't, Mr. Chairman. The only thing I would
    add is you do need both, right, in some cases. That is why you
    need to go area-by-area and do an evaluation to see what is
    needed there. I think we do have probably a little bit of a
    fundamental disagreement on how you define middle mile. To us
    middle mile is very similar to the federal interstate system,
    that you use the backbone to be able to get that traffic out to
    the world, right, but you rely on the local roads and the state
    highways to provide that. So I think there is a fundamental
    disagreement with what we consider middle mile.
        Mr. Walden. All right. Thank you all again for your
    participation.
        I now turn to my friend and colleague from Colorado, Ms.
    DeGette, for 5 minutes.
        Ms. DeGette. Thank you very much, Mr. Chairman.
        Mr. Smith, you said in Vermont the middle mile is not the
    issue; it is really the last mile. But you are speaking for
    Vermont, right?
        Mr. Smith. I am----
        Ms. DeGette. Yes.
        Mr. Smith [continuing]. Where I most know it. And I----
        Ms. DeGette. Where you most know. And here is the other
    thing though, I mean, our concept is to get this broadband
    everywhere. And so actually, the last mile providers benefit
    from the middle mile, right?
        Mr. Smith. Well----
        Ms. DeGette. If they build out the middle mile, then the
    last-mile providers benefit from that, right?
        Mr. Smith. That is right----
        Ms. DeGette. And FairPoint, in fact, has been paid $7
    million as a vendor to these BTOP grantees, right?
        Mr. Smith. Say that again? I am sorry.
        Ms. DeGette. FairPoint has been paid approximately $7
    million as a vendor to BTOP grantees?
        Mr. Smith. Yes, I am not familiar with that number but I
    will look.
        Ms. DeGette. But they have been paid money. I mean, they
    have benefited from some of this federal money, right?
        Mr. Smith. I am sure that we have had middle-mile
    participants giving money to FairPoint for some services.
        Ms. DeGette. Vermont Telecommunications Authority, right?
        Mr. Smith. Oh, I see what you are saying.
        Ms. DeGette. Yes.
        Mr. Smith. OK. OK.
        Ms. DeGette. Yes.
        Mr. Smith. Vermont Telecommunications Authority has----
        Ms. DeGette. And Vermont Telephone Company, right?
        Mr. Smith. Vermont Telephone Company.
        Ms. DeGette. ION NewCo and Maine Fiber, you have got money
    from them, right?
        Mr. Smith. Let me just go back, Congresswoman, to sort of
    go from there. We have got money to build last-mile----
        Ms. DeGette. Right.
        Mr. Smith [continuing]. From the VTA.
        Ms. DeGette. Right.
        Mr. Smith. Absolutely.
        Ms. DeGette. Right.
        Mr. Smith. OK.
        Ms. DeGette. And that is some of this federal money. They
    are getting the federal money and then they are giving it to--
    --
        Mr. Smith. In the case of the VTA, I believe it is all
    state money.
        Ms. DeGette. OK. Well, we can check that out. But, you
    know, the whole point is we are trying to get broadband to
    everybody, right, Mr. Abraham?
        Mr. Abraham. Yes.
        Ms. DeGette. I mean, it doesn't help you if you have the
    last mile if you don't have the middle.
        Mr. Abraham. That is right.
        Ms. DeGette. You need it all, right? And also you, too, Mr.
    Freddoso, right?
        Mr. Freddoso. Right, Ms. DeGette. I think the leap we have
    to take care here is that you are looking at a critical
    infrastructure now. So you have got to look at it from both
    perspectives. The last mile in a lot of rural areas is going to
    move towards wireless.
        Ms. DeGette. Right.
        Mr. Freddoso. Wireless needs to find fiber as quickly as
    possible for backhaul traffic.
        Ms. DeGette. Right.
        Mr. Freddoso. Our providers in North Carolina have told us
    that their deployments into rural areas like some of the
    eastern parts of the State that Congresswoman Ellmers
    represents is going to be 4G LTE or WiMAX or Wi-Fi. There is
    not enough middle-mile fiber right now along specific routes in
    the area. We did this verification because we were trying to
    serve schools----
        Ms. DeGette. Right.
        Mr. Freddoso [continuing]. That take that backhaul traffic.
        Ms. DeGette. OK.
        Mr. Freddoso. The second piece of this is that it is
    critical infrastructure.
        Ms. DeGette. Yes. Right.
        Mr. Freddoso. And you are not going to run a hospital that
    you are putting on healthcare information exchange or
    telehealth on one single fiber connection to that hospital.
        Ms. DeGette. Right.
        Mr. Freddoso. And that is what the middle-mile serves
    directly.
        Ms. DeGette. Right.
        Mr. Freddoso. So you need multiple paths.
        Ms. DeGette. And you know something else I was thinking
    about while I was sitting here, Mr. Kirchhof, in looking at
    your map is, you know, the whole purpose of these BTOP and BIP
    programs was so that we could build out these systems but then
    they wouldn't be dependent on federal dollars for the rest of
    their existence. And so in doing that, I suppose you would have
    to have some kind of business model. Otherwise, to do these 5
    percent that aren't built out right now, then you would have to
    just subsidize them indefinitely. Do you understand? Does that
    make sense to you?
        Mr. Kirchhof. Thank you, Congresswoman. I do understand,
    but I guess what I would be concerned about is, we agree with
    Secretary Strickling on the 50,000 foot level----
        Ms. DeGette. Right.
        Mr. Kirchhof [continuing]. Of what we are all trying to do.
        Ms. DeGette. Right.
        Mr. Kirchhof. But when it came down to what is being done
    in Colorado, we believe you should have done an area-by-area
    assessment to look at what the needs were. Are they middle
    mile? Are they the last mile?
        Ms. DeGette. Right.
        Mr. Kirchhof. Instead, what we believe has happened is the
    goal ended up to be to build a statewide network for the
    government to be in the telecom business for the long haul
    instead of reinforcing or using existing facilities. So if the
    goal is to build a sustainable model for the government to be
    in the telecom business, then I think that what they are doing
    is probably accurate. But if it was to come in and provide
    broadband to unserved and underserved areas, I don't believe
    that is what they have done.
        Ms. DeGette. Right. I mean, I don't know. I am not here to
    defend anybody. But what I am hearing is that EAGLE-Net is
    trying to get contracts for some of the existing company and
    access some of the existing fiber so that they can build out
    into some of these underserved areas. And I think what we might
    have here--I was talking to the Chairman about this--is we
    really do need to all sit down. And I will make the same offer
    to you that I made to the previous witness, which is if I can
    do something with Mr. Gardner to sit down and try to sort this
    all out, you know, we are happy to sit down and do it.
        We actually had delegation breakfast yesterday morning
    where we all sat down and said, you know, people be surprised
    of how we can work together in a bipartisan way in our
    delegation because we don't want to see private, you know,
    telecom companies being hurt by this government program. But on
    the other hand, we all have an interest in having this be built
    out to communities like Mr. Abraham's and Mr. Freddoso's. I
    think you would agree with that, too.
        Mr. Kirchhof. I do, thank you, Congresswoman.
        Ms. DeGette. Thank you.
        Mr. Gardner. [Presiding] The gentlelady's time has expired.
        And I will yield myself 5 minutes. To Mr. Smith and Mr.
    Kirchhof, I mentioned to Mr. Padalino the question about
    whether or not you have concerns or know of concerns in the
    industry about the ability to repay RUS loans if competition by
    government-backed BTOP programs were to interfere with their
    business model. Are there concerns, Mr. Kirchhof, that you have
    heard of, know about?
        Mr. Kirchhof. Yes, thank you, Mr. Gardner. I think what we
    are concerned about is that what is being proposed as middle
    mile is actually putting fiber facilities directly to an end-
    user customer and then encouraging that customer to leave
    member's network and to go with EAGLE-Net. As you know, because
    of where you live, the larger government institutions--schools,
    community anchor institutions--provide a source of revenue to
    those companies today. And so if you remove that revenue--and
    yes, Mr. Strickling said that we are not providing to residents
    and businesses--that is true--but those are also the high-cost,
    low-revenue customers. So the community anchor institutions are
    a very important part of our financing. So depending on if a
    company lost a number of those, it could hurt them financially.
        Mr. Gardner. So let me follow up with that, too, because I
    think you bring up an interesting point. If an anchor
    institution like a school or library bought more bandwidth or
    was provided with more bandwidth than they needed, could they
    turn around then and sell that excess bandwidth?
        Mr. Kirchhof. In our belief, yes. And in fact I have stated
    in my testimony that, in fact, we think that they are
    subsidizing potential new competitors to come into the market.
    And in many cases we want that. I understand that. But in rural
    communities, as I said before, there is a limited amount of
    revenue to support a limited amount of networks to be built
    there.
        Mr. Gardner. Mr. Kirchhof, do you believe that there is
    overbuild in Colorado?
        Mr. Kirchhof. My members do definitely believe that. When
    EAGLE-Net is laying fiber literally right next to the existing
    fiber optics, we believe that is an overbuild.
        Mr. Gardner. Mr. Smith?
        Mr. Smith. I definitely believe there is an overbuild in
    Vermont and I believe there is an overbuild in New Hampshire
    and I believe there is an overbuild in Maine, although I am
    primarily concentrated on Vermont.
        Mr. Gardner. And Mr. Kirchhof, going back to you, have the
    terms of the House Joint Resolution in Colorado been met? Do
    you believe it was focused on unserved and underserved areas
    and not in competition with the private sector? Has that been
    adhered to?
        Mr. Kirchhof. No, I do not believe that, particularly the
    section you highlighted earlier.
        Mr. Gardner. And a couple of other questions that I have
    for you relating to today's testimony, following up on that
    statement, EAGLE-Net clearly has gone beyond its mission at
    that point. Would you agree?
        Mr. Kirchhof. Yes.
        Mr. Gardner. And are there areas of the State that still
    need fiber in the ground where EAGLE-Net has not gone?
        Mr. Kirchhof. Well, from our understanding--and they have
    made changes to their network--but we believe that the western
    slope, while there may be some service coming from EAGLE-Net,
    there is certainly not going to be as much as there is on the
    eastern plains.
        Mr. Gardner. Do you think that their business model is
    sustainable?
        Mr. Kirchhof. I don't know. I don't have any ability to
    know that.
        Mr. Gardner. I understand.
        Mr. Kirchhof. But having said that, you know, our companies
    have been in business for decades and we struggle occasionally
    and we require subsidies from you to make that work. So I don't
    know how you can sustain that model going forward.
        Mr. Gardner. And in the testimony that Mr. Strickling
    presented, he talked about how--you have also mention this in
    your testimony--were supportive of EAGLE-Net's efforts. But
    there was an element almost of sour grapes that was trying to
    be implied in terms of the opposition and concerns with EAGLE-
    Net today over the grant. But as I believe, you were bidding on
    apples and oranges. Is that correct?
        Mr. Kirchhof. Well, I would say I did take exception to the
    fact that it does sound like it is sour grapes. But we have
    been trying for 3 years to work with EAGLE-Net to get something
    done. There was an RFP that was submitted by a group of
    northeast Colorado companies that was rejected. I don't know
    the reason. I heard today it was financial reasons, but I don't
    know if that was the only reason that was out there.
        Mr. Gardner. Some of the letters that I have received, and
    I don't know if you have had a chance to see them or not, but
    they were submitted for the record, one talking about Blanca,
    others talking about PC Telecom where they said they were
    trying to work with NTIA trying to convince them that, hey, if
    you use this infrastructure, we could save you $20 million, I
    think, was the Blanca letter where they said we could save $20
    million if you use this infrastructure, but they never received
    a response. Do you believe that money was wasted by and through
    the overbuild?
        Mr. Kirchhof. I can't speak to the savings that those
    companies are suggesting, but I really believe that there were
    opportunities for more efficiencies, to be able to take that
    money then and spend it where it is really needed.
        Mr. Gardner. I see that my time has expired. The gentleman
    from Vermont is recognized for 5 minutes.
        Mr. Welch. Thank you very much, Mr. Chairman.
        Mr. Smith, thank you so much for coming and it is good to
    have you here.
        Many of us on this panel do represent rural areas. And this
    is an open-ended question. Would you have suggestions for this
    panel about what policies the Federal Government could pursue
    that would be best helpful in deploying a full range of
    broadband to our rural areas?
        Mr. Smith. I do, Congressman. I think, you know, in
    retrospect looking at how this program rolled out, I don't
    think there was enough emphasis on the last mile. You know, in
    our State and in other States, particularly in northern New
    England, the middle mile isn't the issue. I understand there
    are other States where the middle mile maybe the issue. There
    is plenty of competition in the middle mile. In fact, there is
    a lot of competition going to the very anchor institutions that
    we talked about. So putting on a government-funded middle-mile
    program in those sort of States makes no sense at all because
    what you are doing is just undercutting the private investment.
        We have invested $200 million in northern New England--in
    Maine, New Hampshire, and Vermont. You undercut that
    investment. So what I would say is, particularly in areas where
    we are familiar with, concentrate on the last mile. And----
        Mr. Welch. So is it your thought that policy would be
    helpful whether it was our district in Vermont or Ms. Ellmers'
    district where she is in eastern--you are applying this
    generally to rural areas?
        Mr. Smith. Right. And Congressman, I think that is where
    the downfall the program lies because there are different needs
    in different places. And if I was going to give some advice, I
    would say look at the regions in terms of what their specific
    needs are.
        In our region, it is last mile. It is not middle mile; it
    is the last mile. The other thing that I would do sort of, you
    know, now that everything is sort of out the door, I would
    monitor these programs continuously in terms of what is being
    spent.
        The third thing that I would do, is that any unspent money
    needs to come back to the Treasury in terms of what happens.
    And the fourth thing I would do is hold these entities to
    deadlines that they have promised to obtain. So those are the
    sort of things off the top of my head that I can think of.
        Mr. Welch. Well, thank you very much. Mr. Abraham and Mr.
    Freddoso, we have heard the argument from some of the incumbent
    broadband providers that there was no need for Recovery Act
    funding. They can't compete with networks funded in part with
    public dollars and BTOP recipients are overbuilding their
    networks. What has been your experience with getting private
    investment for the deployment of broadband in your communities?
        Mr. Abraham. When we started this project, we went to our
    private providers and asked them to participate. My county
    commissioner went with me and said, why don't you let Bruce
    leverage this money and help you get this? And they said we
    don't really want to mess with a government project. We have
    got plenty of infrastructure out there. And then I said, well,
    if you can't do that, could you show us where your
    infrastructure is? So well, no. I mean, as an economic
    development guy, I would like to know where the water and sewer
    lines are. And they said that was proprietary information.
        So when this started there was kind of wall between us and
    the private providers. Since then, we have met with all of them
    and talk about interconnections and working with them to get
    places where they want to go because we have very robust
    network in the areas where they don't now, but----
        Mr. Welch. Mr. Freddoso, thank you.
        Mr. Freddoso. Thank you, Mr. Welch. I think an important
    fact to know is that we are a private nonprofit and we have
    been operating this network for 25 years. So we have built
    really good relationships with our private sector service
    providers in North Carolina.
        We had similar discussions to what Mr. Abraham had in
    Georgia. But let me give you one example. We had to upgrade one
    route, one connection between Rocky Mount and Greenville--part
    of it touches Congresswoman Ellmers' district. And we get a
    quote of 5 times the price for 2 times the bandwidth. And the
    reason was is that we lack fiber availability. The carrier
    lacked fiber availability.
        So we took it upon ourselves to partner with them, figure
    out where they had availability, lease from them as part of the
    BTOP program, but then build in the gaps in the State so we
    could serve these anchor institutions. And we serve all of K
    through 20 public education. Their need is growing greatly. But
    this also now offers North Carolina an opportunity to be a test
    bed for some these wireless technologies in the last mile, work
    with these private sector service providers to make fiber
    available to them on attractive terms to allow them to deploy
    these services in areas that they couldn't reach before.
        So our stories are a bit different. I don't know Colorado.
    I don't know Vermont. But I know that we did the diligence
    upfront to make certain that the overbuild was kept to a
    minimum to interconnect points.
        Mr. Welch. OK. Thank you. I yield back.
        Mr. Gardner. The gentleman yields back. The gentlelady from
    North Carolina is recognized for 5 minutes.
        Mrs. Ellmers. Thank you, Mr. Chairman.
        My question is for Mr. Freddoso, and I have been listening
    carefully to your testimony. My questioning is about the
    opinion from the private sector that the middle-mile network
    has been overbuilt. You just gave us information that you built
    a very strong relationship with the private sector. With
    government-subsidized entities there is an opportunity to pick
    lucrative places to serve rather than build the underserved
    areas?
        Mr. Freddoso. I would agree with Mr. Smith and Mr.
    Kirchhof. There has to be some regional assessment,
    Congresswoman Ellmers, of what is available in those areas. I
    believe that we are entering a time, particularly for rural
    economic development and for rural healthcare, that more than
    one path of fiber is going to be needed into some rural
    communities.
        Mrs. Ellmers. Yes.
        Mr. Freddoso. You are very familiar, obviously, with the
    healthcare industry being a nurse. As we move more into
    telehealth for critical areas that touches part of your
    district and the healthcare providers that work, if we are
    doing telehealth over these connections, I wouldn't want one
    route of fiber into that hospital.
        Mrs. Ellmers. Yes.
        Mr. Freddoso. If we are delivering healthcare based on
    these connections, it would be like saying I have one road in
    and out of the hospital and if it is blocked by a car wreck----
        Mrs. Ellmers. Yes.
        Mr. Freddoso [continuing]. I can't get to the hospital. If
    I have one path of fiber to a hospital and that gets cut, I
    don't want healthcare to stop in the hospital.
        Mrs. Ellmers.
        Mr. Freddoso. I don't want to healthcare to effectively
    stop. So you have got to be smart about those things.
        Mrs. Ellmers. Right. So what I am hearing you say is that
    although some may view overbuild in one instance, there may
    also be a need for additional infrastructure.
        Mr. Freddoso. Yes, exactly.
        Mrs. Ellmers. Now----
        Mr. Freddoso. Exactly. And you are familiar with the parts
    of the State--one more example, and I am sorry.
        Mrs. Ellmers. Sure.
        Mr. Freddoso. But you are familiar with the parts of the
    State and Rutherfordton and Shelby----
        Mrs. Ellmers. Yes.
        Mr. Freddoso [continuing]. That have attracted a lot of
    data centers. Facebook is not going to build a data center in
    Rutherfordton, North Carolina, unless they have three or four
    paths of fiber alternatives there. If they get one fiber cut
    and their data goes down from that data center, it costs them
    literally millions of dollars. They could build their own fiber
    and justify that based on the return on investment. So it has
    got to be a regional approach. You have got to look at what the
    economic drivers and what the education drivers are in those
    regions----
        Mrs. Ellmers. Yes.
        Mr. Freddoso [continuing]. And understand what the
    infrastructure is needed to serve those.
        Mrs. Ellmers. Yes. And you do agree that the underserved
    areas should definitely be a focus as well?
        Mr. Freddoso. Absolutely. And we had a requirement of the
    grant that we had to terminate at least one endpoint on every
    segment that we built in underserved area.
        Mrs. Ellmers. Yes.
        Mr. Freddoso. And we have done that in North Carolina
    through the implementation.
        Mrs. Ellmers. OK. Mr. Kirchhof, would you agreed with some
    of the comments that Mr. Freddoso has made in relation to your
    geographical area?
        Mr. Freddoso. Thank you, Congresswoman. Yes, I would. And I
    am sitting here thinking that is the model that I wish we could
    have used in Colorado to be quite frank because it sounds
    against working very well.
        Mrs. Ellmers. Yes. Yes. Well, thank you. And I appreciate
    that.
        Now, Mr. Freddoso, along this line of thinking, I know that
    in your testimony you point out that you are 50 miles from
    completing the 2,600 middle-mile network. Where are you now
    with subsidized funding? Are you up and running and
    sustainable?
        Mr. Freddoso. Oh, yes. We have operated the network, as you
    know, Congresswoman for 25 years----
        Mrs. Ellmers. Yes.
        Mr. Freddoso [continuing]. With the community anchor
    institutions as our key constituents on the network. We can
    operate the network, financially and fiscally, with those
    endpoints on the network and keep prices relatively flat. We
    are depending on interest in the fiber strands for commercial
    use in rural parts of the State and we are seeing strong demand
    for those.
        So, for example, wholesalers are coming to us and wanting
    to buy fiber to supply a data center. Or they are wanting to
    buy fiber to the tower in rural areas to deploy 4G LTE
    services----
        Mrs. Ellmers. Yes.
        Mr. Freddoso [continuing]. Enhancing the broadband
    offerings in those areas. So it is a large part of our
    sustainability plan to close those deals, but we feel very
    confident will be able to have a sustainable model for the
    long-term, serve those education and healthcare institutions
    that we serve.
        Mrs. Ellmers. So in your opinion--and I have got 10 seconds
    left--you will or will not need additional federal funds?
        Mr. Freddoso. We will not need additional federal funds.
        Mrs. Ellmers. OK. Thank you, sir. And I yield back the
    remainder of my time.
        Mr. Gardner. The gentlelady yields back at this time.
    Seeing no more questions, I want to thank the panel. I ask that
    the witnesses----
        Ms. DeGette. Mr. Chairman, before----
        Mr. Gardner. The gentlelady from Colorado?
        Ms. DeGette. I would ask unanimous consent to put into the
    record some more letters that I was just handed regarding this
    EAGLE-Net situation. I think they complete the record.
        Mr. Gardner. Without objection.
        [The information appears at the conclusion of the hearing]
        Ms. DeGette. Thank you.
        Mr. Gardner. And the members will have 10 days to submit
    additional items for the record. And I want to thank the
    witnesses for being here today.
        And this meeting is adjourned.
        [Whereupon, at 1:03 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                    Prepared statement of Hon. Leonard Lance

        I thank our witness for joining us today and providing
    their respective insights into the Broadband Technology
    Opportunities Program. Like many stimulus bill programs I think
    the goals of the BTOP are laudable. Particularly in today's
    information based economy we should be finding ways to ensure
    that those who live in the most rural communities have access
    to the true broadband internet connections. More broadband
    access for Americans means more opportunities for professional
    development and education.
        Unfortunately, after reviewing the information provided to
    the subcommittee in preparation for this hearing I am left with
    significant concerns about the true efficacy and efficiency of
    the use of taxpayer funds under this program. It is true that
    there are a number of success stories, instances where
    consumers who were truly ``un-served'' by any commercial
    broadband provider now have access due to this program. At the
    same time there seems to be a troubling amount of evidence of
    waste and abuse under this program.
        In particular, the numerous instances where BTOP grantees
    have overlapped existing broadband infrastructure rather than
    build out to new truly un-served areas is disturbing to me.
    Each of these instances represents waste of hundreds of
    thousands of taxpayer dollars. We have witnesses on our second
    panel today who will talk about some specific and egregious
    cases and I have read a number of press reports of others such
    as rural schools being connected to second or even third high
    speed connections that they don't need while other rural
    communities continue to rely on dial up access only.
        The funds the government uses to promote and expand
    broadband access rightfully belong to all of our constituents
    and we must always act as responsible stewards of that money.
    Allowing one commercial entity to overbuild another using
    taxpayer funds, thereby putting the incumbent provider who
    built the network with either private funds or loans, at a
    competitive disadvantage while at the same time leaving other
    consumers in the dark is not being responsible with our
    constituents money.
        I am also concerned with some of the testimony provided by
    the Commerce Department Inspector General's Office and how it
    in some ways conflicts with the testimony provided by the NTIA
    relating to how the projects that have received the BTOP funds
    are coming along. The NTIA tells us that for the most part
    these projects are moving along and meeting their markers for
    completing their projects by the end of September. At the same
    time the Inspector General's Office testimony implies that a
    considerable number of these projects are woefully behind in
    using the provided funding with only seven months left until
    the projects are meant to be completed.
        In conclusion, I will reiterate that while I find the goals
    of the BTOP to be laudable I am very concerned that the
    program, in reality, has not done the best job possible in
    accomplishing its goals while at the same time living up the
    fiduciary responsibilities of the federal government.
                                  ----------

                   Prepared statement of Hon. Bruce L. Braley

        I'm glad to see the Subcommittee tackling the issue of
    broadband expansion this early in the Congress, because there
    is an important link between broadband expansion and economic
    development. Providing access to broadband services around the
    country, and especially in rural areas, increases the strength
    of local economies and improves the quality of life for
    American families. It's good for Congress to take a look at the
    effectiveness of some of our broadband investments, and, even
    though this hearing is focused on the Recovery Act, I hope we
    don't lose sight of the broader positive impacts of our ongoing
    investments in rural broadband, and the impact on families,
    businesses and communities in rural areas.
        There are many Iowa telecom companies that have had a long
    and successful history with the USDA Rural Utilities Service.
    RUS has done a great job in my home state, under the leadership
    of our Rural Development Director Bill Menner, and there are
    thousands of Iowans who now have broadband service thanks to
    RUS programs. In fact, many of these investments in Iowa and in
    other rural states are only possible because of the public/
    private partnership between rural providers, RUS and the
    Universal Service Fund.
        For example, OmniTel Communications in Floyd County, Iowa,
    serves a number of communities, including some very rural parts
    of North Iowa. Funds from the Recovery Act allowed them to
    replace old technology in some communities, and to build fiber
    to higher cost, remote communities that were previously too far
    out for broadband. Much of this area had no broadband, no
    video, and no other advanced services. This is an example of an
    investment working, where it needs to work, and thousands of
    Iowa families, businesses and students benefiting as a result.
        Another successful RUS project was a $7 million loan for
    Interstate Communications in Truro, south of Des Moines, to
    extend fiber to exchanges in Truro, St. Charles and St. Marys.
    The network expansion has helped the I-35 School District and
    has developed a space that can be used to recruit a call
    center, and the jobs to come with it, to St. Charles. This is a
    real example of economic development thanks to these types of
    investments in rural broadband.
        All of that said, I recognize that not everywhere is a
    success story. And it's frustrating to see when loans or grants
    go where they aren't needed, or are used in ways that aren't
    targeted, or are duplicative. The focus should be on the
    customer--those families, students and businesses who are put
    at a competitive disadvantage because they don't happen to live
    in a place that has affordable access to this type of
    technology.
        About 150,000 Iowans are still unserved. As we examine
    these needs, I'd be interested to hear about lessons learned
    that can be applied in the future. I would hope we all agree on
    some of the goals: serving those areas that need broadband, and
    doing it in a way that is using taxpayer money smartly and
    effectively. Thank you to the witnesses for being here today,
    and I look forward to today's testimony. Thank you Mr.
    Chairman.
                                  ----------

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