[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


                  U.S. GOVERNMENT PRINTING OFFICE
80-019                    WASHINGTON : 2014
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

                    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.001
    
    [GRAPHIC] [TIFF OMITTED] T0019.002
    
    [GRAPHIC] [TIFF OMITTED] T0019.003
    
    [GRAPHIC] [TIFF OMITTED] T0019.004
    
    [GRAPHIC] [TIFF OMITTED] T0019.005
    
    [GRAPHIC] [TIFF OMITTED] T0019.006
    
    [GRAPHIC] [TIFF OMITTED] T0019.007
    
    [GRAPHIC] [TIFF OMITTED] T0019.008
    
    [GRAPHIC] [TIFF OMITTED] T0019.009
    
    [GRAPHIC] [TIFF OMITTED] T0019.010
    
    [GRAPHIC] [TIFF OMITTED] T0019.011
    
    [GRAPHIC] [TIFF OMITTED] T0019.012
    
    [GRAPHIC] [TIFF OMITTED] T0019.013
    
    [GRAPHIC] [TIFF OMITTED] T0019.014
    
    [GRAPHIC] [TIFF OMITTED] T0019.015
    
    [GRAPHIC] [TIFF OMITTED] T0019.016
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.017
    
    [GRAPHIC] [TIFF OMITTED] T0019.018
    
    [GRAPHIC] [TIFF OMITTED] T0019.019
    
    [GRAPHIC] [TIFF OMITTED] T0019.020
    
    [GRAPHIC] [TIFF OMITTED] T0019.021
    
    [GRAPHIC] [TIFF OMITTED] T0019.022
    
    [GRAPHIC] [TIFF OMITTED] T0019.023
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.024
    
    [GRAPHIC] [TIFF OMITTED] T0019.025
    
    [GRAPHIC] [TIFF OMITTED] T0019.026
    
    [GRAPHIC] [TIFF OMITTED] T0019.027
    
    [GRAPHIC] [TIFF OMITTED] T0019.028
    
    [GRAPHIC] [TIFF OMITTED] T0019.029
    
    [GRAPHIC] [TIFF OMITTED] T0019.030
    
    [GRAPHIC] [TIFF OMITTED] T0019.031
    
    [GRAPHIC] [TIFF OMITTED] T0019.032
    
    [GRAPHIC] [TIFF OMITTED] T0019.033
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.034
    
    [GRAPHIC] [TIFF OMITTED] T0019.035
    
    [GRAPHIC] [TIFF OMITTED] T0019.036
    
    [GRAPHIC] [TIFF OMITTED] T0019.037
    
    [GRAPHIC] [TIFF OMITTED] T0019.038
    
    [GRAPHIC] [TIFF OMITTED] T0019.039
    
    [GRAPHIC] [TIFF OMITTED] T0019.040
    
    [GRAPHIC] [TIFF OMITTED] T0019.041
    
    [GRAPHIC] [TIFF OMITTED] T0019.042
    
    [GRAPHIC] [TIFF OMITTED] T0019.043
    
    [GRAPHIC] [TIFF OMITTED] T0019.044
    
    [GRAPHIC] [TIFF OMITTED] T0019.045
    
    [GRAPHIC] [TIFF OMITTED] T0019.046
    
    [GRAPHIC] [TIFF OMITTED] T0019.047
    
    [GRAPHIC] [TIFF OMITTED] T0019.048
    
    [GRAPHIC] [TIFF OMITTED] T0019.049
    
    [GRAPHIC] [TIFF OMITTED] T0019.050
    
    [GRAPHIC] [TIFF OMITTED] T0019.051
    
    [GRAPHIC] [TIFF OMITTED] T0019.052
    
    [GRAPHIC] [TIFF OMITTED] T0019.053
    
    [GRAPHIC] [TIFF OMITTED] T0019.054
    
    [GRAPHIC] [TIFF OMITTED] T0019.055
    
    [GRAPHIC] [TIFF OMITTED] T0019.056
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.057
    
    [GRAPHIC] [TIFF OMITTED] T0019.058
    
    [GRAPHIC] [TIFF OMITTED] T0019.059
    
    [GRAPHIC] [TIFF OMITTED] T0019.060
    
    [GRAPHIC] [TIFF OMITTED] T0019.061
    
    [GRAPHIC] [TIFF OMITTED] T0019.062
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.063
    
    [GRAPHIC] [TIFF OMITTED] T0019.064
    
    [GRAPHIC] [TIFF OMITTED] T0019.065
    
    [GRAPHIC] [TIFF OMITTED] T0019.066
    
    [GRAPHIC] [TIFF OMITTED] T0019.067
    
    [GRAPHIC] [TIFF OMITTED] T0019.068
    
    [GRAPHIC] [TIFF OMITTED] T0019.069
    
    [GRAPHIC] [TIFF OMITTED] T0019.070
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T0019.071
    
    [GRAPHIC] [TIFF OMITTED] T0019.072
    
    [GRAPHIC] [TIFF OMITTED] T0019.073
    
    [GRAPHIC] [TIFF OMITTED] T0019.074
    
    [GRAPHIC] [TIFF OMITTED] T0019.075
    
    [GRAPHIC] [TIFF OMITTED] T0019.076
    
    [GRAPHIC] [TIFF OMITTED] T0019.077
    
    [GRAPHIC] [TIFF OMITTED] T0019.078
    
    [GRAPHIC] [TIFF OMITTED] T0019.079
    
    [GRAPHIC] [TIFF OMITTED] T0019.080
    
    [GRAPHIC] [TIFF OMITTED] T0019.081
    
    [GRAPHIC] [TIFF OMITTED] T0019.082
    
    [GRAPHIC] [TIFF OMITTED] T0019.083
    
    [GRAPHIC] [TIFF OMITTED] T0019.084
    
    [GRAPHIC] [TIFF OMITTED] T0019.085
    
    [GRAPHIC] [TIFF OMITTED] T0019.086
    
    [GRAPHIC] [TIFF OMITTED] T0019.087
    
    [GRAPHIC] [TIFF OMITTED] T0019.088
    
    [GRAPHIC] [TIFF OMITTED] T0019.089
    
    [GRAPHIC] [TIFF OMITTED] T0019.090
    
    [GRAPHIC] [TIFF OMITTED] T0019.091
    
    [GRAPHIC] [TIFF OMITTED] T0019.092
    
    [GRAPHIC] [TIFF OMITTED] T0019.093
    
    [GRAPHIC] [TIFF OMITTED] T0019.094
    
    [GRAPHIC] [TIFF OMITTED] T0019.095
    
    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.
                              ----------                              

[GRAPHIC] [TIFF OMITTED] T0019.096

[GRAPHIC] [TIFF OMITTED] T0019.097

[GRAPHIC] [TIFF OMITTED] T0019.098

[GRAPHIC] [TIFF OMITTED] T0019.099

[GRAPHIC] [TIFF OMITTED] T0019.100

[GRAPHIC] [TIFF OMITTED] T0019.101

[GRAPHIC] [TIFF OMITTED] T0019.102

[GRAPHIC] [TIFF OMITTED] T0019.103

[GRAPHIC] [TIFF OMITTED] T0019.104

[GRAPHIC] [TIFF OMITTED] T0019.105

[GRAPHIC] [TIFF OMITTED] T0019.106

[GRAPHIC] [TIFF OMITTED] T0019.107

[GRAPHIC] [TIFF OMITTED] T0019.108

[GRAPHIC] [TIFF OMITTED] T0019.109

[GRAPHIC] [TIFF OMITTED] T0019.110

[GRAPHIC] [TIFF OMITTED] T0019.111

[GRAPHIC] [TIFF OMITTED] T0019.112

[GRAPHIC] [TIFF OMITTED] T0019.113

[GRAPHIC] [TIFF OMITTED] T0019.114

[GRAPHIC] [TIFF OMITTED] T0019.115

[GRAPHIC] [TIFF OMITTED] T0019.116

[GRAPHIC] [TIFF OMITTED] T0019.117

[GRAPHIC] [TIFF OMITTED] T0019.118

[GRAPHIC] [TIFF OMITTED] T0019.119

[GRAPHIC] [TIFF OMITTED] T0019.120

[GRAPHIC] [TIFF OMITTED] T0019.121

[GRAPHIC] [TIFF OMITTED] T0019.122

[GRAPHIC] [TIFF OMITTED] T0019.123

[GRAPHIC] [TIFF OMITTED] T0019.124

[GRAPHIC] [TIFF OMITTED] T0019.125

[GRAPHIC] [TIFF OMITTED] T0019.126

[GRAPHIC] [TIFF OMITTED] T0019.127

[GRAPHIC] [TIFF OMITTED] T0019.128

[GRAPHIC] [TIFF OMITTED] T0019.129

[GRAPHIC] [TIFF OMITTED] T0019.130

[GRAPHIC] [TIFF OMITTED] T0019.131

[GRAPHIC] [TIFF OMITTED] T0019.132

[GRAPHIC] [TIFF OMITTED] T0019.133

[GRAPHIC] [TIFF OMITTED] T0019.134

[GRAPHIC] [TIFF OMITTED] T0019.135

[GRAPHIC] [TIFF OMITTED] T0019.136

[GRAPHIC] [TIFF OMITTED] T0019.137

[GRAPHIC] [TIFF OMITTED] T0019.138

[GRAPHIC] [TIFF OMITTED] T0019.139

[GRAPHIC] [TIFF OMITTED] T0019.140

[GRAPHIC] [TIFF OMITTED] T0019.141

[GRAPHIC] [TIFF OMITTED] T0019.142

[GRAPHIC] [TIFF OMITTED] T0019.143

[GRAPHIC] [TIFF OMITTED] T0019.144

[GRAPHIC] [TIFF OMITTED] T0019.145

[GRAPHIC] [TIFF OMITTED] T0019.146

[GRAPHIC] [TIFF OMITTED] T0019.147

[GRAPHIC] [TIFF OMITTED] T0019.148

[GRAPHIC] [TIFF OMITTED] T0019.149

[GRAPHIC] [TIFF OMITTED] T0019.150

[GRAPHIC] [TIFF OMITTED] T0019.151

[GRAPHIC] [TIFF OMITTED] T0019.152

[GRAPHIC] [TIFF OMITTED] T0019.153

[GRAPHIC] [TIFF OMITTED] T0019.154

[GRAPHIC] [TIFF OMITTED] T0019.155

[GRAPHIC] [TIFF OMITTED] T0019.156

[GRAPHIC] [TIFF OMITTED] T0019.157

[GRAPHIC] [TIFF OMITTED] T0019.158

[GRAPHIC] [TIFF OMITTED] T0019.159

[GRAPHIC] [TIFF OMITTED] T0019.160

[GRAPHIC] [TIFF OMITTED] T0019.161

[GRAPHIC] [TIFF OMITTED] T0019.162

[GRAPHIC] [TIFF OMITTED] T0019.163

[GRAPHIC] [TIFF OMITTED] T0019.164

[GRAPHIC] [TIFF OMITTED] T0019.165

[GRAPHIC] [TIFF OMITTED] T0019.166

[GRAPHIC] [TIFF OMITTED] T0019.167

[GRAPHIC] [TIFF OMITTED] T0019.168

[GRAPHIC] [TIFF OMITTED] T0019.169

[GRAPHIC] [TIFF OMITTED] T0019.170

[GRAPHIC] [TIFF OMITTED] T0019.171

[GRAPHIC] [TIFF OMITTED] T0019.172

[GRAPHIC] [TIFF OMITTED] T0019.173

[GRAPHIC] [TIFF OMITTED] T0019.174

[GRAPHIC] [TIFF OMITTED] T0019.175

[GRAPHIC] [TIFF OMITTED] T0019.176

[GRAPHIC] [TIFF OMITTED] T0019.177

[GRAPHIC] [TIFF OMITTED] T0019.178

[GRAPHIC] [TIFF OMITTED] T0019.179

[GRAPHIC] [TIFF OMITTED] T0019.180

[GRAPHIC] [TIFF OMITTED] T0019.181

[GRAPHIC] [TIFF OMITTED] T0019.182

[GRAPHIC] [TIFF OMITTED] T0019.183

[GRAPHIC] [TIFF OMITTED] T0019.184

[GRAPHIC] [TIFF OMITTED] T0019.185

[GRAPHIC] [TIFF OMITTED] T0019.186

[GRAPHIC] [TIFF OMITTED] T0019.187


                                 
