[Senate Hearing 113-265]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-265
 
                    STATE OF WIRELINE COMMUNICATIONS 

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

                                HEARING

                               before the

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 25, 2013

                               __________

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

                               ----------

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
MARTIN HEINRICH, New Mexico          RON JOHNSON, Wisconsin
EDWARD MARKEY, Massachusetts         JEFF CHIESA, New Jersey
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

              SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, 
                            AND THE INTERNET

MARK PRYOR, Arkansas, Chairman       ROGER F. WICKER, Mississippi, 
BARBARA BOXER, California                Ranking Member
BILL NELSON, Florida                 ROY BLUNT, Missouri
MARIA CANTWELL, Washington           MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire,
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
                                     RON JOHNSON, Wisconsin



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 25, 2013....................................     1
Statement of Senator Pryor.......................................     1
Statement of Senator Wicker......................................     2
Statement of Senator Thune.......................................     4
Statement of Senator Klobuchar...................................     5
    Prepared statement...........................................     5
Statement of Senator Fischer.....................................     6
Statement of Senator Blumenthal..................................    58
Statement of Senator Markey......................................    61

                               Witnesses

Jeff Gardner, President and Chief Executive Officer, Windstream 
  Corporation on behalf of the United States Telecom Association.     7
    Prepared statement...........................................     8
Shirley Bloomfield, Chief Executive Officer, NTCA--The Rural 
  Broadband Association..........................................    12
    Prepared statement...........................................    14
Jerry James, CEO, COMPTEL........................................    20
    Prepared statement...........................................    21
Larry Downes, Internet Industry Analyst and Author...............    26
    Prepared statement...........................................    28
Gigi B. Sohn, President and CEO, Public Knowledge................    38
    Prepared statement...........................................    40

                                Appendix

Hon. John D. (Jay) Rockefeller IV, U.S. Senator from West 
  Virginia, prepared statement...................................    67
Response to written questions submitted by Hon. Mark Warner to:
    Jeff Gardner.................................................    68
Response to written questions submitted to Shirley Bloomfield by:
    Hon. Mark Warner.............................................    77
    Hon. Mark Begich.............................................    83
Response to written questions submitted by Hon. Mark Warner to:
    Jerry James..................................................    85
    Larry Downes.................................................    91
    Gigi B. Sohn.................................................   103


                    STATE OF WIRELINE COMMUNICATIONS

                              ----------                              


                        THURSDAY, JULY 25, 2013

                               U.S. Senate,
Subcommittee on Communications, Technology, and the 
                                          Internet,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:25 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
Chairman of the Subcommittee, presiding.

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

    Senator Pryor. I will go ahead and call our meeting to 
order here.
    And let me first apologize. I was in an appropriations 
meeting and they needed me for a quorum to get some bills 
moving, and we are trying to get our appropriations bills 
moving back on regular order. So I apologize for the delay.
    Let me just say good morning and welcome to the 
Subcommittee. This is the ``State of Wireline Communications'' 
hearing. I want to thank all of our witnesses for being here 
and I want to thank everybody for being here and participating 
in this to make this a reality.
    This is the fourth of the Subcommittee's so-called ``state 
of'' hearings. We have had a series of these to learn about 
various aspects of telecommunications. They have been well 
attended by Senators. I know that today we have lots of things 
going on, including a lot of business on the floor and other 
committees. So we will see some Senators coming in and out.
    I certainly want to welcome Senator Wicker and his great 
work on this subcommittee and his great work in the Senate.
    The public telephone network remains the backbone of our 
nation's communications infrastructure. Over the years, there 
have been innumerable benefits to American individuals and also 
businesses with that network, and we understand that. And if 
you look at our economy, you just think about the fundamental 
changes that have happened because of telephone service and 
wireline communications. There are just almost too many to 
enumerate.
    But in recent decades, we have also gone from a world of 
regulated monopolies to a vibrant market that has incumbents, 
competitors, and over-the-top providers. And if you look back 
20 years--the 1996 Telecom Act--the amount of innovation, 
creation, investment, and advancement in our ability to connect 
is just truly astounding. It has been a huge American success 
story, and it is something that as a nation we all should be 
very proud of.
    And there is one fundamental ideal that has not gone away 
and that is we want all Americans to be able to have access to 
this network. We want that when a call is made, we want it to 
go to the intended person. We want it to be completed and that 
the network is also reliable for individuals and businesses. 
And that is also true in time of emergency. We do not want 
these things to stop and not work when sometimes people need it 
the most.
    But nonetheless, I know that Senator Klobuchar and others 
have talked about the concern that we have about calls not 
being completed. That is a real concern especially in rural 
America. We also see this continuing problem of unauthorized 
charges appearing on people's phone bills. I think some of our 
witnesses will talk about that.
    Businesses struggle. Some in the industry will struggle 
because of the changing environment where there is kind of an 
uneven playing field when it comes to the regulatory 
environment, and sometimes that is not real clear and it is 
hard to navigate that. And we appreciate that. We would like to 
hear some discussion of that as well today.
    And also, one of the big changes that is going on right now 
is the transition from circuit-switched to Internet Protocol 
technologies, and this offers a great potential benefit to 
everyone. But it also challenges us to look with fresh eyes at 
the existing regulations we have and to maybe reexamine where 
we are.
    But nonetheless, this bedrock principle that we have talked 
about before, that everyone should benefit from our national 
communications network--that still remains. And we do not want 
to leave parts of America behind, and I think for some of us, 
the things we focus on in rural America--we do not want to have 
the tale of two Americas here where you have the urban and 
suburban and they have the latest and the greatest and the most 
cutting-edge, and then rural America is really decades behind. 
And we need to make sure we do not do that.
    Today's panel is made up by a group of very qualified 
individuals. I appreciate all the panelists for being here. 
They represent a broad spectrum, a broad cross section of the 
industry, including the incumbent, competitive, and rural 
carriers, as well as public interest representatives, and then 
industry analysts. So again, we appreciate your range of 
perspectives. We appreciate your valuable observations, and we 
all look forward to your testimony.
    And with that, I will turn it over to Senator Wicker.

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

    Senator Wicker. Thank you, Chairman Pryor, and thank you 
for holding this hearing. It is the fourth of the hearings on 
the state of communications.
    And let me say at the outset how comforting it is to have 
as a Chairman someone who knows how to properly pronounce the 
word ``wireline.''
    [Laughter.]
    Senator Wicker. For the Senator from Minnesota, it may take 
more effort to pronounce those diphthongs; but not for Roger 
Wicker and Mark Pryor, my neighbor from across the river.
    The wireline sector is currently in a state of flux. 
Another way of saying it would be we are in a state of 
transition. Industry and consumers have been migrating away 
from traditional voice telephony, and in quick fashion. 
Consumers are frequently opting to cut the cord and move to 
mobile wireless and voice over IP services as their primary 
home phone lines. We are making an exciting conversion to a 
broadband world, a world that has seen rapidly growing 
innovation, competition, and options for the American consumer. 
These options will not only improve the day-to-day lives of our 
constituents but, most importantly, provide the tools that will 
stimulate a new broadband economy.
    With this transition, there are a number of issues that we 
as policymakers must examine. Priorities conceived in an era 
dominated by copper line infrastructure are ripe for 
reconsideration and modernization in the IP era. The 
transformation of the Federal Universal Service Fund from a 
program dedicated to promoting traditional voice communication 
over the publicly switched telecommunications network to one 
focused on broadband delivery to all corners of our nation is 
of vital importance to rural states like the ones represented 
on this panel today.
    We discussed many of these issues in our first subcommittee 
hearing this year, Mr. Chairman. It focused on the state of 
rural communications. At that hearing what became clear was 
that while the FCC successfully put the USF on a path to 
modernization, there were still a number of holes that needed 
to be filled to ensure that the program continues on a 
successful path. Providers should be encouraged, not 
discouraged, to build out and deploy broadband to our 
constituents.
    Moving forward, we need to ensure that the USF operates in 
a technology-neutral fashion. That includes all providers 
committed to serving rural America. I look forward to hearing 
our witnesses' testimony on this topic.
    Another transition that is receiving a growing amount of 
attention is the IP, or Internet Protocol, transition. As 
highlighted in the FCC's National Broadband Plan, the IP 
transition is expected to bring the full benefits of IP 
broadband networks to our constituents. This network 
modernization will not only provide far more efficient voice 
and data services than we have today, but also dramatically 
upgrade educational services, next generation 911, and health 
IT systems. We need to keep our eye on the ball. There is 
consumer demand for high speed broadband service applications 
now, and it is in their best interest that we make progress. 
Presupposing that regulation is needed on a platform that has 
flourished in the absence of regulation should not be our 
starting point. That being said, I recognize this is a 
complicated issue with many moving parts.
    I see that we are now joined by Ranking Member Thune. He 
and I agree this is an important enough issue that we have 
directed our respective staffs to engage stakeholders and 
experts analyzing all aspects of the transition and that we 
need to determine whether Congress may have a role in fostering 
the modernization of our nation's communications network 
infrastructure.
    So thank you, Mr. Chairman, for holding this important and 
very timely hearing, and thank you to our witnesses, who I 
greeted before the hearing began. I look forward to hearing 
your views. Thank you, sir.
    Senator Pryor. Thank you.
    And we have been joined by Senator Thune, the full 
committee's Ranking Member. Senator Thune?

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

    Senator Thune. Well, thank you, Chairman Pryor and Senator 
Wicker. And I want to thank our witnesses for being with us 
this morning.
    And I want to say, Mr. Chairman, to you and Senator Wicker 
that I commend you for continuing these ``state of'' hearings 
to inform our committee about our nation's communications 
infrastructure and about the services, the opportunities, and 
the challenges facing our constituents as we move deeper into 
the 21st century.
    Rural communications are a priority of mine, and I am 
continually amazed at the capabilities that are being delivered 
in South Dakota. My home state is one of the national leaders 
in fiber build-out, thanks to companies like CenturyLink, 
Midcontinent Cable, and SDN Communications with its 17 member-
owners. Of course, connectivity is not just about physical 
wires. The satellite services and new 4G mobile networks being 
deployed today offer even more economic and social opportunity 
for my fellow South Dakotans and consumers across the country.
    Much of this deployment is the result of our commitment to 
universal service. As we move forward, we should not allow 
existing networks to wither or future services to go unoffered 
because of unpredictable or inadequate universal service 
support. The FCC is directed by law to provide predictable and 
sufficient mechanisms to preserve and advance universal 
service, and it needs to abide by that directive.
    The state of wireline communications today is clearly one 
of transition. The older copper wire networks of the 20th 
century are being replaced by fiber optics. Circuit-switched 
telephony is migrating to packet-switched IP technology. 
American households are no longer faced with phone service from 
a government-protected monopoly. In fact, less than one-third 
of households today purchase voice service from their local 
telephone companies, and nearly 40 percent have cut the cord, 
forgoing wireline voice service altogether.
    Furthermore, we do not just have competition among multiple 
wired and wireless networks today but also new alternatives to 
real-time voice communication, through texts, tweets, chats, 
and social media. These alternatives are IP-enabled and 
delivered over broadband, and they are largely unregulated. But 
as consumers demonstrate a preference for less-regulated, 
competitive alternatives to traditional local phone service, 
our laws continue to presume a monopoly exists for local voice 
communications.
    As mentioned by Senator Wicker, we have tasked our staffs 
with engaging stakeholders and experts to both stay abreast of 
the ongoing IP transition and to look for ways where Congress 
may be helpful in the modernization of our nation's 
communications networks.
    We should not approach the IP transition with anxiety and 
fear but with optimism and vigilance. Being distracted by what 
might be lost will be less useful than considering what has and 
will be gained. This transition brings forward many complex and 
deeply entrenched issues. We must, therefore, identify the 
challenges that an all-IP world presents and then determine how 
ingenuity and innovation and perhaps regulation will be able to 
overcome those challenges.
    We should acknowledge the growing choices in today's market 
and pivot from the century-old default assumption that our 
nation's communications system is uncompetitive. In laying out 
a strategic plan for the FCC in 1999, former FCC Chairman 
William Kennard proclaimed--and I quote--``We must resist 
imposing legacy regulations on new technologies. Our goal 
should be to deregulate the old instead of regulating the 
new.'' I could not have said it better myself.
    Mr. Chairman, we should focus on empowering individual 
consumers, entrepreneurs, and innovators. We should target 
limited Federal support to, and encourage investment in, areas 
that remain underserved because of structural economic reasons. 
We should understand the promise of what an all-IP world holds 
for better public safety, better education, better health care, 
and a more vibrant civic society than we know today.
    This may require removing obstacles which may include 
repealing or amending outdated laws, ending inefficient 
regulations, or even nudging reluctant incumbent business 
interests forward. American consumers are driving the broadband 
economy. We, as policymakers, should take their cue and ensure 
that they--not the government--manage the marketplace.
    I look forward to a bright communications future for our 
nation and I appreciate our witnesses' thoughts today about how 
we can best pursue it.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you. I know we are going to move to 
our panel in one moment. Would you like to say a word?

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

    Senator Klobuchar. Oh, thank you, Senator Pryor. I will put 
my statement on the record.
    [The prepared statement of Senator Klobuchar follows:]

 Prepared Statement of Hon. Amy Klobuchar, U.S. Senator from Minnesota
    Thank you, Chairman Pryor for holding this hearing to talk about 
the state of our wireline communications.
    While we continue to see a trend of more and more Americans going 
mobile and cutting the cord to their landline phones in favor of 
wireless options, it is important to note that the wireline networks 
provide the necessary and vital backbone for those mobile services. 
Additionally, businesses small and large continue to rely on wireline 
communications every day to connect with their customers around the 
world.
    I continue to be encouraged by the innovations in the 
communications industry. But we do need to promote consistency and 
clarity in the regulations that govern the industry. In turn, companies 
need to also provide their customers with clarity and consistency--this 
means they need to protect consumers from cramming, provide accurate 
data about their services, and complete their calls to rural areas.
    We need to make sure that wireline services are billed fairly and 
transparently for consumers, that connections are reliable, and that 
rural areas have the same quality of service as urban areas. Call 
completion issues have continued to be an issue in my state and in 
other rural areas which is why I have introduced a resolution with 
Senator Fischer urging the FCC to act expeditiously on call completion 
problems to rural America through both rulemaking and enforcement 
actions. I am pleased that the Committee will be considering this 
resolution on next week's markup.
    Communications services are vital to the economic future of this 
country and to Minnesotans, and as the network continues to evolve we 
need to continue to make sure that consumers are protected.

    Senator Klobuchar. But I did want to say correctly 
``wireline.''
    [Laughter.]
    Senator Klobuchar. Senator Thune, Senator Fischer, you 
should know--especially Senator Fischer--that Senator Wicker 
was saying that only Southerners can pronounce that correctly. 
I would like to have reflected on the record that it has been 
found that Midwestern women's voices are the most neutral and 
soothing.
    [Laughter.]
    Senator Klobuchar. And that is why they are often picked to 
be television anchors. And so that is the last thing I will say 
on this matter.
    But we are looking forward----
    Senator Wicker. And alluring.
    [Laughter.]
    Senator Klobuchar. Yes.
    Senator Fischer and I have a resolution on call completion 
that I understand is going to be on the agenda next week. And 
so I am interested in hearing from you on that as well.
    Thank you.
    Senator Pryor. Thank you.
    Senator Fischer, would you like to say a word?

                STATEMENT OF HON. DEB FISCHER, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Fischer. Thank you, Mr. Chairman. I can only agree 
with my mentor here in the Senate, Senator Klobuchar. I look 
forward to the panel and having a chance to have a good 
conversation and back and forth with you on these issues.
    Thank you so much and thank you, Mr. Chairman and Ranking 
Member Wicker, for having this hearing.
    Senator Pryor. Thank you.
    Let me go ahead and introduce our entire panel. In order to 
save some time, I will just do a very brief introduction. They 
all come with very strong credentials. We will make their 
backgrounds part of the official record. And I would ask each 
one to do 5 minutes, and we will make your full written text a 
part of the record as well.
    But, first, let me start with Jeff Gardner. He is Chairman 
of the Board of Directors of USTelecom and President and CEO of 
Windstream Corporation. Then we have Shirley Bloomfield, CEO of 
NTCA--The Rural Broadband Association. We have Jerry James, CEO 
of COMPTEL--The Competitive Communications Association; then 
Larry Downes, Internet industry analyst and author; and Gigi 
Sohn, President and Co-Founder of Public Knowledge. So, again, 
thank you all.
    I recognize each of you for 5 minutes. Mr. Gardner, will 
you lead off? Thank you.

         STATEMENT OF JEFF GARDNER, PRESIDENT AND CHIEF

          EXECUTIVE OFFICER, WINDSTREAM CORPORATION ON

        BEHALF OF THE UNITED STATES TELECOM ASSOCIATION

    Mr. Gardner. I am Jeff Gardner, President and CEO of 
Windstream, a major rural ILEC and also one of the nation's top 
competitive carriers. I am testifying in my capacity as 
Chairman of the Board at USTelecom.
    I have three points about the state of wireline 
communications.
    First, wireline is the vital infrastructure for all 
communications.
    Second, rural networks are at a critical point, with 
significant uncertainty at the FCC and in the states.
    Third, we must create a pro-consumer, pro-competition 
regulatory framework for the IP era.
    Through all the changes in my 30-year career in the 
wireless and wireline industries, the wireline network remains 
the linchpin. Broadband, WiFi, LTE, 4G, Ethernet, and so on all 
rely on robust wired networks, and each day the demand for 
those networks grows. Last year, wireline networks handled 98 
percent of total U.S. data traffic. USTelecom's members are 
investing billions each year to keep pace with the phenomenal 
growth in data consumption.
    Wireline technology is essential to providing wireless 
services, whether it is connecting cell towers to the rest of 
the network or offloading wireless traffic onto WiFi at home, 
the coffee shop, or an airport.
    Rural policy and networks are at a critical point. 
Universal Service reform and intercarrier comp cutbacks are 
generating serious financial pressure and uncertainty. USF 
reform has become shorthand for a top-to-bottom rewrite of 
rural programs, including Universal Service, as well as 
intercarrier compensation. The reductions in revenue are 
significant and austere. This impedes our ability to serve 
rural customers.
    To recap FCC actions since 2011, intercarrier compensation 
has been slashed by billions of dollars while Universal Service 
remains level funded. Meanwhile, the FCC expects more from us, 
namely preserving full voice coverage while substantially 
expanding rural broadband.
    Intercarrier compensation cuts are well underway. 
Meanwhile, USF reforms that promise to bring added support to 
larger price cap carriers remain in development.
    On phase one of the Connect America Fund, we are pleased by 
the FCC's recent decision to invest $485 million in rural 
broadband. We thank you, Mr. Chairman, and others who were 
engaged in this.
    Phase two, which is the long-term program, is still on the 
drawing board.
    Uncertainty also exists for smaller rate-of-return 
carriers. There are concerns that the reform order's quantile 
regression analysis is not performing as intended. USTelecom 
believes the Commission should expeditiously examine and 
understand the real-world effects on rate-of-return companies.
    Finally, it is time for a fresh look at the longstanding 
regulatory structure for legacy telephone companies. The 
biggest mismatch between regulatory approach and market 
realities is the retail residential market. ILEC's are in a dog 
fight for residential voice customers. Legacy regulations are 
unfairly inflating costs for providers and limiting flexibility 
for consumers.
    USTelecom recently petitioned the FCC for regulatory 
forbearance, seeking the elimination of outdated rules and 
reporting requirements, some dating back to the telegraph era. 
In May, the FCC agreed to drop certain requirements, but many 
other unnecessary regulations remain.
    A related issue is the ongoing shift to IP-based services. 
All companies are deploying IP in their networks. There is an 
important and timely dialogue underway at the FCC, but the IP 
transition is in process. For each provider, the transition 
will unfold in different ways at different times.
    The association that I lead is comprised of companies 
offering a variety of services, utilizing copper, fiber, coax, 
and wireless platforms in widely diverse business environments. 
There is no one-size-fits-all approach when it comes to issues 
such as interconnection, competitive access, transport, 
privacy, and public safety. It is critical that reforms be 
judicious and grounded in facts. Where the competitive dynamics 
are not fully understood, we will need to gather data.
    In closing, the state of wireline is robust and dynamic. 
USTelecom member companies are investing in the future, but 
will require your attention and oversight to foster a vibrant, 
competitive, and innovative communications market that serves 
the public interest.
    Thank you.
    [The prepared statement of Mr. Gardner follows:]

   Prepared Statement of Jeff Gardner, President and Chief Executive 
Officer, Windstream Corporation on behalf of the United States Telecom 
                              Association
    Chairman Pryor, Ranking Member Wicker, members of the Subcommittee: 
Thank you for the invitation to testify today on the state of wired 
communications.
    I am Jeff Gardner, President and CEO of Windstream, a FORTUNE 500 
telecom provider with an innovative hybrid business model. Windstream 
is a major rural ILEC and one of the Nation's top competitive carriers 
as well. My testimony today is in my capacity as Chairman of the Board 
of Directors of the United States Telecom Association (USTelecom).
    USTelecom is the Nation's oldest and largest association for owners 
of wired communications infrastructure--first, telephone companies and, 
today, broadband providers. The association represents some of the 
largest companies in the U.S., as well as some of the smallest 
cooperatives and family-owned telecom providers in rural America. We 
use a variety of technologies and platforms to provide voice, video, 
and data to residential customers, small businesses, large 
corporations, and governments at all levels.
    This is a dynamic time for wired communications. Technology and 
business models are transforming rapidly. I would like to make three 
points, in particular, about where this industry stands and what lies 
ahead:

  (1)  Wireline technologies comprise the most robust, secure, and 
        relied upon communications infrastructure in the Nation. Our 
        members provide service to wireline end-user customers of all 
        sizes, and also supply the veins and arteries of wireless 
        communications;

  (2)  The FCC is in the process of dramatically reshaping the 
        financial underpinnings of universal rural networks and while 
        this transition must succeed, many details remain unresolved;

  (3)  Communications technology is advancing at a rapid pace. This 
        puts pressure on the regulatory structure to keep up. It is 
        essential that we work together to update rules to a pro-
        consumer, pro-competition framework for the information age.
The wireline network is the linchpin of the information age
    I started my career in 1986 in the wireless industry and have 
extensive experience in both wireless and wireline. I have witnessed 
dramatic changes in wired telecommunications. Wires are less visible to 
the consumer than they were 30 years ago, but in many ways they are 
even more important. As a recent filing by the Department of Defense 
noted, the wireline industry provides vital communications links for 
military installations, the Nation's air traffic control system, and 
storefront offices of the Social Security Administration.
    Broadband, Wi-Fi, LTE, 4G, Ethernet, and so on all rely on robust 
wired networks, and each day the demand for those networks grows. Last 
year, wireline networks handled nearly 99 percent of U.S. video traffic 
and 98.4 percent of total U.S. data traffic. The share of traffic 
handled on mobile networks is increasing rapidly, but will only 
represent about 5 percent of overall traffic in five years.
    USTelecom's members are leading the way and investing billions each 
year to advance this technological revolution. The wireline telecom 
sector has invested $645 billion over the past decade to transform our 
industry from one focused primarily on voice services to one leading 
the way on data services. Every year is a race to keep pace with 
astounding trends in data consumption--over the past 15 years, total 
data traffic has grown at a compound annual rate of 81 percent.
    We also are essential partners in the wireless revolution, 
connecting cell towers to the rest of the network--most often with 
robust fiber optic cable--as well as offering Internet backbone and 
middle mile connections. In addition, for all wireless networks and 
technologies, one of the most important traffic management tools is 
offloading traffic onto landline networks as quickly as possible. 
Often, this means handing off traffic to Wi-Fi networks supported by 
wireline providers. One recent analysis found that Wi-Fi already 
handles more than two-thirds of the data for LTE subscribers and that 
its share is expanding. When consumers use tablets and smart phones at 
home, at a hotel, or in a shop, chances are they are connecting through 
a wired Wi-Fi connection.
    Some reporters and analysts have speculated about the extinction of 
wireline companies. But as Mark Twain might have said, ``rumors of our 
death have been greatly exaggerated.'' In fact, for Windstream, our 
wireline operations are growing, not contracting. Our employee count in 
Arkansas has grown 17 percent since 2010, and the company entered the 
FORTUNE 500 list for the first time this year. As a whole, the wireline 
industry has been investing on a massive scale to keep pace with 
changes in technology and consumer demand. For several years in a row, 
even through the toughest recessionary times in generations, our 
industry has invested more than $65 billion annually in broadband and 
other communications infrastructure. Wireline remains a major employer 
of high-skill workers. Excluding cable, the wireline industry employs 
about 400,000 American workers and pays wages approximately 45 percent 
above the national average.
Future investment in rural broadband networks is at critical point
    In rural America, as in the rest of the country, wired networks 
remain essential to all communications--arguably more essential than 
ever. When you're speeding along a rural interstate, it takes more than 
air and a smartphone to make a call or send an e-mail. Your device 
links to a tower or antenna that is tied immediately into a wired 
network--maybe the same overhead cable strung down the side of your 
highway. And, of course, many rural consumers live far from the 
Interstate highways, in places where wireless service is not so 
prevalent or reliable. The wired network--increasingly via broadband--
remains the tether for the Nation's rural citizens to family, friends, 
and business interests around the state, country and world.
    In short, wired networks remain essential infrastructure for 
ensuring that communication services for rural consumers are comparable 
to those in urban areas in quality and affordability--words that are 
not mere slogans but rather statutory touchstones and directives to the 
FCC. Thus, you can appreciate the stakes around universal service and 
intercarrier compensation reform.
    The inherent and long-standing challenge in rural America has been 
to deploy, operate, and maintain expensive assets in areas with low 
population density. As a general principle, network costs are lower per 
subscriber in more densely populated areas but higher in rural areas, 
while total revenue potential decreases with lower density. That's why 
we have universal service programs and intercarrier compensation 
systems.
    ``USF/ICC reform'' has become shorthand for a top-to-bottom 
overhaul of rural communications programs, starting with the Universal 
Service Fund itself, and also including the Federal and state 
components of intercarrier compensation, as well as state USF programs. 
The FCC's reform order in 2011 mandated specific and sizable reductions 
in intercarrier compensation and proposed a fundamental overhaul of 
universal service for high-cost areas. Nobody has attempted to score 
these changes in terms of their overall dollar impact, but at a high-
level the math is simple and challenging. On one side of the ledger, 
intercarrier compensation has been slashed by billions of dollars, 
while Federal universal service funding remains at roughly the same 
level as before. On the other side of the ledger, the FCC's goals now 
are to sustain ubiquitous voice service while also, simultaneously, 
substantially increasing broadband access in rural America.
    We understand the need for reform and helped get the comprehensive 
reform order across the finish line in 2011, but the job is far from 
complete. We were pleased by the FCC's decision in May to invest $485 
million in rural broadband expansion via phase 1 of the Connect America 
Fund. Mr. Chairman, you and several others on the Committee played 
important roles in that decision, and we thank you. Still, unresolved 
aspects of reform, coupled with slashing of intercarrier compensation, 
have created troublesome uncertainty for ``price cap'' carriers and the 
consumers they serve. For the future, there are plans to estimate the 
price cap carriers' costs of providing service to certain rural areas, 
then offer funding above a high cost threshold, along with a set of 
performance requirements, to serve the area. There has been an unspoken 
assumption that the proffered funding will be reasonable to the 
provider, but also attractive to policymakers who are trying to cover 
the Nation with ubiquitous voice and broadband on a constrained budget. 
We are hopeful that these dual objectives soon will be fulfilled, and 
that the strain from existing uncertainty will be lessened. But we need 
the FCC to continue in a transparent and deliberate fashion as it moves 
forward with the next phase of reform, and ask the Committee to keep a 
watchful eye in its oversight role.
    Likewise, the reforms for smaller ``rate-of-return'' companies have 
created uncertainty for those providers.
    One way to understand the situation for rate-of-return companies 
and cooperatives is to look at the broadband loan programs run by the 
Rural Utilities Service at the Department of Agriculture. Borrowing 
from RUS has dropped to 37 percent of the money appropriated by 
Congress in the last Fiscal Year. Meanwhile, private lenders have 
withdrawn from the market altogether. Rob West of CoBank, a major 
lender to small carriers, estimates that ``many small rural wireline 
providers have [lost] or will lose 50 to 100 percent of their capacity 
to access borrowed capital.'' The bottom line is reduced capital 
investment for broadband service in rate-of-return areas at the very 
time policymakers--from the President to members of the Senate and 
House to key Federal agency appointees to state commissioners--are 
calling for bringing broadband to unserved communities.
    There are concerns that the reform order's ``Quantile Regression 
Analysis'' (QRA) approach to determining universal service support to 
rural rate-of-return companies is not performing as intended. To better 
assess the impact of the QRA on rate-of-return companies, USTelecom 
believes the Commission should expeditiously examine and understand the 
real world effects of USF reform on rate-of-return companies and 
determine how to ensure that, in operation, it meets the Communications 
Act's requirement that rural Americans have communications services 
comparable in quality and affordability to those in urban areas.
A pro-consumer, pro-competitive framework for the information age
    Finally, let us consider the state of regulation for wireline 
communications. The regulatory structure for legacy telephone companies 
is the oldest, most comprehensive, and least flexible in all of 
communications.
    The biggest mismatch between regulatory approach and current market 
realities is in the retail residential market. Recent data from the 
FCC, as well as from the Centers for Disease Control, indicate that by 
year's end, about 25 percent of U.S. households will have traditional 
voice service from incumbent local exchange carriers (ILECs). ILECs are 
no longer the dominant providers of retail residential voice service, 
and Federal and state regulators must respond accordingly.
    In fact, ILECs are in a dogfight for residential voice customers, 
and legacy regulations are unfairly inflating costs and limiting 
flexibility for consumers. Google recently announced that in Kansas 
City, where it has deployed a new fiber-to-the-home network, it will 
not offer voice service because of the regulatory burden. These 
regulations are holding back competition in the entire residential 
voice market.
    USTelecom has attempted to address these concerns in several ways. 
Recently, USTelecom petitioned the FCC for regulatory forbearance. The 
association sought the elimination of 17 categories of rules and 
reporting requirements that no longer have relevance in today's 
marketplace. Some of these rules dated back to the telegraph era, and 
others are rooted in presumptions that ILECs remain monopoly providers 
of residential voice service. For instance, Windstream was required to 
offer long distance through a separate corporate entity from our local 
exchange services. This and other requirements were dropped in the 
FCC's decision, released in May. But many other archaic and unnecessary 
regulations remain on the books, imposing costly burdens on our member 
companies and forcing us to fight with one hand tied behind our backs 
to retain old customers or to gain new ones in the face of obvious 
market evidence demonstrating that competition in the residential voice 
market is thriving.
    Closely related is the question of how the ongoing shift to IP-
based services should affect regulation. All companies are deploying IP 
in their networks and appreciate the importance of this conversation, 
which is enhanced by the creation of an FCC task force on the issue. 
But this transition is a process, and will unfold in different ways and 
at different times for each provider.
    As I noted at the beginning of my testimony, technological changes 
and the demands of consumers and businesses for new solutions to their 
communications needs have brought real pressure to bear on our 
regulatory structures. This is a challenge for regulators, but also for 
us, as an industry. Increasingly, there is no ``one size fits all'' 
approach. My company serves both urban and rural markets, it serves 
both residential consumers and business customers. In some areas it 
operates as an ILEC, in some as a CLEC--indeed, as one of the Nation's 
largest and most successful CLECs. Likewise, the association that I 
lead is comprised of companies offering a variety of services--
utilizing copper, fiber, coaxial and wireless platforms--in widely 
diverse business environments. So, when it comes to issues such as 
interconnection, competitive access, transport, privacy, and public 
safety, we are keenly aware of the need for public policy to balance 
regulatory treatment among competing platforms, to avoid disincenting 
wireline investment, and, at the same time, avoid competitive harm, 
especially during this transition period that we are in, a transition 
that is technology-driven. Therefore, the goal of our association, and 
my goal as Chairman, is one that I would hope is shared by this 
Committee: It is to forge a consensus on how we can restructure 
regulatory approaches in a way that provides consumers and businesses 
with all the benefits of the Information Age. In areas where the 
competitive or economic dynamics are not fully understood or where 
there are gaps in our knowledge, we will need to gather and analyze the 
right data to understand the specifics of the situation. Modernizing 
our regulatory structure and planning for a smooth transition to an IP 
world are essential to the health of the wireline industry and all the 
benefits that it brings our nation, and it is critical that reforms be 
judicious and grounded in fact-based assessment of the modern 
communications marketplace.
    In closing, my view is that the state of wireline is robust and 
dynamic. After decades of change, the wireline infrastructure remains 
the durable and essential core for all communications. Cloud computing 
promises real benefits for businesses and consumers, but only if a 
robust wireline industry can supply the broadband connections on which 
cloud computing depends. Similarly, advanced healthcare applications, 
gigabit connections linking research universities and gigabit 
communities all will depend on robust wireline infrastructure. If we 
are to reach the goals established by President Obama in his ConnectEd 
initiative to connect our Nation's schools to the Internet at gigabit 
speeds and the FCC's goals for a reformed E-Rate program, our country 
absolutely needs a healthy and robust wireline industry continuing to 
invest billions in broadband infrastructure.
    USTelecom member companies believe the future is bright and are 
investing accordingly, but we will require your attention and oversight 
to protect the public interest in strong communication links for all 
Americans, including in rural areas, and to foster a vibrant and 
innovative market for communications services.

    Senator Pryor. Thank you.
    Ms. Bloomfield?

   STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE OFFICER, 
             NTCA--THE RURAL BROADBAND ASSOCIATION

    Ms. Bloomfield. Mr. Chairman and Senators, thank you from 
this Midwestern woman for the opportunity to participate in 
today's hearing.
    [Laughter.]
    Ms. Bloomfield. NTCA--The Rural Broadband Association 
represents nearly 900 small rural telecommunications providers 
everywhere from the North Slope of Alaska to the Everglades in 
Florida. Our members hold a very deep commitment to the 
communities that they serve because they live there, and these 
small businesses create jobs, they fuel the economy, they 
connect the world to rural America, and frankly, they also 
connect the wireless devices that we all use. But these 
companies need sufficient Universal Service support and 
regulatory certainty to be able to operate in these hard-to-
serve areas.
    When we talk about Universal Service, we are really talking 
about the foundation of a universal economy and a better 
connected Nation. Federal law and cost recovery mechanisms, 
such as USF and intercarrier compensation, have long ensured 
that all Americans can participate in our increasingly 
interconnected world, leaving no one behind.
    Of course, these programs do need to be reviewed and to 
ensure that they remain applicable and sustainable. But, 
unfortunately, rather than building upon what has actually 
worked, the USF and ICC reforms have generated paralyzing 
regulatory uncertainty and a lost year broadband deployment to 
the detriment of rural consumers and the small businesses that 
they serve.
    For several years, we have made every attempt to work with 
the FCC to create a sustainable and predictable path forward. 
We proposed a number of very common sense solutions and 
industry agreements to responsibly transition these cost 
recovery mechanisms from voice to a broadband world. My written 
testimony outlines some of these thoughts, but I want to hit 
some of the highlights here with you all today.
    First, we need transparency. We need accuracy and 
predictability in the USF system. The FCC has adopted a new 
statistical model which is called ``the quantile regression 
analysis.'' It compiles 2-year-old data from hundreds of 
Universal Service recipients and then runs the data through a 
very complex formula to arrive at an annual cap on each 
carrier's USF support, and that cap is recalibrated every year. 
The approach is inconsistent with the law that mandates that 
USF be predictable. As such, the QRA should be eliminated or 
perhaps used only as a trigger to flag a given carrier for 
additional review. At the very least, the cap should be phased 
in over a longer period of time until the QRA issues are 
resolved.
    Second, the FCC should follow through on some earlier 
promises to create a clear and simple waiver process. The FCC 
touted the waiver process as a safety valve for situations 
where the reforms were having the effect of undermining 
Universal Service rather than promoting it. But it has been 
anything but simple, affordable, or successful to date.
    Third, the FCC should not proceed with additional cuts, 
caps, or constraints on USF and intercarrier cost recovery 
until it has fully evaluated the impact of what has already 
taken place. NTCA really appreciates the recent call that the 
Senate has made for a GAO report that will allow us to study 
the impacts of these reforms, and we believe that having the 
FCC wait to find out what comes out from those findings would 
be very critical.
    Fourth but not last, the FCC must adopt a sufficient and 
predictable Connect America Fund for small carriers to fulfill 
its policy objectives. The irony to date is the FCC has not 
created a Connect America Fund for rural carriers and has only 
actually cut legacy USF and intercarrier comp programs, which 
has led to higher rates for service and less investment.
    We talk a lot about the IP transition, and rural network 
operators have really been at the forefront of this evolution, 
never losing sight of some really core principles that I think 
Congress really cares about as well, and those are principles 
that compel consumer protection, the promotion of competition, 
public safety, and Universal Service.
    NTCA filed an IP evolution petition that highlights that as 
we migrate through this area, which is going to be very 
complicated, consumers and businesses will only benefit if the 
core objectives remain our collective guideposts. We believe 
the best way forward is to work from a well known regulatory 
framework and then surgically identify what rules need to be 
retained, what needs to be improved, what can be enhanced, 
modified, or eliminated that is consistent with those 
objectives.
    And there is probably no more pertinent example of the need 
for clear rules of the road than the call completion epidemic. 
Rural consumers are losing faith in the reliability of critical 
communication networks and the ability of policymakers to help 
manage them. This widespread problem of calls simply not 
terminating into rural markets is harming consumers, public 
safety, and the viability of businesses that are located in 
rural America. Rural consumers beyond frustrated and we are 
greatly appreciative of the help that the Senate has shown so 
far.
    Unfortunately, there has been very little regulatory or 
economic consequence for such failures to date. Congress has 
produced letters. You have supported a resolution, report 
language, and the FCC has taken some steps to investigate this. 
But we are begging for a more punitive message that this 
conduct is unlawful and that those responsible for the problem 
will be held accountable.
    So in conclusion, NTCA members want to continue to build 
upon the success story of rural broadband in their difficult-
to-serve markets. Also access to affordable content and the 
ability to compete for spectrum in the wireless space are also 
critical issues.
    We are looking forward to continuing our work with Congress 
and the FCC to get it right. Our Nation's economic success, our 
access to natural resources, energy, and food production all 
depend on our getting it right.
    Thank you very much.
    [The prepared statement of Ms. Bloomfield follows:]

  Prepared Statement of Shirley Bloomfield, Chief Executive Officer, 
                 NTCA--The Rural Broadband Association
    Chairman Pryor, Ranking Member Wicker, thank you for the invitation 
to testify at the ``State of Wireline'' hearing. I am Chief Executive 
Officer of NTCA-The Rural Broadband Association which represents nearly 
900 small, rural telecommunications providers across the country from 
the North Slope of Alaska to the Everglades National Park in Florida. 
These companies serve areas long ago left behind by larger providers 
because the markets were too high-cost--too sparsely populated, too far 
from larger towns and cities, and/or just too challenging in terms of 
topography or terrain. As community-based operators, our members hold a 
deep commitment to their consumers. These small businesses create jobs, 
fuel the economy, and connect rural Americans to the world. I was last 
before this committee days before the Federal Communications Commission 
(FCC) released its Universal Service Transformation order. I am 
grateful for the opportunity to address where the reforms have led, for 
better and for worse. I will review where rural carriers stand after 
Universal Service Fund (USF) and intercarrier compensation (ICC) 
reform, discuss the challenges and opportunities presented by 
technological evolution, and address lingering concerns regarding 
access to content and meaningful wireless competition.
Universal Service Reform
    As our Nation has understood for more than a century, and as 
Congress recognized by law in 1996, when we speak of universal service, 
we are really talking about the foundation of a universal economy and a 
better connected nation. The USF program helps to ensure that all 
American citizens and businesses, regardless of who they are or where 
they live, have a reasonable opportunity to participate in our 
increasingly interconnected and online world. The Hudson Institute, for 
example, has found that investment in rural telecommunications delivers 
real payback for our entire nation, generating $14.5 billion annually 
in economic activity--$9.6 billion of which accrued to the benefit of 
urban areas where equipment manufacturers, contractors, and other 
service providers reside.\1\ As the foundation of telecom investment 
and operations in many hard-to-serve, high-cost areas, and the solution 
that promotes affordable rates to facilitate adoption by rural 
consumers, the USF program has therefore been a terrific success story 
for both those rural areas and for our nation as a whole.
---------------------------------------------------------------------------
    \1\ The Hudson Institute study is available through the following 
link: http://www.hudson.org/files/publications/RuralTelecomOct2011.pdf.
---------------------------------------------------------------------------
    Now, all stakeholders agreed that the USF program needed 
modernization and common sense measures to adapt to a broadband world 
and to make it more sustainable over time. Unfortunately, rather than 
building upon what had worked to update the USF program for a broadband 
age, the reforms put into place by the FCC in 2011 have caused a 
significant amount of regulatory uncertainty, have frustrated access to 
capital for network deployment, and have resulted in what might be 
called at least one ``lost year'' in broadband deployment by small 
rural carriers with the threat of more to follow. Indeed, several 
surveys and other data points confirm that broadband investment by 
small rural carriers has all but ground to a halt in the wake of the 
2011 reforms. For example, a recent survey conducted by NTCA--The Rural 
Broadband Association \2\ underscores just how real the impacts have 
been. Out of 185 small carrier respondents, 127 indicated they have 
either postponed or cancelled plans to upgrade their network 
infrastructure due to lingering regulatory uncertainty. One-hundred and 
one of these respondents indicated that the combined value of the 
projects put on hold equaled more than $492 million.
---------------------------------------------------------------------------
    \2\ This survey can be found through the following link: http://
www.ntca.org/2013-press-releases/survey-shows-rural-telecommunications-
carriers-postponing-delaying-network-upgrades-because-of-regulatory-
uncertainty.html.
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    A publicly filed summary of a meeting between U.S. Department of 
Agriculture (USDA) Secretary Thomas Vilsack and then-FCC Chairman 
Julius Genachowski further highlights how the 2011 USF changes have 
chilled network investment.\3\ Even as that filing explained how the 
economic stability of rural areas depends on the availability of 
resilient robust communications infrastructure financed in significant 
part by USDA programs, the letter also reported that, in Fiscal Year 
2012, carriers were able to draw down only 37 percent of the telecom 
infrastructure financing made available by USDA. USDA expressly noted 
that current and prospective borrowers of the program cited uncertainty 
arising out of the FCC's changes in declining to move forward with 
planned construction efforts, and the threat of more changes to come 
only exacerbates such concerns. CoBank, one of the few other lenders to 
small rural carriers for network deployment capital, has also 
apparently severely cut back its lending in this space,\4\ and the bank 
recently made a filing at the FCC explaining how regulatory uncertainty 
surrounding the USF program was challenging its ability to advance 
capital in support of rural telecom investment.\5\
---------------------------------------------------------------------------
    \3\ See Ex Parte letter filed on 2/15/13 by Acting Administrator 
Padalino which can be accessed here: http://apps.fcc.gov/ecfs/document/
view?id=7022122079
    \4\ See ``State USF White Paper: New Rural Investment Challenges'' 
by Michael J. Balhoff and Bradley P. Williams, June 2013, accessed 
here: http://www.balhoffrowe.com/pdf/BW%20State%
20USF%20White%20Paper%20June%202013.pdf.
    \5\ See Comments of CoBank filed June 21, 2013, WC Docket No. 10-
90, pages 4-5.
---------------------------------------------------------------------------
    It is not as if demand by carriers and consumers is not there--to 
the contrary, it is quite clear that consumers across the country are 
seeking increased levels of broadband, and as always, rural telcos are 
willing and eager to serve them. Moreover, our companies only serve 
these rural markets, meaning that it is not as if they would rather 
divert resources to invest and provide cutting-edge services only in 
larger addressable markets. Similarly, it is not as if lenders are 
disinterested in the space--to the contrary, USDA and firms like CoBank 
and the Rural Telephone Finance Cooperative have long stood ready to 
help with the deployment of advanced communications networks in rural 
areas. Rather, the concerns that have reduced loan demand and 
availability arise specifically out of whether regulatory changes now 
being implemented--and the threat of further changes perhaps still to 
come--will preclude the payback of loans taken out to advance 
deployment of broadband-capable networks to the benefit of consumers 
and businesses in rural areas.
    In the face of this presumably unintended uncertainty, NTCA has 
made every effort to work with the FCC and our member companies to 
create a more sustainable and predictable path for USF reform. We have 
devoted hundreds of hours to meetings with the FCC, other policymakers, 
and stakeholders aimed at identifying a better path forward that 
creates regulatory certainty and builds a broadband future for rural 
consumers even while working within broader reform objectives. We have 
proposed a number of commonsense solutions to facilitate the transition 
from a legacy USF regime to a true and effective ``Connect America 
Fund'' for all rural areas, while sustaining important accountability 
measures and recognizing the need to promote the fiscal sustainability 
of the program. Specifically, NTCA has suggested time and again over 
the last eighteen months four essential, straightforward steps that can 
and must be taken to overcome the current regulatory uncertainty and to 
develop a sufficient, predictable, and sustainable USF program for a 
broadband era. We have made some progress on some of these steps, but 
we also have a good, long way to go--and we remain hopeful that the 
FCC, or Congress to the extent necessary, will help in achieving these 
four essential objectives.
    First, there is a need for greater transparency, accuracy, and 
predictability in the USF system, post-reform. As one example of 
several retroactive cuts on support, the FCC's new ``Quantile 
Regression Analysis'' (or ``QRA'') model to cap USF support for small 
carriers has created rampant uncertainty in the rural telecom 
marketplace. For those unfamiliar with the QRA model and its caps, I 
would urge you to take a look at how this incredibly complex system 
operates. If you thought the old ICC system with access charges was 
complicated, the QRA effectively requires a degree in statistics to 
understand.
    In short, the QRA model takes data from the investments and 
operations of hundreds of small carriers in the United States from two 
years in the past and then, on the basis of over a dozen different 
variables, runs through a formula that creates caps to govern each 
carrier's USF support for a given year. This system is then re-run each 
year and new caps are generated, always based upon what hundreds of 
other carriers did years before. NTCA and others have filed hundreds of 
pages over the past eighteen months showing how the model's complexity 
and its opaque nature are creating regulatory uncertainty. NTCA and 
others have also made many filings showing that errors in the models 
run the real risk of creating misplaced or unjustified caps, and it has 
been clear at least in early 2012 that the service area maps included 
in the QRA model are not accurate. Despite these obvious flaws, this 
model is still being used to generate caps every year to limit USF 
support, and no carrier can know whether its investments or operations 
today might trip the caps two years from now. This is an unsustainable 
approach to universal service and it runs directly contrary to the 
congressional mandate that USF be predictable; the errors in capturing 
actual costs used and useful in providing universal service also mean 
the QRA model does not satisfy the congressional mandate that USF be 
sufficient.
    NTCA and many other stakeholders therefore believe the QRA-based 
caps should be eliminated altogether and replaced with other mechanisms 
that would provide more clear and transparent limits on support. We 
proposed such a mechanism in 2011, and we continue to believe that 
proposal would provide greater visibility into how any limits would 
apply to prospective investments. Yet at the same time, since the QRA-
based caps are already in effect, we have worked in good faith with the 
FCC to at least try to improve them. The FCC took some welcome interim 
steps last year to cushion the impact of the caps for 2013, and it also 
directed the commission staff to take further steps to improve the caps 
predictability. But we are now mid-way through 2013, and we have no 
better idea than we did on January 1 of this year what will be done to 
actually make that happen. If the model and resulting caps will not be 
eliminated or cannot be substantially improved very soon, the caps 
should then be used only as a ``trigger'' that flags a given carrier 
for additional review, rather than serving as an automatic disqualifier 
of recovery of certain costs. Alternatively, if they will continue to 
apply as true caps, their impacts should at least be phased-in over a 
longer period of time as the problems in the system are further 
analyzed and hopefully resolved. But in the absence of either immediate 
steps to address the uncertainty caused by the ever-shifting QRA caps 
or some other relief, we run the risk of 2014 becoming yet another 
``lost year'' of rural broadband investment.
    Second, the FCC should follow through with the promises made in its 
Fifth Order of Reconsideration to create a clear, simple process for 
carriers who need waivers from the FCC reforms. The FCC has touted the 
waiver process as an important safety valve where the reforms are 
having the effect of undermining, rather than promoting, universal 
service. The Fifth Order on Reconsideration attempted to tie the 
standards for a waiver more faithfully back to the universal service 
provisions in the statute, and we were hopeful in the wake of that 
decision that better progress might be made on this safety valve 
mechanism. Unfortunately, we continue to see waivers take incredibly 
long periods of time to address, cost carriers large amounts of money 
to seek, and, to date, we have seen little, if any, improvement in the 
process. If the waiver process is to be cited as the last line of 
defense for universal service, it needs improvement.
    Third, consistent with its commitment to a ``data-driven'' 
approach, the FCC should not proceed with additional cuts, caps, or 
constraints on USF support and ICC cost recovery until it has evaluated 
the impact of changes already adopted and just now being implemented on 
consumers and core statutory objectives. A number of the reforms 
contemplate rate increases on rural consumers and are having the 
presumably unintended effect of slowing down broadband investment as 
already noted. Before undertaking additional changes that may only 
exacerbate these concerns and perpetuate regulatory uncertainty, good 
policymaking would dictate taking stock of the effects of the existing 
reforms on broadband deployment, broadband adoption, and end-user rates 
through a data-driven analysis. For example, we appreciate the interest 
of many Members of Congress in asking the Government Accountability 
Office to assess such effects starting later this year, and reviewing 
such data over the course of several years as the reforms already 
adopted continue to be implemented will be essential in determining 
what to do next--and, just as importantly, in determining whether any 
``course corrections'' are needed for reforms already adopted.
    Fourth, but hardly last in importance, the FCC needs to define a 
path forward for a sustainable broadband future for consumers in areas 
served by smaller carriers. The FCC created a Connect America Fund for 
larger carriers that will support broadband-capable networks, but, as 
discussed earlier, it has not yet taken such steps for consumers in 
areas served by smaller companies. Instead, it left in place legacy USF 
programs for smaller carriers with changes that reflect, on the whole, 
reductions in USF and ICC revenues. And the irony is that this legacy 
system, while it has worked well and should form the foundation of 
informed next steps, still needs updating to serve the objective of 
universal service in a broadband-enabled world. Today, if the customer 
of a small rural carrier wants to stop buying plain old telephone 
service and just wants broadband service alone, that customer's 
broadband rates would increase because the legacy rules eliminate USF 
support on such a line. It is essential that the FCC update its USF 
mechanisms to avoid this result--it can and should create a targeted 
and tailored Connect America Fund for areas served by smaller rural 
carriers by providing sufficient support for the networks (both last-
mile and transport) that enable the availability of advanced services 
of all kind in rural markets, regardless of whether each customer 
chooses to buy just plain old telephone service on those networks. This 
does not require massive changes or substantial reworking of the 
existing mechanisms along the lines of the Connect America Fund that is 
still in its second year of development for larger carriers. Instead, 
such a program can build upon the existing mechanism, with technical 
fixes to the existing rules helping to achieve the FCC's modernization 
objectives and serve the interests of rural consumers and businesses.
IP Technology Evolution
    There has been a great deal of talk in telecom circles recently 
about the ``IP transition.'' It is true that an evolution of network 
technologies is important both to provide increasingly attractive 
services to consumers and to enable carriers to achieve greater 
functionality and efficiency in their networks. But this is not some 
``switch to be flipped,'' or ``flash-cut'' in moving from one type of 
network to another. To the contrary, while this evolution promises 
exciting things for our nation, it is not all that different in concept 
from when party-line services in rural areas were eliminated or when 
analog switches were replaced by digital switches. In fact, the IP 
evolution is already upon us--it is occurring today as communications 
networks and consumer demands adapt to new technologies and services.
    Rural network operators have been at forefront of this evolution 
for years. Small rural carriers are no longer interested in just being 
telephone companies. They have been and remain innovators who have been 
making every effort to deploy advanced networks that respond to 
consumers and businesses for cutting-edge services. A recent NTCA 
survey found that our entire membership now delivers broadband.\6\ 
Another study a few years ago by the National Exchange Carrier 
Association (NECA) indicated that smaller rural carriers were already 
delivering at least basic levels of broadband to 92 percent of their 
customers as of 2010, and more than half of them had already deployed 
or had plans to deploy next-generation, IP-enabled switching and 
routing technology in place of legacy telephone switches within the 
next year.\7\
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    \6\ This survey can be found through the following link: http://
www.ntca.org/images/stories/Documents/Advocacy/SurveyReports/
2012ntcabroadbandsurveyreport.pdf.
    \7\ This survey can be found through the following link: https://
www.neca.org/cms400min/NECA_Templates/PublicInterior.aspx?id=100.
---------------------------------------------------------------------------
    NTCA and its members have been considering for some time how best 
to promote and sustain this evolution to next-generation network 
technologies. Above all else, we believe that core statutory principles 
relating to protection of consumers, promotion of competition, and 
assurance of universal service apply by law to all communications, 
regardless of the technology used within underlying networks. As we 
migrate to newer network technologies and the services they enable, 
this backdrop must not be lost. Instead, consumers and businesses will 
only benefit if these principles in the statute remain our collective 
guidepost.
    To help facilitate such a dialogue in policy circles and to shine a 
light on the need for thoughtful consideration of these principles in 
connection with the IP evolution, NTCA filed a petition at the FCC in 
late 2012. In that petition, we suggested that policymakers can best 
serve these important public policy objectives if they do not prejudge 
the value or inapplicability of specific rules or a broader regulatory 
framework. Specifically, NTCA contended that policymakers should not 
dismantle the current regulatory framework simply because underlying 
network technologies shift, while at the same time urging the FCC to 
also avoid leaving existing rules in place merely because they once 
made sense in an era when consumer preferences, technologies, and 
competition were different. We therefore urged the FCC to help promote 
and sustain the ongoing IP evolution by looking at existing rules to 
see whether each rule still has value in serving the statutory goals of 
consumer protection, promotion of competition, and universal service. 
Finally, we noted that by starting from a well-known regulatory 
framework and then looking to improve, enhance, modify, or eliminate 
parts of it based upon a surgical review, this would give greater 
certainty to consumers, investors, lenders, and the industry than 
either a regulatory vacuum or maintaining the status quo.
    NTCA's petition also focused on a number of incentive-based 
measures which would help accelerate the technology transition. The 
first measure is one I have already mentioned--cleaning up legacy rules 
that compel consumers of small rural carriers to take ``plain old 
telephone service'' in order to obtain affordable broadband services in 
rural areas. The FCC resolved this issue for larger carriers serving 
rural areas in deciding to set up a Connect America Fund for them, and 
it has finally started moving forward on this issue for smaller 
carriers by seeking comments on a concept proposed by NTCA and other 
rural associations. In fact, the record before the FCC shows 
overwhelming support for our proposal. It is therefore our hope that 
the FCC will move to make the technical rule fixes needed to address 
this issue in the near future.
    Another measure identified in the NTCA IP Evolution petition was 
the establishment of a sufficient ``middle-mile'' USF support for rural 
carriers. Here again, the FCC is in the process of resolving this issue 
for larger carriers as part of their ``Connect America Fund,'' but 
there is no Connect America Fund program yet for smaller companies 
serving exclusively rural areas. One of the most costly parts of 
providing broadband service to rural consumers is the so-called middle 
mile network required to connect rural consumers to the Internet on-
ramps located in distant cities. The only way to ensure broadband 
service will be robust and affordable for rural consumers and 
businesses over time is to make sure sufficient middle mile support 
will be available for high-cost rural areas.
    Finally, the NTCA IP Evolution petition noted that the FCC has yet 
to address how carriers can interconnect with one another in an IP-
enabled world. Even if IP networks are more efficient, there are still 
real and substantial network costs associated with the underlying 
transport of data from point A to point Z. It is not as if all of that 
data floats on free ``pixie dust''--there are real networks with real 
construction and operating costs that must be designed to handle the 
increasing amounts of traffic we all see on our networks, regardless of 
whether that data is IP or otherwise. Clear ``rules of the road'' for 
interconnection in an IP-enabled world will be essential to ensuring 
that certain consumers and businesses are not left behind, and to 
ensure the seamless transmittal of data in accordance with customer 
expectations
Call Completion
    There is perhaps no more pertinent example of why clear ``rules of 
the road'' are important than the call completion epidemic that 
continues to plague rural areas. After more than two years since this 
issue was first brought to the attention of regulators, rural consumers 
and the carriers that serve them are losing faith in the reliability of 
critical communications networks and the ability of regulators to help 
manage them. Increasingly over the past few years, calls do not get 
through to rural areas--or when they do, they often have quality 
problems. This widespread problem is seriously and negatively affecting 
not only consumers, but also public safety and the viability of 
businesses located in rural areas.
    The problem often appears to stem from choices made by originating 
long distance carriers to use the cheapest possible route to transmit 
calls to rural areas--with the apparent sense that, if the calls should 
happen not to get there because a contractor in the middle (often 
called a ``least-cost router'' in the telecom industry) fails to 
deliver the call, there is little regulatory or economic consequence 
(if any) for such failures. The solution to this problem would require 
the originating long distance carriers to better police their service 
quality and the contractors they use. Greater transparency into the 
least-cost routing market would also help, but unfortunately scant 
information is available regarding who provides such services and when 
and where they do so.
    This is not to say that the FCC has done nothing to address this--
we just need the agency to do more in terms of enforcement, and do so 
quickly. Congress has sent a number of letters to the FCC already 
urging quick action. The FCC released a Declaratory Ruling in February 
2012 putting originating long distance carriers on notice that they are 
liable for call failures, even where the cause of the call failure is 
an underlying contractor or least-cost router in the middle. Then just 
last week the FCC reiterated this directive in a sternly worded 
``Enforcement Advisory'' giving startling examples of how cavalierly 
some carriers and least-cost routers have taken enforcement efforts to 
date. The FCC also released a Notice of Proposed Rulemaking earlier 
this year which would force carriers to retain information so that the 
scope of the problem could be ascertained on a company-by-company basis 
and enforcement action could be pursued. While having access to such 
data would be an important step forward, complaints of calls failing to 
reach rural America continue, and we are begging the FCC to do more now 
to send a message that such conduct is unlawful.
    The FCC did take action earlier this year, announcing a ``Consent 
Decree'' with Level 3 Communications, in which the carrier paid a 
``voluntary contribution,'' to monitor its call completion performance, 
and to pay additional amounts if its performance failed to satisfy 
certain metrics. But more enforcement is needed, as a one-time 
enforcement action two years after the problem was first brought to 
light and when unknown numbers of calls are still failing on unknown 
number of networks across America won't do the job. As one state 
regulator put it, it is time for the FCC to ``drop the hammer''--in 
fact, it's more than time to do just that.
Video Issues
    Small carriers have been providing video service to their consumers 
for many years. In limited areas this may be done in direct competition 
with large cable companies, enhancing consumer choice. In more remote 
places where over-the-air signals may be weak and unreliable and/or the 
small carrier is the only local provider available, this is a critical 
service to customers who need access to local news and weather reports.
    Video provision is also a broadband issue, as small carriers 
frequently use the same infrastructure to deliver both video and 
broadband services. In fact, the FCC has found that these services are 
intrinsically linked.\8\ When small carriers are able to offer video 
and broadband services together, data shows that broadband adoption 
goes up 24 percent,\9\ which makes it more feasible to invest in 
broadband networks. However, small carriers' ability to deliver video 
and broadband services are impeded by outdated program access rules 
that make the business case increasingly difficult even for the 
Nation's largest cable companies.
---------------------------------------------------------------------------
    \8\ MB Docket No. 05-311, 22 FCC Rcd 5101, 5132-33,  62 (2007).
    \9\ See NECA comments, GN Docket Nos. 09-47, 09-51, 09-137 (filed 
Dec. 7, 2009), p. 6.
---------------------------------------------------------------------------
    Retransmission consent rules that are now over twenty years old--
and thus reflect a very different video marketplace--give programmers a 
stranglehold over video content and prevent small providers from 
negotiating market-based rates for programming. Increasingly, customers 
are facing blackouts of channels due to programmers' ``take it or leave 
it'' tactics, which are technically prohibited but occur frequently. In 
addition, evidence suggests that small and medium video providers pay 
up to twice the rates that large companies do for the same programming. 
And some types of content that is necessary for a viable service 
offering, notably sports programming, may be subject to even higher 
rates if it is available at all.
    In addition, recent years have seen a spike in instances where 
separately owned stations within the same market coordinate their 
retransmission consent negotiations. Such ``coordination'' has enabled 
separately-owned broadcasters to command retransmission consent prices 
that are 21 percent to 161 percent higher than each station negotiating 
on its own behalf could command on its own.\10\ These high rates are in 
turn passed on to consumers and decrease competition in the local 
television market.
---------------------------------------------------------------------------
    \10\ See ACA comments, MB Docket Nos. 09-182 and 07-294 (fil. Mar. 
5, 2012), p. 9
---------------------------------------------------------------------------
    Customers must also pay ever-higher prices for video programming 
they do not even want because programmers force providers to buy 
multiple unwanted channels, and place them in basic service tiers, in 
order to have access to channels that customers demand. This ``forced 
tying'' prevents small providers from offering more affordable packages 
of channels, and is raising prices to unsustainable levels.
    Technology and the video marketplace have changed drastically since 
the current program access regime was enacted over 20 years ago. Just 
as we are talking about the need to re-evaluate rules in the context of 
an IP evolution in communications networks, it is far past time for 
policy makers to reform these outdated rules and encourage, rather than 
impede, video competition and broadband deployment.
Wireless Issues
    Rural consumers require access to a strong and reliable wireless 
network and rural carriers are attempting to meet that demand despite 
monumental challenges. Essential to a robust wireless market is an 
interconnected wireline network. The demand for high capacity fixed 
wireline broadband to support wireless networks will only increase as 
usage of handheld devices grows. But rural carriers must also know they 
will be able to fully complete in the wireless marketplace before they 
will attempt to continue to expand their networks through effective use 
of spectrum. A lack of interoperability across the 700 MHz spectrum may 
lead to spectrum lying fallow or islands of rural service with devices 
that cannot be used outside of a customer's home service area. A lack 
of fair and reasonable data roaming agreements with large carriers 
compounds the problem, creating barriers even when spectrum is 
interoperable. Furthermore, rural carriers often lack access to the 
equipment and handsets that are available to larger carriers. At a time 
when carriers are trying to diversify and make good use of spectrum 
assets, the lack once again of clear ``rules of the road'' leaves 
smaller operators largely at the mercy of larger carriers.
    Finally, as the FCC moves forward with the upcoming 600 MHz auction 
plan it is essential that the agency allow meaningful participation by 
small rural and regional carriers. Most importantly, the FCC should 
allow carriers to bid on small license areas which will promote 
competition throughout the country.
Conclusion
    NTCA's membership wants to continue and build upon the success 
story of rural broadband deployment in their hard-to-serve territories, 
but they will only be able to do so once regulatory certainty is 
returned to their operations and if there is sufficient and predictable 
USF support that has been reoriented for a broadband world. We look 
forward to continuing to work with Congress and the FCC to get it 
right. Our nation's economic success--its access to natural resources, 
energy production, and food production, for example--depends on getting 
this right.

    Senator Pryor. Thank you.
    Mr. James?

             STATEMENT OF JERRY JAMES, CEO, COMPTEL

    Mr. James. Chairman Pryor, Ranking Member Wicker, and the 
members of the Subcommittee, on behalf of the 200-plus COMPTEL 
members, I want to thank you for the opportunity to appear 
today and talk about the status of the wireline communications 
industry.
    My name is Jerry James. I am the CEO of COMPTEL, which has 
a 31-year history as the largest trade association for the 
competitive communications industry, with members providing all 
forms of communications services from voice, data, video, 
managed services, cloud, Ethernet, using every form of 
technology available to deliver service to their customers.
    Many of COMPTEL's members are small and medium-sized 
businesses themselves while we do have large members who are 
national companies with thousands of employees. This committee 
has a history of supporting pro-competitive policies such as 
the 1996 Act. Our members are proving this committee is correct 
in its support of these policies by the fact that COMPTEL 
members are serving every segment of the telecommunications 
market on which this subcommittee has held status hearings: 
rural, wireless, video, and now wireline.
    On a personal note, in my years in the industry in the 
competitive companies in Texas, I have seen firsthand how pro-
competitive policies drive the creation of advanced services, 
innovation, deployment of technology solutions, while also 
creating new jobs, new companies and economic growth through 
private investment.
    Today I want to emphasize that the foundation that allows 
COMPTEL members to offer all of these services is the wireline 
network. Wireline is the central nervous system of all the 
communications networks. Whether it is wireless, video, rural, 
or all the applications and advanced services that go with 
them, they depend on a competitive wireline industry.
    The wireline industry, as the industry transitions to IP, 
relies on two specific pro-competitive policies that ensure a 
functioning free market: last-mile access and IP 
interconnection. Last-mile facilities are the bottleneck for 
consumers who want to access the services and technologies our 
members provide. COMPTEL members have invested billions of 
dollars constructing fiber networks and adding electronics to 
increase the bandwidth capacities of copper facilities, which 
remain highly valuable and a vital part of the communications 
infrastructure. Yet, they could not be expected to overbuild an 
entire network.
    This is even more crucial in the business market where the 
largest ILEC's still maintain significant market power. Whether 
the issue is special access, copper retirement, or access to 
packetized facilities, there is no escaping the fact that last-
mile access is a vital input for competition.
    Sound interconnection policy, regardless of the technology 
or network, must remain in place for functioning markets. In 
fact, in regard to the issue of IP transition, there is a wide 
agreement amongst competitive carriers, including CLECs, some 
cable companies, rural ILEC's, and wireless providers, that the 
FCC should confirm that the interconnection provisions of the 
1996 Act apply with respect to managed VoIP services to provide 
the certainty needed for the IP transition to accelerate.
    It is important that Congress and the FCC recognize that 
residential and business markets have distinguishing 
characteristics. Businesses choose telecommunications service 
in a much different way than residential customers. While a 
customer may choose to forgo certain levels of quality and 
reliability for the sake of price, businesses cannot afford the 
same tradeoffs. Yet, it should be clear that everyone deserves 
reliable, high quality voice services.
    Finally, all these issues are wrapped in the IP transition. 
Let us be clear. This is not about the Internet, but just a 
different signaling protocol for managed voice traffic. IP is 
nothing new to our members. We have been deploying it for 
decades, some since 1999. Competitive companies have always 
leveraged new technologies to drive innovation where the 
largest incumbents have been slow to do so. But the important 
note here is that the IP transition is just that: a transition. 
It is no different than any other technology evolution that the 
network has undergone since its inception.
    Competitive providers have been leading this transition and 
we are willing to do it in the future and bring about a new 
wave of innovation. But we are at a crossroads. Basic, 
fundamental rules that ensure competition and consumer choice 
remain vital. It is important that customers continue to reap 
the benefits of new technologies and of innovations brought 
forth by competition. To ensure this, the FCC and Congress must 
continue to embrace pro-competitive policies such as last-mile 
access and IP interconnection that will drive investment, 
innovation, and more choice in the marketplace.
    Thank you for the opportunity to appear today, and I am 
happy to answer any of your questions.
    [The prepared statement of Mr. James follows:]

            Prepared Statement of Jerry James, CEO, COMPTEL
    Chairman Pryor, Chairman Rockefeller, Ranking Member Wicker, 
Ranking Member Thune and members of the Subcommittee, on behalf of our 
COMPTEL members, I thank you for the opportunity to appear today to 
discuss the status of the wireline communications industry.
    My name is Jerry James and I am CEO of COMPTEL, the oldest and 
largest trade association for the competitive communications industry. 
COMPTEL started more than 30 years ago and today, our association has 
more than 200 members, including local competitors, broadband 
providers, wireless carriers, cloud service providers, supplier and 
professional partners. COMPTEL's membership is diverse. Nearly two-
thirds of COMPTEL's members are small and medium-sized businesses, a 
majority of which have $10 million or less in revenue and fewer than 
100 employees. We also have a number of large national companies with 
thousands of employees. COMPTEL member companies utilize private 
investment to drive technological innovation and create economic growth 
with their competitive broadband, voice, video, Internet, data and 
other advanced services. Members of the competitive industry continue 
to be the entrepreneurial innovators. They were the first to deploy DSL 
in the mid-1990s. And, for the last decade, they have been the first to 
deploy next-generation, Internet Protocol (IP)-based managed networks 
that utilize copper, fiber, and wireless technologies. Whether COMPTEL 
members are helping businesses meet their increasing bandwidth needs by 
providing Ethernet services, saving small businesses thousands of 
dollars each month in IT costs by offering cloud-based solutions, or 
enabling telemedicine by providing telecommunications services to rural 
health care facilities, they are the companies fostering innovation, 
investing in new facilities to reach their customers, and creating jobs 
across the United States.
    COMPTEL members are serving every segment of the market on which 
this subcommittee has held status hearings: rural, wireless and video 
and they are largely running and growing their businesses with private 
investment and very little, if any, support from Federal programs. But 
it is important to emphasize that the key element that allows COMPTEL 
members to offer these services is the wireline network.
    Wireline networks are, and will continue to be, an essential 
component of the communications marketplace for the foreseeable future. 
Wireline remains the communications medium of choice for small, medium, 
and large businesses, as well as a significant segment of the consumer 
market. Businesses, in particular, require reliable, high-quality 
telecommunications services, along with cutting-edge features to 
conduct their day-to-day operations. For this reason, the ability to 
obtain Quality of Service (QoS) and Service Level Agreements (SLAs) is 
paramount to their operations. A small startup, a customer call center, 
or a tech support office cannot afford to have poor voice quality, or 
intermittent dial tone. Nor can these businesses afford to have 
unreliable broadband Internet access service. In fact, they would soon 
be out of business without reliable wireline voice and data services. 
This is a crucial point to remember as I address the continued need for 
the competitive opportunities Congress provided for in the 
Telecommunications Act of 1996 (``the Act'') . Our members have relied 
on this law as they invested private capital, which has led to, and 
continues to result in, innovative service offerings and better prices 
for consumers.
    Furthermore, wireline is an integral element of the Nation's 
communications infrastructure. The advances in wireless, specifically 
4G/LTE in today's market, depend on the wireline network to handle the 
tremendous increase in data consumption that is predicted in the coming 
years. Cisco estimates that ``[b]y 2017, almost 21 exabytes of mobile 
data traffic will be offloaded to the fixed network by means of Wi-Fi 
devices and femtocells each month. Without Wi-Fi and femtocell offload, 
total mobile data traffic would grow at a Compound Annual Growth Rate 
(CAGR) of 74 percent between 2012 and 2017 (16-fold growth), instead of 
the projected CAGR of 66 percent (13-fold growth).'' \1\ Spectrum 
remains a finite resource. To ensure wireless networks can manage their 
ever-increasing demand, carriers off-load traffic to wireline networks 
so it can traverse to its destination.
---------------------------------------------------------------------------
    \1\ See Cisco Visual Networking Index: Global Mobile Data Traffic 
Forecast Update, 2012-2017, available at http://www.cisco.com/en/US/
solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-
520862.html.
---------------------------------------------------------------------------
Competitive Companies Continue to Lead the Way in the IP Transition
    The transition of networks to IP technology is just another step in 
the evolution of the network. Competitive telecommunications companies 
have been at the forefront of the IP transition for over a decade. Some 
of our members have been all-IP since 1999. Since 2009, competitors 
have been asking the Commission to take action to ensure that the ILECs 
(AT&T and Verizon, in particular) comply with their obligations under 
Sections 251 and 252 of the Act and allow competitors to exchange 
managed voice traffic with them at points on their network where they 
have IP facilities, so consumers may experience the full benefits of 
VoIP.\2\ To be clear, we are not talking about ``Over the Top'' (OTT) 
VoIP or the Internet, but managed voice traffic exchanged between 
carriers.
---------------------------------------------------------------------------
    \2\ Letter of William H. Weber, Cbeyond, et al., to Marlene Dortch, 
GN Docket No. 09-51, p. 1, filed Sept. 22, 2009.
---------------------------------------------------------------------------
    As the FCC's recent Public Notice on the IP Transition recognizes, 
VoIP interconnection has been happening all over the world ``at a rapid 
rate'' yet it has been delayed in this country notwithstanding ``the 
efforts of some cable companies and competitive local exchange 
carriers.'' \3\ This delay is not technical. Rather, it is the result 
of the largest ILECs ignoring the Act's interconnection obligations. 
These large ILECs continue to require competing carriers to convert 
traffic to legacy TDM-format prior to delivering it to the ILEC even 
where the ILEC itself has deployed facilities that could transport the 
traffic in packet form on its own network. This forced conversion 
increases cost for unnecessary media gateways, and reduces voice 
quality for consumers because of the unnecessary protocol conversions. 
The data clearly shows that the largest ILECs serve the largest share 
of voice subscribers \4\ and, therefore, are the largest traffic 
exchange partners for all voice providers. Larger network operators 
have no incentive to interconnect with smaller. As a result, as the FCC 
stated in the Local Competition Order (para. 55) ``Incumbent 
LECS have no economic incentive . . . to provide potential competitors 
with opportunities to interconnect with and make use of the incumbent 
LEC's network.''
---------------------------------------------------------------------------
    \3\ Technology Transitions Policy Task Force Seeks Comment on 
Potential Trials, GN Docket No. 13-5, Public Notice, DA 13-1016 
(Technology Transitions Policy Task Force, May 10, 2013) (Notice) at 4.
    \4\ The FCC's most recent local competition report indicates that 
the PSTN (defined here as retail switched access lines and VoIP 
subscriptions) consists of just over 141 million retail local telephone 
connections (as of June 2012). Source: Local Telephone Competition, 
Status as of June, 2012, Industry Analysis Division, Figure 1, page 2. 
Of this, AT&T, Verizon and CenturyLink (the ILECs that coincidently 
seek to escape their interconnection obligations) serve 51 percent of 
the total connections. Sources: AT&T 10Q 2Q2012 at 18; Verizon 10Q 
2Q2012 at 30; and CenturyLink 10Q2012 at 30. If the ``PSTN'' is defined 
to include mobile subscriptions, AT&T and Verizon (including their 
mobile affiliates), as well as CenturyLink, serve 61 percent of the 
total connections. Sources: AT&T 10Q 2Q2012 at 18; Verizon 10Q 2Q2012 
at 27; and CenturyLink 10Q2012 at 30.
---------------------------------------------------------------------------
Last Mile Access and Interconnection are Vital to the IP Transition's 
        Success
    Both Congress and its expert agency, the FCC, must keep in mind 
that the marketplace would not be where it is today, but for the 
requirements of last mile access and interconnection. Those two 
provisions are the foundation on which local competition was able to 
develop and grow and are technologically neutral. The provisions were 
enacted by Congress, which recognized that without them, competition in 
the local market would be unsustainable. Though some say those 
provisions are no longer needed, the reality is that last mile access 
and interconnection are still required to ensure a competitive wireline 
marketplace today and these provisions must continue to be enforced by 
the FCC.
Access to Last Mile Facilities is Critical to Bringing Consumers 
        Broadband Services and Cutting-Edge Technologies
    Competitive providers have invested billions of dollars 
constructing facilities to serve their customers. However, competitors 
continue to face significant barriers to building their own last mile 
facilities because the fact remains that the large ILECs still have the 
advantages of incumbency (and a 100 year head start) to achieve a cost 
structure that no competitor can achieve. The largest investment costs 
associated with deploying an IP network (as with any network) exist at 
Layer 1 (the Physical Layer) with the infrastructure and facilities--
including costs to obtain space on as poles, rights of way, conduit, 
local permitting, and buildings--not with higher layers that 
electronically define and control traffic flows. By contrast, large 
incumbent carriers, such as AT&T and Verizon, have ubiquitous networks 
that they inherited as a result of their historical monopoly. In light 
of these facts, it is not surprising that the Government Accountability 
Office, the Department of Justice, and the FCC have all found that in 
the vast majority of locations in the country, incumbents control the 
only wireline connection that can be used to serve business customers. 
AT&T and Verizon have exploited this control to secure an 80 percent 
share of the market for dedicated, high-capacity broadband circuits--
known as ``special access''--that are used to deliver reliable and 
high-speed services to American businesses.
    The large incumbents have used their overwhelming market power to 
charge exorbitant prices to competitive carriers that seek to purchase 
special access circuits and use them to provide innovative business 
broadband services. For example, a recent analysis commissioned by 
COMPTEL shows that AT&T's prices for so-called packet-based 
``Ethernet'' special access circuits are between six and 11 times 
higher than prices for comparable services.\5\
---------------------------------------------------------------------------
    \5\ Evaluating the Just and Reasonableness of BOC Ethernet 
Offerings (dated Apr. 2013), Attachment A, to Comments of CompTel, WC 
Docket No. 05-25, filed Apr. 16, 2013.
---------------------------------------------------------------------------
    The large incumbents further use their market power to impose 
anticompetitive terms and conditions through exclusionary, ``demand 
lock up'' plans on competitive carriers seeking to purchase special 
access. For example, in many areas, in order to obtain a ``discount'' 
on circuits for which a purchaser has no alternative supplier (i.e., 
the vast majority of circuits), the purchaser must commit to buying the 
majority of its total circuit demand from the incumbent--including 
circuits for which a cheaper alternative may be available. In addition, 
large incumbent LECs include ``take or pay'' provisions in their 
special access contracts so purchasers that do not meet their volume 
commitments are nonetheless required to pay for any committed but 
unused circuits.
    The large incumbents' failure to offer special access circuits on 
just and reasonable rates, terms, and conditions--as required by the 
Communications Act--not only threatens innovation and investment in 
business broadband, but also has consequences for the larger economy. A 
recent study, found that failure to reform the FCC's special access 
policies, among others, could result in a loss of as many of 300,000 
existing jobs in the telecom sector and a reduction of up to $30 
billion per year in capital expenditures in U.S. telecommunications 
networks.\6\
---------------------------------------------------------------------------
    \6\ Susan M. Gately et al., ``The Benefits of a Competitive 
Business Broadband Market'' (April 2013).
---------------------------------------------------------------------------
    Congress should urge the FCC to take swift action to prevent these 
harms. First, the agency should use the existing record in the long-
pending special access rulemaking proceeding to adopt interim rules to 
address incumbent carriers' exclusionary, special access ``demand lock 
up'' plans. Second, while the FCC has adopted a mandatory information 
collection to gather data on special access prices, terms, and 
conditions, it has not yet submitted that information collection to the 
Office of Management and Budget for approval. The agency should do so 
as soon as possible. Third, the FCC should use the information it 
collects to conduct a market power analysis and adopt comprehensive 
final rules that govern the rates, terms, and conditions on which 
incumbent LECs must offer wholesale access to last-mile facilities in 
the geographic and product markets in which they possess market power. 
And those rules should apply to both so-called legacy, ``TDM-based'' 
last-mile facilities and newer, packet-based last-mile facilities.
    There is no question that the large ILECs use the advantages of 
incumbency to achieve more economical cost structures in network 
deployments. For instance, Verizon's FiOS fiber network not only shares 
the same infrastructure that houses its copper facilities, its copper 
network also becomes the supporting infrastructure when Verizon lashes 
the fiber directly to the copper cable. AT&T`s U-verse architecture 
exploits the preexisting copper network to an even greater extent, as 
it relies on the existing local copper loop (albeit shortened) to 
connect individual subscribers to its U-verse fiber. As AT&T explains:

        AT&T does not have two separate outside plant networks. For its 
        high-speed U-verse services, AT&T deployed fiber from central 
        offices to specialized field terminals, after which U-verse 
        services travel to the customer`s location over copper 
        facilities. The copper and fiber infrastructures combine to 
        make a single seamless network.\7\
---------------------------------------------------------------------------
    \7\ Reply Declaration of Betsy Farrell Supporting Comments of AT&T 
California, Before the California Public Utilities Commission, 
Rulemaking to Evaluate Telecommunications Corporations Service Quality 
Performance and Consider Modification to Service Quality Rules, 
Rulemaking 11-12-0001, filed March 1, 2012, at  43.
---------------------------------------------------------------------------
    AT&T`s cable and wire facilities were deployed over many decades 
and the deployment was protected by regulatory policy and subsidies.\8\ 
The costly physical assets that underlie the IP networks of Verizon and 
AT&T are the same assets that have served as the PSTN for years. In 
addition to these physical assets, these ILECs are leveraging the other 
great benefit of incumbency: a still massive customer-base.\9\
---------------------------------------------------------------------------
    \8\ Although the Commission`s ICC reform seeks to end the system of 
access support, the fact is that the system went on for decades and the 
local networks of the ILECs are largely fully depreciated. Nationally, 
in 2007, which is the last year the FCC required that this information 
be made public, 73 percent of the Total Plant in Service had been 
depreciated, and nearly 75 percent of the Cable and Wire Facilities had 
been recovered. 2007 ARMIS 43-04, Total Large ILECs, Rows 2260, 3080, 
1530 and 3060.
    \9\ AT&T serves over 39 million wireline voice connections, while 
Verizon serves over 24 million wireline voice connections. AT&T data 
available at http://www.att.com/gen/investor-relations?pid=262, 4Q2011, 
Financial and Operating Results (PDF), page 13 of 21. Verizon data 
available at http://www22.verizon.com/investor/
qreport_quarterly_earnings_verizon_4q_
2011_01242012.htm, 4Q2011, Financial and Operating Information (PDF), 
page 16.
---------------------------------------------------------------------------
    Finally, where it is not feasible for COMPTEL members to build 
their own facilities, many are investing in technologies that maximize 
the bandwidth capacity and speed of the existing copper network. 
Members are offering Ethernet over Copper (EoC) services to small and 
medium-sized businesses that allow for high-speed broadband services. 
Moreover, as fiber has still not been deployed to a large percentage of 
buildings, copper remains a critical resource for delivering high 
capacity broadband services to these buildings.
    Some large incumbents have begun to remove existing copper 
facilities over which EoC services are provided. Unfortunately, because 
the FCC has permitted incumbents to deny competitors access to other 
facilities, including packetized facilities, that enable the delivery 
of broadband services, the competitive alternatives available to 
customers diminish or disappear. The FCC must revise its current rules 
to take into account not only the continued value of existing network 
infrastructure, but also competitor access to advanced broadband 
facilities continues to best serve consumers.
Sound Interconnection Policy is Vital for Functioning Markets
    It is vital for any successful communications policy to guarantee 
the ability of service providers to interconnect with other providers, 
regardless of the technology used in the underlying networks. As long 
as we maintain and promote a strong interconnection policy in 
telecommunications services, investment is higher, prices are more 
competitive, jobs and productivity increase, and innovation flourishes.
IP-to-IP Interconnection for Exchanging Voice Traffic is Nothing New 
        Under the Act
    Congress mandated interconnection between competing providers in 
the 1996 Act because it understood the history of the industry and that 
competition itself does not ensure interconnection between providers, 
especially where some are much larger than others, and possess market 
power. Sections 251/252 provide for interconnection at any technically 
feasible point, at just and reasonable rates, and the opportunity for 
arbitration where the parties' negotiations fail. These protections 
continue to be necessary as the PSTN transitions from TDM to IP 
transmission technology. Congress has already established the framework 
for negotiations and minimum requirements, as well as the process for 
the arbitration/approval of interconnection agreements. Additionally, 
the FCC's record is complete in demonstrating that VoIP interconnection 
falls within that framework. In its universal service/intercarrier 
compensation order that was released in November 2011, the FCC found 
that IP interconnection for voice services is critical, that the 
interconnection provisions in the statute are technology neutral, and 
that it expected carriers to negotiate in good faith in response to 
requests for IP-to-IP interconnection agreements for the exchange of 
voice traffic.
There Is Widespread Agreement that the Communications Act's 
        Interconnection Provisions Still Apply
    The FCC is actively considering IP interconnection issues in its 
universal service/intercarrier compensation proceeding. The record is 
complete and industry members, including cable providers, rural ILECs, 
and wireless providers, overwhelmingly support a ruling from the FCC 
that the ILECs must negotiate VoIP interconnection agreements. The 
reasons for this support are that:

  (1)  the largest ILECs have ubiquitous networks in their service 
        territories with access to every home and business;

  (2)  these same ILECs continue to serve the majority of both business 
        and residential wireline consumers in the U.S.; and

  (3)  alternative providers cannot compete if they do not have an 
        interconnection agreement with the ILECs.

    Today, our members only have interconnection agreements with the 
ILECs to exchange traffic in TDM format, and it is widely recognized 
that the transition to IP in the U.S. has been slowed by the lack of 
interconnection with the major ILECs. Indeed, the FCC's own Technology 
Advisory Council observed that the major ILECs are slowing the 
transition by refusing to negotiate interconnection agreements and that 
the FCC could speed the process by answering the critical question of 
whether Sections 251/252 of the Communications Act apply to VoIP 
interconnection.
    The technical feasibility of VoIP interconnection has already been 
established. The largest ILECs have the facilities in their networks to 
exchange voice traffic over the PSTN with other carriers on an IP-to-IP 
basis. All that is truly needed to move the industry forward in the 
transition is for these ILECs to comply with the interconnection 
provisions of the Act. Consumers should not have to wait any longer to 
reap the benefits of this new technology. Accordingly, the Commission 
should address the IP policy framework and confirm that Sections 251 
and 252 apply to IP-to-IP interconnection.
The Importance of Managed Networks for Voice Services
    Managed VoIP service is voice service transmitted using IP 
technology over wireline, wireless, and coaxial cable networks. Unlike 
the services over the Internet, managed IP services, including managed 
VoIP services, can provide the kind of service-level guarantees that 
businesses expect. The Internet is a ``best efforts'' network, which 
means that traffic is routed and congestion controlled based on the 
principal of ``first come, first routed.'' In contrast, managed IP 
services can match performance to the particular needs of different 
information flows obtained through traffic management techniques.\10\
---------------------------------------------------------------------------
    \10\ See NRRI white paper entitled ``The Transition to an All-IP 
Network: A Primer on the Architectural Components of IP 
Interconnection'' available at http://communities.nrri.org/documents/
317330/7821a20b-b136-44ee-bee0-8cd5331c7c0b.
---------------------------------------------------------------------------
    Consequently, managed voice services remain the dominant form of 
voice communications in the U.S., even when just looking at VoIP 
service. While some consumers may find an OTT VoIP service that is 
transmitted over the public Internet sufficient for their needs, the 
majority do not. This conclusion is supported by the fact that only 10 
percent of all U.S. VoIP subscribers use OTT VoIP services.\11\
---------------------------------------------------------------------------
    \11\ Local Telephone Competition, Status as of June, 2012, Industry 
Analysis Division, Figure 5, page 7. http://transition.fcc.gov/
Daily_Releases/Daily_Business/2013/db0621/DOC-3215
68A1.pdf.
---------------------------------------------------------------------------
    Indeed, AT&T and Verizon's own product design and marketing for 
their managed VoIP services demonstrate the need to assure customers 
that their voice service does not traverse the Internet. AT&T confirms 
to its customers that ``AT&T U-verse Voice service is provided over 
AT&T's world-class managed network and not the public Internet.'' \12\ 
Likewise, Verizon explains to its customers that its managed VoIP 
service ``is not the same as the services you get with a little 
Internet adapter for your modem and phone, and it does not ever touch 
the public Internet.'' \13\
---------------------------------------------------------------------------
    \12\ AT&T: How AT&T U-verse Voice is different from the digital 
voice products of other providers, available at http://www.att.com/
esupport/article.jsp?sid=KB401031#fbid=L8RYx19uzva.
    \13\ Verizon Press Release, ``FiOS Digital Voice: Here's How It 
Works, Verizon's Managed IP Network Links Customers' Homes to 
Softswitch and Applications Service, Enabling Innovative Services,'' 
June 3, 2010, available at http://newscenter2.verizon.com/press-
releases/verizon/2010/fios-digital-voice-heres.html.
---------------------------------------------------------------------------
    Nonetheless, a common, inaccurate theme echoed by AT&T and Verizon 
is that the mere existence of Internet peering and transit agreements 
demonstrates that unregulated interconnection agreements for managed 
voice services will allow competition to flourish. However, what AT&T 
and Verizon neglect to plainly state is that the peering agreements 
used to move Internet traffic that they cite so freely are not used to 
terminate traffic to their FiOS and U-verse customers because those 
customers receive managed voice services. While the FiOS and U-verse 
networks use IP transmission technology, the traffic does not traverse 
the public Internet.
    In fact, there is no question that these managed VoIP services 
differ from the public Internet, nor is there any question that the 
exchange of this traffic will be subject to agreements that differ from 
the Internet peering arrangements that AT&T and Verizon continuously 
and erroneously cite. The only relevant question is whether IP 
interconnection agreements and network arrangements will be 
nondiscriminatory, reciprocal and public (which are the core 
requirements of Sections 251 and 252), or offered only to favored 
partners, distorted by one-sided compensation obligations, and secret.
Conclusion
    Congress should encourage the FCC to examine solutions and policies 
that allow consumers and businesses to continue to reap the benefits of 
the competitive telecommunications marketplace. It is not just about 
access for competitive telecommunications providers. It is about 
ensuring that the Nation's businesses continue to have access to 
cutting-edge digital technologies and applications that drive value and 
growth. The ability of competitive service providers to interconnect 
and access the underlying communications infrastructure on reasonable 
terms and conditions, while maximizing existing infrastructure, will 
continue to provide consumers and businesses with the tools they need 
to succeed and increase economic growth and opportunities throughout 
the Nation.

    Senator Pryor. Thank you.
    Mr. Downes?

STATEMENT OF LARRY DOWNES, INTERNET INDUSTRY ANALYST AND AUTHOR

    Mr. Downes. Thank you, Chairman Pryor and Ranking Member 
Wicker, members of this subcommittee. Thank you for this 
opportunity to testify today on the state of wireline 
communications.
    My name is Larry Downes. I am based in Silicon Valley, and 
I am an Internet industry analyst, the author of several books 
on the information economy, innovation, and the impact of 
regulation. I have also written extensively on the effect of 
communications regulation on the dynamic broadband ecosystem 
and, in particular, the role played by the FCC and local 
regulators.
    This is, obviously, an exciting time to be talking about 
the state of wireline. As you all know, the communications 
industry is in the midst of its most profound technological 
transformation in over a century of evolution. The old public-
switched telephone network, the PSTN, is quickly being 
succeeded by native IP networks, the foundation of the modern 
Internet.
    Quite simply, the IP transition is already happening. As 
many as half of all U.S. homes have already cut the cord to the 
PSTN, a number that could rise to 75 percent by 2015. They have 
moved to all IP broadband networks delivered over a range of 
infrastructure technologies, including cable, fiber, satellite, 
and mobile.
    And they have moved for a good reason. The regulated PSTN 
world is static. It offers voice services in a world where 
voice has not only become just one of many forms of 
communication, but increasingly one of the least favored. For 
data traffic, it offers slow data speeds, too slow to support 
fast-growing high definition video applications. We now have 
better and cheaper technology available to us. When that 
happens, as history makes abundantly clear, it is only a matter 
of time before consumers make the switch and increasingly less 
time at that.
    Critics of an accelerated IP transition warn of the risk of 
leaving behind the remaining Americans who still rely solely on 
PSTN, particularly in rural communities and among some elderly 
and low-income households.
    We in Silicon Valley see it very differently. We believe 
that the faster we can shut down the obsolete PSTN network, the 
faster we can help those users who still rely on it make the 
leap to the 21st century to broadband Internet and all it has 
to offer.
    According to research from the Pew Internet study, 20 
percent of American adults still do not use the Internet, a 
group that nearly perfectly overlaps with those still tied to 
the PSTN network. Sadly, nearly half of that group give as 
their primary reason not the cost of broadband services but 
simply that they do not think there is anything there for them. 
Moving them to an all IP network, if only for voice, will get 
us halfway toward showing them otherwise. The other half should 
be easy or at least easier.
    I share the worthy goal of the FCC's 2010 National 
Broadband Plan of full broadband adoption as soon as possible 
and for the reasons the plans authors so ably spelled out. We 
want everyone on the Internet, not just at home but around the 
world. The Internet exhibits what economists call ``network 
effects,'' which means that the more people and devices and 
apps that use it, the faster its value increases.
    With the PSTN network off and everyone transitioned to 
native IP networks, we can that much sooner build out the next 
generation of Internet services that will revolutionize 
education, health care, energy, employment, community, public 
safety, and entertainment.
    There are, of course, many complicated issues to be 
resolved in shutting down the PSTN, which is why the FCC is now 
considering petitions for trials in select markets. Many of 
those submitting comments paint dramatic, doomsday scenarios 
even from simple trials. Frankly, the most extreme concerns 
were raised by self-interested parties eager to slow the 
transition to a speed more suited to their own business 
strategies. But conducting the trials in any case will make 
abundantly clear which are real and which are ephemeral.
    We still have to solve potentially thorny transition 
issues, including public safety and ancillary technologies such 
as security systems, health monitoring equipment, and others 
that today require a connection to PSTN in order to function.
    But technology entrepreneurs believe that the best solution 
to a technology problem is more technology, not more government 
mandates, byzantine regulatory structures that lend themselves 
to abuse. Set a date for IP transition and watch how fast the 
remaining technological and business hurdles evaporate as 
innovators do what they do best, solve problems on deadline.
    As I describe in my written testimony, however, there is a 
clear and inevitable role for Congress and the FCC to play in 
bringing the extraordinary benefits of broadband IP to 
everyone, much as there was in the transition from analog to 
digital television. But we should heed the lessons of that 
flawed earlier effort. For one thing, we need to set aggressive 
targets and stick to them. If we do, the problems, real and 
imagined, will largely take care of themselves.
    Thank you and I look forward to your questions.
    [The prepared statement of Mr. Downes follows:]

   Prepared Statement of Larry Downes,\1\ Internet Industry Analyst 
                               and Author
---------------------------------------------------------------------------
    \1\ Larry Downes is an Internet industry analyst and author. His 
books include Unleashing the Killer App (Harvard Business School Press, 
1998), The Laws of Disruption (Basic Books, 2009) and Big Bang 
Disruption: Strategy in an Age of Devastating Innovation (Penguin 
Portfolio, forthcoming 2013).
---------------------------------------------------------------------------
    Chairman Pryor, Ranking Member Wicker and members of the 
Subcommittee, thank you for this opportunity to testify on the state of 
wireline competition.
    My name is Larry Downes. Based in Silicon Valley, I am an Internet 
industry analyst and the author of several books on the information 
economy, innovation, and the impact of regulation. I have also written 
extensively on the effect of communications regulation on the dynamic 
broadband ecosystem, and in particular the role played by the FCC and 
local regulators.
Summary
    Wireline communication is in the midst of its most profound 
technological transformation in over a century of evolution. The old 
public-switched telephone network (PSTN) is joining other obsolete 
networking technologies in converting to the packet-switched network 
protocols of the Internet (IP). Analog equipment is being replaced with 
digital; copper is being replaced or supplemented with fiber optic 
cable. Voice, video and data are converging onto a single standard, and 
moving over a single global network infrastructure.
    The emerging communications ecosystem, which includes broadband 
networks using fiber, cable, satellite and mobile technologies, is 
exponentially more efficient, extendable, and powerful than the 
separate, aging networks it is replacing. It offers new services that 
were unimaginable just a few years ago, and promises to accelerate its 
offerings in the coming decade. It is generating profound economic 
growth and new competitive advantage for American businesses that are 
leading the revolution.
    The nature of wireline competition has changed utterly, and will 
continue to evolve as IP our technology industries complete their 
conversion to Internet standards. Wireline network operators, as the 
FCC acknowledges, increasingly compete not only with each other but 
with providers of mobile and other broadband networks, as well as cloud 
hosting and digital commerce services, content providers, consumer 
electronics device manufacturers, and operating system and other 
software developers.\2\ Already, American consumers are enjoying the 
benefits of highly competitive, integrated markets for all manner of 
communication and information services.
---------------------------------------------------------------------------
    \2\ Larry Downes, FCC Refuses to State the Obvious: Mobile Market 
is Competitive, CNET News.com, April 3, 2013, available at http://
news.cnet.com/8301-1035_3-57577630-94/fcc-refuses-to-state-the-obvious-
mobile-market-is-competitive/.
---------------------------------------------------------------------------
    While phone companies once dismissed the Internet as an inferior 
communications protocol for voice, carriers large and small have now 
embraced it. As switched network technology matured, IP has zoomed 
ahead, supporting exploding demands from consumers, small businesses, 
cloud-based services, and the coming deluge of machine-to-machine 
communications known as ``the Internet of Things.'' This new ecosystem 
is emerging organically from the deployment of robust, global broadband 
IP networks, a dividend from over $1 trillion in private funding 
invested in IP-based technologies in the first decade of the commercial 
Internet.\3\
---------------------------------------------------------------------------
    \3\ See Reed Hundt & Blair Levin, The Politics of Abundance: How 
Technology Can Fix the Budget, Revive the American Dream, and Establish 
Obama's Legacy 9 (2012).
---------------------------------------------------------------------------
    Not surprisingly, the communications industry itself is being 
affected more profoundly than any other by disruptive technologies. But 
the transition to an all-IP network follows a pattern in disruptive 
technological innovation I have been studying for most of my career. In 
our recent Harvard Business Review article, ``Big Bang Disruption,'' my 
co-author Paul F. Nunes and I reported on research into a new model of 
technology-based innovation, one that is dramatically remaking every 
sector of the global economy, and in record time.\4\
---------------------------------------------------------------------------
    \4\ Larry Downes & Paul F. Nunes, Big Bang Disruption, Harvard 
Business Review, March, 2013, at 44, available at http://hbr.org/2013/
03/big-bang-disruption/ar/1.
---------------------------------------------------------------------------
    This accelerating pace of industry change, I believe, has profound 
implications for the regulatory process, particularly for agencies 
operating at the center of what Joseph Schumpeter once called ``the 
perennial gale of creative destruction.'' \5\
---------------------------------------------------------------------------
    \5\ Joseph A. Schumpeter, Capitalism, Socialism, and Democracy 
(Harper 3d ed. 2008) (1942).
---------------------------------------------------------------------------
    Dynamic, technology-driven markets, for example, increasingly 
remedy their own harms more quickly and far more efficiently than 
regulators can. As change accelerates, on the other hand, the 
deliberative pace of regulation increasingly means that by the time 
laws are passed and rules are made, consumers, markets, and providers 
have long since moved on.
    Under laws that date back nearly a century, regulatory agencies 
such as the FCC continue to tinker with 21st century problems using a 
19th century toolkit. They are encouraged to do so by the siren song of 
competitors who prefer to lobby than to evolve, and by state and local 
regulators who fear they will play a far smaller role in the broadband 
future.
    But it is simply impossible even for those of us in Silicon Valley 
and other technology hubs to anticipate how future technology 
improvements will evolve and the kinds of markets they will both create 
and destroy. Government must admit to its institutional hubris. Today's 
laws and regulatory rules reflect a profoundly dangerous belief that, 
despite being disconnected from the messy realities of rapid technology 
change, regulations can nonetheless predict the future and head off 
consumer harms that haven't yet occurred.
    But regulators cannot imagine what is to come, even in the short 
term. No one can. Instead Silicon Valley investors have refined the art 
of making small bets on a range of experiments, watching closely to see 
which ones consumers embrace.
    Increasingly, the risks of government getting it wrong outweigh the 
benefits, if any, of intervention.
    I urge this Committee, in its analysis of communications and 
technology markets and industries, to consider adding a healthy dose of 
technological humility--of adopting a ``watchful waiting'' principle 
for disruptive technologies, and Hippocratic-like oath to ``first do no 
harm.'' Legislate only when it's clear that there is demonstrable harm 
to consumers, a remedy that isn't so broad as to cause unintended 
negative side effects, and no reasonable hope that the next generation 
of technology will moot the problem before new rules can be crafted.\6\
---------------------------------------------------------------------------
    \6\ Larry Downes, Toward a Technology `Watchful Waiting' 
Principle,' Technology Liberation Front, Jan. 17, 2013, available at 
http://techliberation.com/2013/01/17/toward-a-technology-watchful-
waiting-principle/. See also Geoffrey A. Manne & Joshua D. Wright, 
Innovation and the Limits of Antitrust, George Mason Law & Economics 
Research Paper No. 09-54 (Oct. 27, 2012) (``It is because of these 
dynamic and often largely unanticipated consequences of novel 
technological innovation that both the likelihood and social cost of 
erroneous interventions against innovation are increased.''), available 
at http://papers.ssrn.com/sol3/papers.cfm
?abstract_id=1490849.
---------------------------------------------------------------------------
    My testimony addresses the most significant regulatory challenge 
facing the wireline industry today: the transition to all-IP networks 
and the accelerated retirement of the obsolete PSTN. I will describe 
what I see as the most productive role for Congress and the FCC in 
supporting that transition, and the benefits of universal broadband 
adoption and economic growth that will result from getting it right. I 
will also discuss the particular issue of IP-to-IP interconnection, and 
lessons learned from the flawed but ultimately successful transition, 
last decade, from analog to digital television.
Accelerating the IP Transition \7\
---------------------------------------------------------------------------
    \7\ Some of the comments that follow are derived from Comments 
filed with the FCC that I filed jointly with TechFreedom and the 
International Center for Law & Economics. See How the FCC Can Lead the 
Way to Internet Everywhere by Enabling the IP Transition, Reply 
Comments of Geoffrey A. Manne, Matthew Starr, Berin Szoka and Larry 
Downes, In the matter of the technological transition of the Nation's 
communication's infrastructure, GN Docket No 12-353, (Filed on Feb. 25, 
2013), available at  http://apps.fcc.gov/ecfs/document/view?id
=7022125022.
---------------------------------------------------------------------------
    The IP-based ecosystem reduces economic friction to dramatic 
effect. In information industries more than anywhere else, 
entrepreneurs now develop new products and services in real-time. 
Indeed, early users are increasingly co-developers, participating in 
product design, financing (through services such as Kickstarter), 
marketing and even customer service. The result is a new kind of 
technology disruptor, the ``big bang disruptor'': one that enters the 
market as a cheaper, higher-quality, and more customizable substitute 
for existing products offered by incumbent providers.
    In response to the sudden abandonment of older products and 
services by consumers with easy access to new big bang disruptions, 
many incumbents fail to adapt, unable to accept the death of the 
generation of core technologies on which their companies were built.
    Challenging much of the conventional wisdom of strategy and 
competition, my co-author and I argue that incumbents, if they are to 
survive, must learn to see disruption coming much sooner and react 
decisively and quickly. Incumbents trained by a generation of strategic 
planning theory to wait for new markets to mature before beginning the 
transformation of their core business have waited too long. Many don't 
survive the transition.
    Big Bang Disruption is nowhere more visible than it is in the 
communications industry itself. It is hard to overestimate the 
magnitude of the shift taking place in our technology infrastructure. 
Like many of the industries in our study, the transformation is 
following a familiar pattern. As disruptive technologies become both 
better and cheaper, customers abandon older products and services 
gradually, and then suddenly.
    This is especially true for legacy PSTN providers still operating 
under Title II of the Communications Act.\8\ For legacy PSTN providers, 
pricing, quality, and access to infrastructure by competitors are all 
regulated on the slower clock speed of government agencies. As their 
customers migrate to better and cheaper alternatives that are free of 
such regulations, the added gravitational pressure on the incumbents, 
who must continue to operate as common carriers, becomes unbearable.
---------------------------------------------------------------------------
    \8\ Communications Act of 1934, 47 USC Sec. 151 et. seq. (1934).
---------------------------------------------------------------------------
    PSTN providers can't beat better and cheaper with worse and more 
expensive, especially when worse and more expensive has to stay that 
way as a matter of law.
    They must move faster. Customers are abandoning wired telephone 
service in favor of fiber and cable-based Voice over IP (VoIP) and 
mobile broadband at a remarkable rate. At its peak, the PSTN network 
connected nearly every American. By the end of 2011, less than half of 
all American homes still had a wired connection. That number could fall 
to as little as 25 percent by 2015.\9\
---------------------------------------------------------------------------
    \9\ Larry Downes, Larry Downes, Telcos Race Toward an all-IP 
Future, CNET News.com, Jan 8, 2013, available at http://ces.cnet.com/
8301-34435_1-57562644/telcos-race-toward-an-all-ip-future/.
---------------------------------------------------------------------------
    The disruptor here, of course, is networking technology that 
operates natively using the packet-switching protocols of the Internet. 
IP networks, crucially, don't care if the packets contain voice, data, 
or video content. While phone companies once dismissed IP as unsuitable 
for voice communications, carriers large and small have now embraced IP 
as the only option to satisfy exploding demand of consumers, cloud-
based services, and the coming data deluge of machine-to-machine 
communications known as ``the Internet of Things.''
    That superior design has created an enormous black hole for PSTN 
network operators. As fewer customers subscribe to wireline services, 
the cost of maintaining aging copper and analog switches is increasing 
dramatically, both in absolute terms and on a per-customer basis. As 
much as 50 percent of current wireline expenditures go toward 
maintenance. By comparison, the operating expenses of native IP 
networks can be as much as 90 percent less than for PSTN.\10\
---------------------------------------------------------------------------
    \10\ Id. See also Larry Downes, AT&T Moves Dramatically Towards 
``Internet Everywhere,'' Forbes, Nov. 8, 2012, available at http://
www.forbes.com/sites/larrydownes/2012/11/08/att-moves-dramatically-
towards-internet-everywhere/.
---------------------------------------------------------------------------
    To their credit, the incumbent providers are trying to retire and 
replace what had been, until recently, their most valuable assets. Both 
Verizon and AT&T have spent billions accelerating the replacement of 
copper with fiber, and circuit-switched with packet-switched equipment.
    But turning off the old network isn't as simple as it sounds. By 
law, carriers cannot retire the switched network without Federal and 
perhaps state regulatory approval, even if superior alternatives are in 
place. And the FCC and state regulators have balked at giving 
permission for the switchover, calling for more study on proposed 
trials for PSTN to IP switchovers in test markets.\11\
---------------------------------------------------------------------------
    \11\ Larry Downes, FCC Again Balks on Telephone Network Shutdown, 
CNET News.com, May 14, 2013, available at http://news.cnet.com/8301-
1023_3-57584306-93/fcc-again-balks-on-telephone-network-shutdown/.
---------------------------------------------------------------------------
    The longer the carriers are required to spend money maintaining the 
obsolete networks, however, the less capital budget is available to 
accelerate the replacement of aging and obsolete equipment with better 
and cheaper IP technologies, including fiber optics, digital switches, 
and upgrades to straining cellular networks.
    In the end, the real victims of the regulatory logjam are the 
remaining wireline customers who are also, not surprisingly, the ones 
least likely to be benefiting from Internet services. The customer 
segments that are farthest behind in broadband adoption, according to 
FCC data, are those most likely to be relying on switched telephone 
networks as their only form of communication access.\12\ These include 
rural users, seniors, and low-income customers.
---------------------------------------------------------------------------
    \12\ FCC, Eighth Broadband Progress Report, GN Docket 11-121 (Aug 
21, 2012),  122 at p. 54, available at http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-12-90A1.pdf.
---------------------------------------------------------------------------
    Getting these communities onto IP networks sooner rather than later 
eliminates the need for expensive duplication of the obsolete switched 
infrastructure. It will also make it easier and less expensive for them 
to connect to other broadband services including video and Internet 
access.
    In that sense, allowing the carriers to accelerate the transition 
to IP would overcome many of the obstacles that keep 20 percent of 
American adults from joining the Internet. According to the Pew 
Internet Project, almost half of that group cite as their primary 
reason not to connect a lack of relevance to their needs, rather than 
cost.\13\ With IP-based telephony in place, however, the relevance for 
employment, education, health care, family life, entertainment and 
commerce would be far easier to communicate.
---------------------------------------------------------------------------
    \13\ Pew Internet and American Life Project, Digital Differences, 
April 13, 2012, available at http://pewinternet.org/Reports/2012/
Digital-differences/Main-Report/Internet-adoption-over-time.aspx.
---------------------------------------------------------------------------
    For Congress and the FCC, this is the moment of truth. The IP 
Transition is gaining speed, and its ultimate completion is inevitable. 
But even inevitable advances in technological progress can be delayed 
significantly by over-regulation, denying some consumers the full 
benefits of the Internet ecosystem.
    The FCC has an unavoidable role to play in the process. As 
communications markets are being simultaneously destroyed and 
recreated, regulations designed to dull the sharper edges of once-
static and siloed technologies are now, as the agency recognizes, 
posing the very real danger of unintentionally holding back the 
progress of innovation. The agency must unravel itself from its 
complicated relationships with the affected industries, and quickly.
    To begin with, the FCC should expeditiously grant pending petitions 
for trials to switchover PSTN networks to native IP. And, while the 
trials are underway, the FCC should use begin planning a pro-transition 
agenda that can be enacted swiftly upon successful completion of the 
trials--or modified as necessary to adjust for any lessons learned.
    Specifically, Congress and the FCC should:

  1.  Clearly define the IP Transition as a central Federal policy 
        objective and make clear its intentions that VoIP be left 
        unregulated.

  2.  The FCC should preempt state regulators' efforts to preserve PSTN 
        networks beyond their useful lives to the long-term detriment 
        of ratepayers.

  3.  Plan and set a date certain for PSTN retirement, based on lessons 
        learned in the successful transition from analog to digital 
        television.

  4.  Retire legacy Federal regulations that are unintentionally 
        slowing the transition to all-IP infrastructure and retarding 
        the adoption of broadband, especially among rural and low-
        income populations.

  5.  Make clear that Title II regulations will never apply to IP 
        networks.

  6.  Refrain from asserting Title I ancillary authority to impose 
        mandated interconnection requirements on IP networks, and 
        instead leave interconnection in the hands of the private 
        parties exchanging the traffic.

    There has been some progress in achieving these objectives, albeit 
slow. The National Broadband Plan, in particular, showed vision in 
urging the Commission to move immediately to accelerate the transition 
away from circuit-switched networks to native IP.\14\ As the Plan 
noted, ``[r]egulations require certain carriers to maintain [legacy TDM 
networks]--a requirement that is not sustainable--and lead to 
investments in assets that could be stranded.'' \15\
---------------------------------------------------------------------------
    \14\ See Connecting America: The National Broadband Plan, Sec. 4.5 
at p. 59 (2010) (``National Broadband Plan''), available at http://
download.broadband.gov/plan/national-broadband-plan.pdf.
    \15\ Id.
---------------------------------------------------------------------------
    In creating the Technology Transitions Policy Task Force, the FCC 
likewise took an important step to encourage the rapid transition 
``from special purpose to general purpose, from circuit-switched to 
packet-switched, and from copper to fiber and wireless-based 
networks.'' \16\ Then-Chairman Genachowski noted at the time:
---------------------------------------------------------------------------
    \16\ FCC, FCC Chairman Announces Formation of ``Technology 
Transitions Policy Task Force'', (Dec. 10, 2012), http://www.fcc.gov/
document/fcc-chairman-announces-technology-transitions-policy-task-
force.

        Technological transitions don't change the basic mission of the 
        FCC. But technology changes can drive changes in markets and 
        competition. And many of the Commission's existing rules draw 
        technology-based distinctions. So the ongoing changes in our 
        Nation's communications networks require a hard look at many 
        rules that were written for a different technological and 
        market landscape.\17\
---------------------------------------------------------------------------
    \17\ Id.

    The point of these farsighted statements is both clear and 
accurate: Regulators should not pick winners and losers in the 
broadband ecosystem. But that truism does not mean the Commission 
should not take action to advance new technologies that are clearly 
superior.\18\ IP networks, in design and implementation, are in every 
relevant measure exponentially better than PSTN. Lawmakers and 
regulators should continue to hasten their adoption, focus on making 
the transition as smooth as possible for all consumers and refrain from 
placing regulatory impediments in the way of their success.
---------------------------------------------------------------------------
    \18\ In nearly every government provision of spectrum in the last 
hundred years, Congress has clearly picked what it felt were ``better'' 
technologies and used policy levers to promote their adoption. 
Similarly, by excluding broadband Internet access from Title II 
regulations in the 1996 Communications Act, Congress affirmatively and 
wisely promoted an unregulated market for IP-based services, and 
mandated the FCC to do the same. See, e.g., Communications Act of 1996, 
47 U.S.C. Sec. Sec. 153(24), 230, 706 (1996). See also NCTA v. Brand X 
Internet Services, 545 U.S. 967 (2005).
---------------------------------------------------------------------------
    Some critics of proposed IP transition trials have argued for the 
continued application of existing regulations (particularly 
interconnection mandates under Sections 251 and 252 of the 
Communications Act), arguing that these provisions should apply in a 
``technology neutral'' fashion.\19\
---------------------------------------------------------------------------
    \19\ See, e.g., Comments of Competitive Carriers Association, In re 
AT&T Petition, GN Docket No. 12-353 (Filed Jan. 28, 2013), available at 
http://apps.fcc.gov/ecfs/document/view?id
=7022113646.
---------------------------------------------------------------------------
    According to these critics, ``the policy justifications for 
requiring ILECs to provide interconnection and to submit to 
arbitration--namely, the ubiquity of ILECs' telecommunications networks 
and market power that these pervasive networks confer--arise regardless 
of the technology used by those networks to transmit and exchange 
telecommunications traffic.'' \20\
---------------------------------------------------------------------------
    \20\ Id. at 3.
---------------------------------------------------------------------------
    Not only are these complaints irrelevant to the proposed trials 
(which are small steps aimed at determining precisely whether 
constraints such as Sections 251 and 252 are appropriate), but their 
alleged policy justification is not, in fact, ``technology neutral.'' 
Instead, it is a call to apply barnacled rules, crafted over decades 
specifically for the technology and business realities of the PSTN, to 
a new ecosystem that shares few, if any, of the same characteristics.
    Technology neutrality does not mean blindly enforcing design 
principles suited for tree houses as buildings codes for steel 
skyscrapers. Modern structures are clearly better. They require 
entirely different rules, and different kinds of enforcement. Applying 
PSTN rules to IP networks is bad business and bad public policy. There 
are no regulated monopolies in the IP ecosystem, and no need for the 
kind of regulations aimed at controlling them.
    An all-IP-infrastructure is clearly better for everyone. The sooner 
we can complete the transition, the sooner we will reap the full 
dividends of continuing private and public investments in this new 
infrastructure. Getting the transition right will not only save the 
legacy PSTN operators from irrelevance. It will likely bolster the U.S. 
economy, accelerate the technological empowerment of Americans as both 
citizens and consumers, and sustain global competitiveness for U.S. 
technology companies.
    As the National Broadband Plan put it,

        [B]roadband is a foundation for economic growth, job creation, 
        global competitiveness and a better way of life. It is enabling 
        entire new industries and unlocking vast new possibilities for 
        existing ones. It is changing how we educate children, deliver 
        health care, manage energy, ensure public safety, engage 
        government, and access, organize, and disseminate 
        knowledge.\21\
---------------------------------------------------------------------------
    \21\ National Broadband Plan, supra note 14, at xi. See also 
chapters 10-16. And see Robert E. Litan and Hal Singer, The Need for 
Speed: A New Framework for Telecommunications Policy in the 21st 
Century (Brookings Institution Press 2013).

    In The Politics of Abundance, former FCC Chairman Reed Hundt and 
his one-time chief of staff Blair Levin make a persuasive case that the 
shift to ``connected computing''--broadband Internet, cloud-based 
services, and widespread mobile devices--is essential to jumpstart the 
U.S. economy. Hundt and Levin urge all levels of government to take 
immediate steps to support what they call the ``knowledge platform''--
ultra high-speed broadband with high reliability and low latency, able 
to support high-bandwidth, video-intensive applications and cloud-based 
services.
    As Hundt and Levin write, ``[t]o increase growth, job creation, 
productivity gains, and exports at a faster rate, government should 
double down on what is already doubling in the Internet sector.'' \22\ 
They point, for example, to the fact that Internet transit prices have 
improved as much as 50 percent each year. (See Figure 1)
---------------------------------------------------------------------------
    \22\ Reed Hundt & Blair Levin, The Politics of Abundance: How 
Technology Can Fix the Budget, Revive the American Dream, and Establish 
Obama's Legacy 9 (2012), 16-17.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: Hundt & Levin, supra note 22, Figure 2.1, p. 105
         Figure 1--Internet Transit Price per 1 Mbps, 1998-2015

    The kind of high-speed, widely accessible and affordable broadband 
Hundt and Levin describe also provides the tools that innovators need 
to launch more Big Bang Disruptions. All-IP networks will vastly expand 
the possibilities of the next generation of cloud services like Google, 
Facebook, Twitter and Salesforce. These services and others that will 
follow will be superior in ways both easily imaginable (instant, more 
reliable interaction with richer media like video, streaming 
presentations, and more robust tools) but also in ways that we cannot 
yet imagine.
Preserving Peer-Based Interconnection
    The IP Transition will accelerate the ongoing transformation of our 
digital experiences in ways that could be as revolutionary as the 
introduction of the Internet itself. It is imperative that government, 
private sector companies, and consumers work together to get it done as 
quickly as possible.
    Government, in particular, should work to undo much of the 
regulatory mess that unnecessarily constrains legacy PSTN providers as 
they transition to IP. For example, Congress and the FCC should reject 
self-serving calls to impose outdated regulations mandated network 
interconnection, devised for an era of monopoly voice carriage, on the 
well-functioning market for private Internet peering agreements, which 
already ably provides for voice as well as video and data traffic 
management.
    Private peering arrangements have long provided an efficient 
mechanism for interconnection on packet-switched networks, regardless 
of whether the packets contain data, video, and voice applications. The 
shutdown of PSTN networks and the migration of additional voice traffic 
to the Internet do not change the dynamics of that system. As Michael 
Kende, former Director of Internet Policy Analysis at the FCC has 
recently written:

        [T]he competitive concerns that historically drove 
        interconnection regulations for PSTN-based voice service are no 
        longer valid due to the rapid take-up of many different types 
        of alternative communications services to traditional voice, 
        such as cable telephony, software-based voice over IP (VoIP), 
        and other IP-based forms of communications. Therefore, as voice 
        migrates to the Internet there is no need for any regulation of 
        IP voice traffic which mirrors the regulation of the PSTN on 
        competition grounds, because the current IP interconnection 
        arrangements show how traffic will flow end-to-end without a 
        regulatory mandate.\23\
---------------------------------------------------------------------------
    \23\ Michael Kende, Voice Traffic Exchange in an IP World, Analyses 
Mason, April 12, 2013, at 2.

    Today, marketplace and reputational incentives drive 
interconnection and consumer protections. These incentives are 
buttressed by various multistakeholder processes that continue to 
evolve to supplement direct company-to-company dispute resolution.\24\ 
At the same time, the FCC retains authority under Title I of the 
Communications Act to regulate for public safety, and antitrust and 
consumer protection laws govern IP services precisely because they are 
not regulated as common carriers (which are excluded from the FTC's 
general jurisdiction over the economy).\25\
---------------------------------------------------------------------------
    \24\ Most notable among these is the Broadband Internet Technical 
Advisory Group (BITAG), ``a technical advisory group to discuss and 
opine on technical issues pertaining to the operation of the Internet, 
as a means of bringing transparency and clarity to network management 
processes as well as the interaction among networks, applications, 
devices and content.'' BITAG History, http://www.bitag.org/
bitag_organization.php?action=history (last visited February 25, 2013).
    \25\ See Federal Trade Commission, Broadband Connectivity 
Competition Policy, 3 (2007), available at http://www.ftc.gov/reports/
broadband/v070000report.pdf (``[FTC] jurisdiction [over broadband 
Internet access services] had once been regarded as limited to the 
extent that the FTC's general enforcement authority under the FTC Act 
did not extend to entities that were `common carriers' under the 
Communications Act. The regulatory and judicial decisions at issue, 
however, confirmed that the larger categories of broadband Internet 
access services, as information services, are not exempt from FTC 
enforcement of the FTC Act.'').
---------------------------------------------------------------------------
    If significant issues do arise in the IP transition that escape 
these multiple layers of regulatory and governance constraints, 
Congress can of course enact legislation appropriately targeted to 
address clear consumer harms. But narrowly tailored legislation from 
Congress after the IP transition has evolved of its own accord is the 
proper mechanism for addressing such issues--not by bringing the dead 
weight of old regulatory baggage to new markets.
    Not surprisingly, several parties in the FCC's on-going IP 
transition proceedings have urged the agency to transplant legacy 
interconnection requirements on IP networks as part of the retirement 
of the PSTN. PSTN interconnection requirements, however, were 
formulated when the Bell System was a true, regulated monopoly. They 
were a necessary evil to control monopolistic risks, and they have 
imposed considerable waste, fraud and unnecessary cost in exchange for 
that benefit. Consider, for example, recent FCC reforms of intercarrier 
compensation aimed at reducing such interconnection arbitrage as 
traffic pumping, phantom traffic and other abuses.\26\
---------------------------------------------------------------------------
    \26\ Report and Order and Further Notice of Proposed Rulemaking, In 
re Developing a Unified Intercarrier Compensation Regime, CC Docket No. 
01-92 (November 18, 2011), available at http://www.fcc.gov/document/
fcc-releases-connect-america-fund-order-reforms-usficc-broadband.
---------------------------------------------------------------------------
    In the IP world, by contrast, network operators worldwide negotiate 
all manner of peering agreements absent any regulation. Indeed, peering 
within the IP network is so easily achieved, as the OECD has pointed 
out, that ``the terms and conditions of the Internet interconnection 
model are so generally agreed upon that 99.5 percent of interconnection 
agreements are concluded without a written contract.'' \27\ Simply put, 
there is no evidence that anything is broken in the IP network 
ecosystem.
---------------------------------------------------------------------------
    \27\ OECD, Committee for Information, Computer and Information 
Policy, Internet Traffic Exchange: Market Developments and Policy 
Changes, 3 (June, 2011), available at http://search.oecd.org/
officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(2011)2/
FINAL&docLanguage=En.
---------------------------------------------------------------------------
    Those asking regulators to invent an IP interconnection regulatory 
scheme for voice (or perhaps for all Internet traffic) invoke public 
interest concerns, but the real motivation is simple rent-seeking. 
Smaller carriers prefer below-market rates for backhaul, and CLECs are 
eager to protect their subsidized business model in new ecosystems that 
are already highly competitive. But these desires have nothing to do 
with consumer harms, let alone the public interest. In any case, the 
FCC should avoid ``prophylactic'' regulations for interconnection 
problems that, as even those asking for them admit, are speculative.
    That Internet peering works so well absent regulation is no 
surprise. Major ISPs have strong business incentives to interconnect. 
For example, ISP customers increasingly demand access to streaming 
video content from services such as Netflix and Amazon, and ISPs know 
that streaming video is the primary reason that customers are willing 
to pay for high-speed broadband connections at home.
    Where disputes have arisen (often around the distinction between 
settlement-free transit vendors and paid-peering content delivery 
networks (CDN), for example \28\), they have taken the form of contract 
disputes between large commercial players over the specific terms of 
interconnection, not whether it will be available.
---------------------------------------------------------------------------
    \28\ See, e.g., Marguerite Reardon, Understanding the Level 3-
Comcast spat (FAQ), C-Net (November 30, 2010), available at http://
news.cnet.com/8301-30686_3-20024197-266.html.
---------------------------------------------------------------------------
    Moreover, demand for streaming video has become so strong that 
Netflix, having established its own CDN, can now sidestep such disputes 
and pressure ISPs to accede to its peering demands by threatening to 
withhold new content or services. It has now content providers, in 
other words, and not ISPs, who threaten to withhold traffic.\29\ The 
newfound market power of content providers--as well as increasing 
intermodal competition from mobile broadband--upends the weathered 
assumption that ISPs hold all of the bargaining power in 
interconnection negotiations.
---------------------------------------------------------------------------
    \29\ See, e.g., Betsy Isaacson, Netflix Says 3D and 'Super-HD' 
Movies Are Just Around The Corner--But Only For Some Customers, 
Huffington Post (January 9, 2013), available at http://
www.huffingtonpost.com/2013/01/09/netflix-3d-movies_n_2441394.html; 
Fred Campbell, Netflix Blocking Internet Access to HD Movies, The 
Technology Liberation Front (January 17, 2013), available at http://
techliberation.com/2013/01/17/netflix-blocking-internet-access-to-hd-
movies/; Fred Campbell, What Does Netflix's Decision to Block Internet 
Content Tell Us About Internet Policy?, The Technology Liberation Front 
(January 23, 2013), available at http://techliberation.com/2013/01/23/
what-does-netflixs-decision-to-block-internet-content-tell-us-about-
internet-policy/.
---------------------------------------------------------------------------
Lessons from the Digital Television Transition
    In encouraging the rapid transition of wireline providers to all-IP 
networks, Congress should heed the lessons of the earlier transition 
from analog to digital television (DTV). The DTV experience underscores 
the importance of accelerating deregulation of obsolete networks before 
consumers abandon them, of setting and sticking to a date certain, and 
to avoiding the temptation to prophylactically regulate for consumers 
harms that have yet to appear.
    At its height in the 1970s, 93 percent of all American homes relied 
on antennas. But analog broadcast couldn't compete with the quality or 
the quantity of cable channels. As digital technology expanded the 
scope and efficiency of cable and later fiber-based programming, it 
became clear that over-the-air broadcasters would likewise need to 
convert to digital signals to compete.
    Shutting down analog broadcast, however, required government 
coordination. In 1996, Congress mandated the conversion from analog to 
digital broadcast in 1996, setting a deadline of 2006 and authorizing 
the FCC to coordinate the transition.
    The coordinated switch to DTV was intended to make the highly-
regulated broadcasters more competitive with the relatively unregulated 
cable industry.
    How? Digital TV lowered costs and created new opportunities for 
broadcasters. As part of the transition, for example, broadcasters 
traded their analog radio spectrum allocations in the 700 MHz band for 
a new 6 MHz block in the 600 MHz band. Because digital signals are more 
compressed, each 6 MHz block could be split and used for multiple 
channels, all of them capable of high-definition broadcast, as well as 
new mobile business opportunities for the broadcasters.
    So far, however, few station operators have been able to make use 
of that capacity to offer extra channels or to repurpose underutilized 
spectrum for mobile or other premium services. That's largely because, 
in the end, the DTV transition was delayed until 2009. By then, over-
the-air television had already entered an unrecoverable dive in 
viewership and revenue.\30\ According to research from the Consumer 
Electronics Association, the decline in over-the-air audience became 
irreversible between 2005, when the transition should have happened, 
and 2009, when it finally did.\31\
---------------------------------------------------------------------------
    \30\ See Sam Schechner and Rebecca Dana, Local TV Stations Facing a 
Fuzzy Future, The Wall Street Journal, Feb. 10, 2009, available at 
http://online.wsj.com/article/SB12342291035
7065971.html.
    \31\ CEA Study: Consumers are Tuning Out Over-the-Air TV, May 31, 
2011, available at http://www.ce.org/News/News-Releases/Press-Releases/
2011-Press-Releases/20110531-CEA-Study-Consumers-Are-Tuning-Out-Over-
t.aspx.
---------------------------------------------------------------------------
    Delays in the DTV transition were largely the result of unfounded 
and exaggerated fears that some consumers would not be ready in time. A 
2006 article in Fortune, for example, warned breathlessly that the DTV 
transition would ``render about 70 million TV sets obsolete,'' and that 
``for consumers with one of those 70 million sets--many of whom are 
likely to be poor, elderly or uneducated, being forcibly switched from 
one technology to another will be a nightmare.'' \32\
---------------------------------------------------------------------------
    \32\ Marc Gunther, Digital TV: Leaving Viewers in Limbo, Fortune, 
Jan. 19, 2006, available at http://money.cnn.com/2006/01/04/technology/
pluggedin_digitaltv/index.htm.
---------------------------------------------------------------------------
    The reality, of course, was very different. Consumers who weren't 
already cable or satellite subscribers and whose energy-inefficient 
tube television sets were too old to receive digital signals were 
barely inconvenienced, let alone ``forcibly switched.''
    Many had already moved to cable or satellite by the time the DTV 
transition occurred. For the rest, all they had to do was to buy and 
attach small digital converter boxes to their old TVs. Under a plan 
implemented by the Department of Commerce, consumers could even apply 
for up to two $40 coupons with which to purchase the converters, funded 
by proceeds from the 700 MHz spectrum auctions.
    On the fateful day, June 12, 2009, according to Nielsen, almost no 
one was left without television service. As Figure 2 shows, nearly all 
``unready homes'' had successfully made the transition by using the 
converter box, or by switching to digital cable or satellite. No 
television was rendered ``obsolete,'' let alone 70 million.\33\
---------------------------------------------------------------------------
    \33\ Nielsen, The Switch from Analog to Digital TV, Nov. 2, 2009, 
available at http://www.nielsen.com/us/en/newswire/2009/the-switch-
from-analog-to-digital-tv.html.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

           Figure 2--Consumers Adapted to the DTV Conversion
    Delaying the transition by three years, however, blunted the 
potential of a coordinated and timely switchover in crucial ways. 
Consumers had more time to switch to cable or satellite to avoid 
dealing with the transition at all, imposing real damage on 
broadcasters. That loss of viewers makes it harder to this day for the 
broadcasters to offer new and competing products using their new 
spectrum and digital technology upgrades.
    Ultimately, that translates to a loss to consumer of more 
competition in the video marketplace. Delays that were intended to 
protect consumers, in the end, did just the opposite.
    The IP transition should be easier. Unlike digital television, 
consumers will not need to replace equipment already in their homes, 
nor will they need to install adapters for existing telephones. In some 
cases, fiber optic cable will replace copper wiring in the heart of the 
network; in other cases, fiber will be run directly to the home. But 
inside wiring will not be affected, and existing telephones (far 
cheaper to replace, in any case, than old analog televisions) will 
continue to operate, just as they do now in homes that have already 
switched to Internet voice services.
    It is true that some rural users may need to switch from landline 
to mobile service, especially in remote areas where the cost of 
installing wired IP networks is prohibitive. But the FCC can subsidize 
the cost of that switch--as indeed it already does through the 
recently-reformed Universal Service Fund.\34\
---------------------------------------------------------------------------
    \34\ See Marguerite Reardon, FCC Reforms Phone Subsidy Program for 
the Poor, CNET News.com, Jan. 31, 2013, available at http://
news.cnet.com/8301-30686_3-57369007-266/fcc-reforms-phone-subsidy-
program-for-the-poor/.
---------------------------------------------------------------------------
    As with DTV transition, however, ungrounded fears of what could go 
wrong could continue to delay the IP transition, with dangerous and 
unintended consequences for consumers--particularly those for whom 
advocates most claim to be looking out.
Conclusion
    Consumers naturally resist change, even when being offered new 
products and services that are better and cheaper. But where the 
introduction of new technologies once required careful planning by 
providers and different marketing delivered to different groups of 
users, research on Big Bang Disruptions reveals that the process has 
changed dramatically. The old bell curve model of technology adoption 
first described by Everett Rogers is gone, replaced by a much steeper 
curve in which adoption is nearly universal and immediate. The Internet 
revolution has compressed the old categories to just two: early users, 
and everyone else.\35\ (See Figure 3.)
---------------------------------------------------------------------------
    \35\ See Downes and Nunes, Big Bang Disruption, supra note 4, at 
47.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    (Source: Downes and Nunes, supra note 4, at 47)
             Figure 3--The New Model of Technology Adoption
    The adoption of IP-based voice services is following the new model, 
and its impact on wireline competition has already been devastating. 
Congress and the FCC must act to preserve the residual value of the 
PSTN and ease the transition for those Americans who have yet to make 
the leap.
    Some consumers will no doubt encounter problems in the final 
transition from PSTN networks. Some of these issues will be addressed 
by more technology or, where truly necessary, by regulatory 
intervention. But as with the DTV transition, the real problems will 
likely turn out to be far less imposing, and visited on far fewer 
consumers, than pre-transition anxiety suggests. That of course is the 
reason to conduct trials in the first place: to unearth and resolve as 
many potential issues as possible, and to make clear where problems do 
not in fact exist.
    In the DTV transition, broadcasters set free too late to make use 
of their new competitive technologies are now limping into extinction.
    If we don't get the IP transition right, the same fate could be 
unnecessarily visited on incumbent PSTN network operators. But in the 
end, as before, it will be consumers who pay the price for that 
failure.

    Senator Pryor. Thank you.
    Ms. Sohn?

         STATEMENT OF GIGI B. SOHN, PRESIDENT AND CEO, 
                        PUBLIC KNOWLEDGE

    Ms. Sohn. Chairman Pryor, Ranking Member Wicker, members of 
the Subcommittee, thank you for inviting me to give the public 
interest perspective on the IP transition.
    The transition of our wireline networks to Internet 
Protocol-based services is a tremendous opportunity for our 
nation, but we must make sure the transition results in actual 
upgrade in technology without a downgrade in the services upon 
which Americans depend.
    For decades, our country has used reasonable rules based on 
fundamental principles to build a phone network that became the 
envy of the world. We are the country that brought a phone to 
every farm, the country that built a network you can count on. 
We accomplished this by moving certain fundamental values with 
us as our networks evolved. As we now face the opportunities 
and challenges of implementing the next generation of 
communications technology, we must continue to leave no one 
behind.
    Americans are so used to relying on the protections of the 
phone network that they often do not even notice them. We 
conduct our business and personal communications as if they can 
always trust that the phone network will just work because it 
has. We can choose to use whatever phone we want. When the 
power goes out during a natural disaster, our phones will keep 
working. During emergencies, we can always call for help from 
police, fire fighters, and hospitals. When someone calls a 
friend on another phone network, that call will always go 
through regardless of which carriers they subscribe to or where 
they live. When the bill comes for that call, the user can rest 
assured that there will be no fraudulent charges and the 
carrier will not have traded her to another carrier without her 
permission. If a user changes phone companies, she can keep her 
phone number. In the rare instance that any part of the system 
breaks down, government authorities at the local, State, and 
Federal levels move swiftly to act as if our lives depended on 
it because they do.
    Every one of these benefits is the result of deliberate 
policy choices that serve specific basic values. Our phone 
network became the envy of the world because our policymakers 
valued what Public Knowledge calls the five fundamental 
principles: one, service to all Americans; two, competition and 
interconnection; three, consumer protection; four, network 
reliability; and five, public safety. These values are no less 
relevant and, if anything, are even more important as we begin 
the transition to IP networks.
    There are some who believe that the IP transition should be 
a glide path to eliminating FCC oversight. But as carriers 
begin the transition, we have concrete examples that many of 
the essential services we take for granted are at risk in rural 
and not-so-rural areas for individuals and for small 
businesses.
    One of the worst problems, as Shirley Bloomfield mentioned, 
is the continuing inability of rural residents to receive 
telephone reliably. As carriers switch to IP technology, they 
can route calls through least-cost router systems, creating 
latency, and sometimes trapping calls in perpetual loops so 
calls do not go through. In a world where we simply allow the 
marketplace to work, this does not get fixed. As one carrier 
told a complaining subscriber--and I quote--due to living in a 
rural area, you will experience service issues. That was the 
response.
    In Hurricane Sandy-ravaged Fire Island, just 60 miles from 
Manhattan, Verizon has replaced their damaged copper network 
with Voice Link wireless service. Hundreds of residents, many 
of them elderly, have complained to the New York Public Service 
Commission. For example, Dr. Samuel Mann complained that he 
cannot reliably receive emergency calls from his hospital. Jean 
Ufer writes that her husband's pacemaker cannot be monitored 
via Voice Link. And Mr. and Mrs. Howard Bedell are concerned 
that their father cannot use Voice Link for his Life Alert. 
Jonathan Randazzo, who owns five restaurants and businesses on 
Fire Island, had his credit card machine stop working on a 
recent Saturday evening. According to the ``Washington Post,'' 
Randazzo hopped from table to table scribbling credit card 
numbers and asking for signatures.
    Now, this could happen to any community that has ever 
experienced a natural disaster strong enough to damage network 
lines.
    Before you or in back of you or in back of me is a chart of 
services supported by Verizon's copper network that are not 
supported by Voice Link: reliable 911, medical alerts, security 
systems, broadband access, just to name a few.
    Members of the Subcommittee, these are not luxuries. These 
are necessities, and in many cases they are a matter of life or 
death.
    This is why we need rules of the road to govern the 
transition and beyond not because Verizon is a bad actor. They 
are not. But because problems will inevitably arise as old 
systems fade and new ones arise. Even at this early stage, 
carriers have shown that they will not voluntarily defend the 
fundamental principles that have made our networks great.
    The IP transition is an appropriate time for policymakers 
to review and update the rules for new technologies and ensure 
our communications policy continues to put everyday Americans 
first.
    But the question is not whether simply old rules apply to 
new networks. The question is whether we continue to believe in 
the same basic American values that have governed the 
relationship between our society and our communications 
networks for over a century.
    Thank you and I look forward to your questions.
    [The prepared statement of Ms. Sohn follows:]

Prepared Statement of Gigi B. Sohn, President and CEO, Public Knowledge
    Chairman Pryor, Ranking Member Wicker, and members of the 
Subcommittee, thank you for this opportunity to discuss the state of 
our nation's wireline communications networks. My name is Gigi Sohn and 
I am the President and CEO of Public Knowledge, a nonprofit public 
interest organization that promotes the public's access to information 
and culture through open, competitive, and universally accessible and 
affordable communications networks.\1\
---------------------------------------------------------------------------
    \1\ I would like to thank my Public Knowledge colleagues Jodie 
Griffin, Christopher Lewis, Harold Feld, Clarissa Ramon, and Girard 
Kelly for assisting me with the research and drafting of this 
testimony.
---------------------------------------------------------------------------
Introduction
    The transition of our wireline networks to Internet Protocol (IP)-
based services is a tremendous opportunity for our nation, but we must 
make sure the transition results in an actual upgrade in technology 
without a downgrade in the services upon which Americans depend. Right 
now we are in the midst of the transition: carriers are already 
actively moving their networks from the traditional Time-Division 
Multiplexing (TDM) protocol to IP-based technology. At the same time, 
we are seeing carriers show increasing interest in replacing their 
copper infrastructure with wireless service or with fiber for portions 
of their networks, often depending on the density and average income of 
each particular market.
    For decades, our country has used reasonable rules based on 
fundamental principles to build a phone network that became the envy of 
the world. We are the country that brought a phone to every farm--the 
country that built a network you can count on. We accomplished this by 
moving certain fundamental values forward with us as our communications 
networks evolved since the founding of our country. As we now face the 
opportunities and challenges of implementing the next generation of 
communications technology, we must continue to leave no one behind.
    For decades, the phone network in the U.S. has quietly and reliably 
provided benefits to the American public. These benefits have become so 
firmly engrained in the U.S. economy, public safety systems, and 
personal communications that users take for granted the consumer 
protections and competition policies that make them possible. These 
benefits were not a happy accident--they were the result of deliberate 
communications policies that demanded a telecommunications network that 
served its users first and foremost.
    Just listing a few of the things we love about our phone network 
reveals how we are so used to relying on the protections of the phone 
network we often don't even notice them. We conduct our business and 
personal communications as if we can always trust that the phone 
network will just work--because it will. We can choose to use whatever 
phone we want. When the power goes out during a natural disaster, our 
phones--and the central offices that service them--will keep working. 
In times of emergency, we can always call for aid from police, 
firefighters, and medical teams. When someone calls a friend on another 
phone network, that call will always go through--regardless of which 
carriers the two users subscribe to or where they each live. When the 
bill comes for that call, the user can rest assured that there will be 
no fraudulent charges and the carrier will not have ``traded'' her to 
another carrier without her permission. If a user changes phone 
companies, she can keep her phone number. We know that we can benefit 
from the innovations and features built on the phone network because it 
is an open platform: innovations like the internet, new handsets, 
calling cards, and collect calls. And in the rare instance that any 
part of this system breaks down, we know that there are government 
authorities at the local, state, and Federal levels equipped to fix the 
problem and protect users' interests.
    Every single one of these benefits is the result of deliberate 
policy choices that served specific basic values. Our phone network 
became the unparalleled success we know today because our policymakers 
valued five fundamental principles: 1) service to all Americans; 2) 
competition and interconnection; 3) consumer protection; 4) network 
reliability; and 5) public safety.\2\ These values are no less relevant 
and, if anything, are even more important as we begin the transition to 
the next iteration of our Nation's communications networks.
---------------------------------------------------------------------------
    \2\ See Jodie Griffin and Harold Feld, Five Fundamentals for the 
Phone Network Transition, Public Knowledge (July 2013).
---------------------------------------------------------------------------
    The transition of our phone network is happening now because there 
is already a business case for it. The fact that the carriers are 
already actively updating their networks now means we need not worry 
that our current rules are standing in the way of the transition, but 
this is still an appropriate time for policymakers to review and update 
the rules for new technologies and ensure our communications policy 
continues to put everyday Americans first. The technology we use to 
communicate may be changing, but our basic social goals and values 
remain the same.
The Transition to All-IP is A Good Thing, But It Must Be Handled 
        Responsibly
    The transition to newer technologies in our communications network 
presents a tremendous opportunity for better service, new features, and 
more efficiencies that can be passed on to consumers. This does not, 
however, in any way lessen the public's need for continued consumer 
protection and competition policies that have made our communications 
network such a success for the past 100 years. For this reason, Public 
Knowledge fully supports the phone network transition. But we must make 
sure this transition is a step forward, not a step backward, for 
everyday Americans.
    In addition to new opportunities, the phone network transition 
presents risks that the new networks will lack important features that 
consumers have counted on for decades. This means that policymakers at 
all levels of government must ensure that the transition is handled 
responsibly and everyday Americans are not left worse off during or 
after the transition.
    When users' ability to call 9-1-1, conduct business, or reach loved 
ones is at stake, we cannot afford to permit carriers to engage in 
self-help. This summer we have already witnessed what happens when 
carriers replace their traditional networks with new technology without 
guidance from authorities. Verizon's deployment of its fixed wireless 
service, Voice Link, has deprived customers in Fire Island, New York of 
important network services without advance public notice or input. This 
cannot become the ``new normal.'' We are in the midst of an important 
transition, but that does not mean we can let people be cut off from 
the services they count on.
    The first step to preserving a communications network we can all 
depend on is establishing the basic values that will guide 
policymakers' approach to the transition going forward. We need a basic 
framework of values to evaluate the many proposals that have been put 
forward before federal, state, and local regulators regarding the phone 
network transition. After all, for policymakers to know how to respond 
to an idea they must first know what goals and values the idea is 
supposed to serve. In the case of the phone network transition, 
policymakers can guide the transition to IP by relying on the same 
fundamental principles that made our phone network the envy of the 
world.
The Transition Will Especially Impact Rural Americans and Small 
        Businesses
    The new pattern of carriers eager to replace existing networks with 
new, untested technologies after natural disasters or when wireline 
networks have simply been allowed to degrade will have especially 
strong consequences for rural Americans and small businesses. Rural 
areas depend on wireline services more than most, especially because 
wireless deployment--even beyond its general limitations compared to 
wireline service--is not very strong in rural areas. And when a rural 
community loses a wireline service provider that offered DSL or other 
broadband service, there is rarely any competing service to turn to for 
continued Internet access. At the very least, the rural farmers who 
grow our food should know that they will be able to make phone calls 
and access the Internet when needed to check weather patterns, predict 
crop growth, and make business arrangements to harvest and transport 
crops. This also impacts more than just rural communities themselves--
when farmers are arranging food shipments to your town, do you want 
them to lose service?
    The recent rural call completion problem also reminds us that rural 
communities may bear the brunt of unexpected complications tied to the 
IP transition, with potentially devastating consequences. As carriers 
switch to IP technology, it becomes possible for them to route calls 
through Least Cost Router systems, creating latency and sometimes 
trapping calls in perpetual loops so calls to or from rural areas do 
not go through. The Commission has rightly recognized that this issue 
speaks to our foundational expectation that the phone network will be 
reliable for all Americans, including those in rural areas, and has 
opened a proceeding to learn more about exactly why the rural call 
completion problem is getting worse.\3\ But even so, the FCC has 
received some shockingly inadequate carrier responses to rural call 
completion complaints. For example, one carrier told the FCC: ``We have 
contacted the [rural complainant] and have successfully resolved this 
matter by advising [her] that due to living in a rural area she will 
experience service issues.'' \4\
---------------------------------------------------------------------------
    \3\ Rural Call Completion, Notice of Proposed Rulemaking, WC Docket 
No. 13-39 (rel. Feb. 7, 2013).
    \4\ FCC Enforcement Advisory, Rural Call Completion: Long Distance 
Providers Must Take Consumer Complaints About Rural Call Completion 
Problems Seriously (July 19, 2013), http://transition.fcc.gov/
Daily_Releases/Daily_Business/2013/db0719/DA-13-1605A1.pdf.
---------------------------------------------------------------------------
    This is why we need rules of the road: problems will inevitably 
arise as old systems fade away and new ones arise, but carriers have 
clearly shown that we cannot simply assume that companies will 
voluntarily defend the fundamental principles that have made our 
communications networks great. Meanwhile, 25 states have eliminated or 
reduced state commission authority over telecommunications services, 
and 12 states (all of which are in AT&T's incumbent local exchange 
carrier territory) have eliminated or reduced carrier of last resort 
obligations.\5\ Particularly where the states have effectively written 
themselves out of the conversation through deregulation, everyday 
Americans are relying on Federal authorities as their sole defender to 
protect the reliable, affordable communications access they count on.
---------------------------------------------------------------------------
    \5\ Sherry Lichtenberg, Ph.D., Telecommunications Deregulation: 
Updating the Scorecard for 2013, National Regulatory Research 
Institute, at 1, 20-22 (May 2013).
---------------------------------------------------------------------------
    The National Rural Assembly's Rural Broadband Tales \6\ reminds us 
how everyday rural Americans rely on communications networks to conduct 
business, pay their bills, and pursue education. If these communities 
see their Internet access replaced with voice-only fixed wireless 
services like Voice Link, or continue to lack adequate broadband access 
in the first place, we all miss a huge opportunity to develop our 
economy and connect our nation. Here are just a few of these stories:
---------------------------------------------------------------------------
    \6\ Rural Broadband Tales, http://placestories.com/project/
7996#!v=stories.

   John Hicks, a coal miner from Perry County, Kentucky, 
        explains that his Internet service drops around 300 to 400 
        times per month, leaving him unable to pay his bills and his 
---------------------------------------------------------------------------
        children unable to do their homework.

   Joyce Dearstyne from Elk City, Idaho tells how, if she had 
        access to broadband, she could ``utilize e-commerce 
        capabilities to promote artists in the woods and other value-
        added good products and create a level playing field for my 
        businesses and artisans to compete throughout the world.''

   John Carwell, a minister from southeastern Kentucky suffers 
        from (1) no wireless service and (2) poor broadband service. He 
        explains, ``[w]e feel helpless when we talk to the 
        communication companies. We say we have the tower and land to 
        put your services and equipment on . . . We're helpless because 
        the response is always `well there's not enough people.' That's 
        tough to hear because what they're saying is `your area's not 
        worth it.' ''

    Similarly, small businesses--particularly those in areas with 
terrain inhospitable to wireless service--are vulnerable to losing 
necessary communications services if this transition is not handled 
responsibly. If a business's wireline connection is replaced with a 
service like Voice Link that does not support Internet access or credit 
card processing, they risking going out of business entirely. If a 
restaurant cannot take your credit card because it only has a voice 
line, or its service was just dropped, you likely won't be inclined to 
return. When a coffee shop can no longer offer WiFi because its 
Internet connection has been taken away, the fact that the shop might 
have an almost-as-reliable wireless voice-only service in its stead 
will be cold comfort as it watches paying customers walk out the door.
    These are the risks faced by every area that faces potential 
natural disasters, every town that contains small businesses, and every 
community that wants this transition to be a step forward, not a step 
backward. This is why we must be diligent in shaping a phone network 
transition that creates new, better services protected by strong, 
certain rules.
A Cautionary Tale: Transitioning After Natural Disasters
    It is clear that the continued success of our communications 
networks depends on reasoned rules and strong consumer protection 
during and after the phone network transition, and that need is even 
greater in communities likely to experience or already experiencing the 
transition, like rural areas and areas damaged by natural disasters. 
The examples we have already seen where carriers have transitioned 
communities to new networks on their own initiative warn us of what 
happens if policymakers do not step in to protect consumers. Without 
strong guidance, we all face the very real danger that the phone 
network transition will be a technological step backward and a 
downgrade in consumer protection.
    Communities and their residents have always had to deal with 
temporary network outages after natural disasters, but now that we are 
in the midst of the phone network transition, we are seeing instances 
where carriers want to respond to damaged networks by replacing the 
existing networks with new, untested services, rather than repairing or 
rebuilding the infrastructure the community has relied on for decades. 
Like the rest of the phone network transition, this can be an 
opportunity for better, newer service for the community, but 
unfortunately we have already seen how it can also force customers--who 
are already trying to rebuild their lives after a devastating natural 
disaster--to accept less reliable, more restricted services than what 
they had before.
    For example, after Hurricane Sandy damaged the existing copper 
network in communities on the East Coast, Verizon decided to replace 
its copper-based service with a fixed wireless service called Voice 
Link in certain areas. Voice Link works by connecting a device linked 
to Verizon's wireless network to a customer's house. It is now clear 
that Voice Link constitutes a substantial step backward for many of the 
permanent residents in Fire Island, New York, hundreds of whom have 
already complained to the New York Public Service Commission. As a 
wireless service, Voice Link does not offer the same reliability and 
quality of service that the copper did, and it requires the customer to 
remember to recharge or replace its batteries to function during a 
power outage. Verizon specifically disclaims liability if it 
negligently lets the wireless network become too congested for 9-1-1 
calls to go through. And, unlike the copper network, Voice Link does 
not support important features like Life Alert, other medical alerts, 
security alarms, Internet access, credit card processing, calling 
cards, and collect calls.\7\
---------------------------------------------------------------------------
    \7\ For a comparison of the capabilities of Voice Link and the 
previous copper-based telecommunications service, please see Appendix 
A.
---------------------------------------------------------------------------
    Even a quick glance through the New York State Public Service 
Commission's public comments and press reports reveals how much these 
changes are impacting real customers' lives:

   R. Bruce Minoff, among many other customers, complains that 
        wireless service in his family's area is spotty, so they now 
        have no option at all for reliable phone service.

   Dr. Samuel J. Mann complains that he cannot reliably receive 
        emergency calls from his hospital now, while other families, 
        like Sonia Gluckman, are worried that they will not be able to 
        reach a doctor if their elderly parents need urgent medical 
        care.

   Mr. and Mrs. Howard Bedell express concern that their father 
        cannot use Voice Link for Life Alert or to remotely connect 
        pacemakers and other medical devices to their hospitals, as 
        they previously could using Verizon's copper network.

   Customers--particularly small business owners like realtor 
        Jean Ufer--report that they can no longer turn to uncapped DSL 
        Internet access for approximately $30 per month, and instead 
        pay $80 per month for just 10 GB of data on a 4G wireless 
        connection. Even outside of the office, Ms. Ufer also noted 
        that the switch to Voice Link has prevented her husband from 
        having his pacemaker remotely monitored, as he used to over the 
        copper line.

   Jonathan Randazzo, who owns five restaurants and businesses 
        on Fire Island, had his credit card machine stop working on a 
        recent Saturday evening. According to the Washington Post, 
        Randazzo ``hopped from table to table, scribbling credit card 
        numbers and asking for signatures he created on a Word document 
        printed out from his computer.'' \8\
---------------------------------------------------------------------------
    \8\ Cecilia Kang, Verizon Pursues All-Wireless Phone Service in 
Seaside NY Town, Washington Post (July 4, 2013), http://
www.washingtonpost.com/business/technology/verizon-pursues-all-
wireless-phone-service-in-seaside-ny-town/2013/07/04/9120fa80-ac4c-
11e2-a198-99893f10d6dd_story_1.html.

    Every day more complaints come in; it is clear that customers of 
all backgrounds are outraged at having been switched to an inferior 
service with no prior public notice or input.\9\
---------------------------------------------------------------------------
    \9\ For more selected public comments submitted to the New York 
State Public Service Commission, please see Appendix B.
---------------------------------------------------------------------------
    Voice Link is one startling example, but the lessons are by no 
means limited to Verizon, Voice Link, or Fire Island. This could happen 
to any community that has ever experienced a hurricane, tornado, 
earthquake, blizzard, flood, or storm strong enough to damage network 
lines. We all have a stake in making sure policymakers protect the 
interests of everyday Americans, especially people trying to rebuild 
their communities after devastating natural disasters. Hurricane 
victims cannot become the de facto guinea pigs for the phone network 
transition--if we have pilot programs for new technologies, they must 
be transparent and carefully controlled to protect the communities 
testing the new technology.
The Transition Should Be Guided by the Five Fundamentals
    As we move forward in the phone network transition, we need a basic 
framework to establish the fundamental values that undergird our 
communications networks and guide new policy proposals. Working within 
a values-based framework ensures that our 21st Century rules will 
benefit everyday Americans, not just the dominant corporations in the 
telecommunications industry.
    Public Knowledge submits that this framework should consist of Five 
Fundamentals that have successfully steered communications policy for 
decades, and continue to protect consumers and encourage innovation 
today. These fundamental values--service to all Americans, competition 
and interconnection, consumer protection, network reliability, and 
public safety--capture the basic principles that made our phone network 
a resounding success and can do the same for the next generation of 
communications technology. The reality of tomorrow's network will 
depend on the expectations we set today and the values we commit to 
serving through the transition.
Service to All Americans
    First and foremost, our national communications policy ensures the 
benefits of our communications network flow to all Americans--
regardless of ``race, color, religion, national origin, or sex.'' \10\ 
We have, as a nation, decided to invest in a world-class communications 
infrastructure and so we should, as a nation, reap the benefits of that 
infrastructure. The principle of service to all Americans applies 
whether users live in rural areas or urban areas. It applies to those 
with any physical disability that would interfere with communication. 
It applies to all users regardless of their level of income. Today, our 
efforts to serve all Americans must include initiatives that go beyond 
traditional concepts of deployment and take advantage of the 
opportunities presented by new technologies.
---------------------------------------------------------------------------
    \10\ 47 U.S.C. Sec. 151.
---------------------------------------------------------------------------
    Whatever happens, the United States must not be the first 
industrialized nation to step back from the goal of achieving 100 
percent penetration of basic communications service. While the United 
States has not yet completely achieved the goal of 100 percent build-
out, it is vital that reaching everyone in the country continues to be 
the goal motivating all stakeholders to continue working until the job 
is done.
    This transition is also an opportunity to look forward: what new 
opportunities are made possible by new technology, and how does that 
impact what we determine to be the ``basic service'' that all should 
have access to? The Communications Act specifies that universal service 
encompasses ``an evolving level of telecommunications services'' and 
that the FCC should take into account ``advances in telecommunications 
and information technologies and services'' as it decides what 
universal service will look like for homes, schools, libraries, and 
health care providers across the country.\11\ Access to basic 
communications services reaps tremendous social and economic benefits 
to users, regardless of the material or technology used to transport 
the communications.
---------------------------------------------------------------------------
    \11\ 47 U.S.C. Sec. 254(c).
---------------------------------------------------------------------------
    It remains to be seen how the U.S. will continue to pursue the goal 
of 100 percent basic service for all Americans as carriers stop 
maintaining their older, TDM-based facilities. It is clear, however, 
that universal service and carrier of last resort policies must 
continue ensuring that all users are able to purchase reliable voice 
service under nondiscriminatory terms. These policies traditionally 
applied to all relevant carriers operating in some way on the 
traditional PSTN. Neither the make-up of the physical plant nor the 
protocols used to transport data on the network diminish consumers' 
need for basic service--if anything, advances and new efficiencies in 
technologies may justify raising the standard for what is considered 
basic service.
    One of the most important goals of communications policy in the 
United States is reaching universal service for all Americans across 
the country. The transition of the PSTN is an opportunity to expand and 
improve the communications service that all Americans receive, and our 
communications authorities must determine how they can continue to 
serve that goal as the traditional make-up of the PSTN changes.
Interconnection and Competition
    Interconnection and other competition policies lie at the heart of 
the development of a robust and competitive communications network. As 
we saw more than 100 years ago, without mandatory interconnection the 
phone network will slide inevitably toward monopoly as the largest 
carriers can gain anticompetitive advantages by withholding access to 
their customers from competitors. As carriers now move toward all-IP 
networks, policymakers must determine how they will ensure 
interconnection and competition among providers post-transition. These 
policies are critical to creating and maintaining a functioning 
interconnected network and a competitive market for communications 
services.
    The duty to interconnect with other networks was first a means of 
enabling universal service in rural areas in the days of the old AT&T 
monopoly so rural cooperatives, municipalities, and local businesses 
brought service to places AT&T found too expensive to serve. Later, as 
amendments to the Act shifted national policy from regulated ``natural 
monopoly'' to encouraging competition among competing networks, 
interconnection became the sine qua non of fostering and developing 
competition. Unless we propose to return to the days of regulated 
natural monopoly, policymakers must absolutely guarantee that competing 
networks will continue to accept each other's traffic and terminate 
each other's calls in a manner that both preserves call quality 
throughout the country and actively promotes a robust and competitive 
environment.
    In particular, subscribers to different networks must not find 
themselves with dropped calls or degraded quality of service due to 
``peering disputes'' between carriers. If NBC and AT&T have a 
retransmission dispute and AT&T video subscribers temporarily lose NBC 
programs, it is annoying. But if Comcast and AT&T have a ``peering 
dispute'' and millions of AT&T wireless customers cannot call Comcast 
landlines, it is a disaster. It is not enough to speculate that 
incentives will prevent such a thing from occurring. Policymakers must 
make sure such an event continues to be impossible after the 
transition.
    It is not just idle speculation to imagine this happening in a 
post-transition PSTN. Already, some carriers are refusing to file IP-
to-IP interconnection agreements at the state level. Without adequate 
interconnection requirements, consumers may find themselves suffering 
from interconnection disputes between carriers that provide not just 
their video and Internet access, but their basic voice service as well. 
If the interconnections that have tied together our voice network 
unravel, dominant service providers will be able to leverage their 
customer bases against competitors and control increasingly large 
shares of the market, resulting in higher prices and fewer choices for 
consumers.
    Interconnection and competition policy also require an examination 
of potential reform in call termination and access charges. Even now, 
rate-of-return carriers that serve rural areas have reported 
increasingly poor phone service quality and increasingly frequent 
customer complaints. This quality decay prevents small businesses from 
offering prompt service, threatens to hinder emergency calls to or from 
public safety officials, and thwarts customers' efforts to communicate 
with loved ones. These complaints should be taken as a warning of 
things to come if interconnection requirements are not adequately 
implemented and enforced in the post-transition PSTN.
    The phone network transition also calls into question the future of 
other rules and policies designed to encourage competition among 
communications providers. For example, local number portability (LNP) 
obligations have currently been extended to VoIP providers so that VoIP 
customers may keep their North American Numbering Plan (NANP) telephone 
number when changing providers. LNP rules encourage competition by 
allowing consumers to respond to providers' price and service changes 
without losing their phone numbers. But at this juncture the questions 
inevitably arises: when the traditional PSTN is gone, what will happen 
to the NANP? How can LNP rules extend to all phone service providers 
without revisiting the foundation of the NANP or classifying VoIP 
service?
    Additionally, to preserve a competitive environment in wireline, 
the law must provide certainty that businesses and competing carriers 
will be able to obtain special access services at reasonable rates. If 
a carrier desires to exit a market completely, Congress must ensure 
that consumers are not left behind by protecting the right of local 
communities and governments to provision their own communications 
services.
    As the PSTN transitions to new physical facilities and IP 
protocols, it is critical to the competitive future of the market that 
the law and rules ensure carriers will continue to interconnect and 
rules will continue to promote competition in the marketplace to the 
benefit of consumers.
Consumer Protection
    When we talk about a system that everyday Americans count on to 
call 9-1-1, businesses, and loved ones, we cannot ignore users' need 
for consumer protections in the network. Competition is important, but 
it does not always guarantee consumer protection. From the privacy of 
phone calls to truth-in-billing to slamming and cramming, Americans 
rely on a safety net of rules that protect them when they communicate 
with one another. Throughout and after the PSTN transition, consumers 
must continue to be adequately protected--including effective recourse 
through the timely resolution of complaints.
    But on the Federal level, the Federal Communications Commission has 
only extended privacy rules to interconnected VoIP services by 
reasoning that those VoIP services send calls to and receive calls from 
the traditional phone network.\12\ It makes sense that customers should 
be able to rely on the same protections they have always enjoyed when 
they switch to what by all appearances seems like a pure replacement 
for ``regular telephone'' service. However, without further guidance or 
action it is unclear how the FCC will be able to continue applying 
these rules to VoIP by relying on its authority over the traditional 
phone network when the traditional phone network as we know it has been 
retired.
---------------------------------------------------------------------------
    \12\ 47 U.S.C. Sec. 222.
---------------------------------------------------------------------------
    Even worse, ``slamming'' rules that prevent carriers from switching 
subscribers' services without permission and ``cramming'' rules that 
forbid carriers from adding unauthorized charges on customers' phone 
bills only apply to providers that use the older, TDM-based, 
technology, and do not apply to VoIP providers at all. Leaving 
consumers vulnerable to predatory practices with no avenue for recourse 
cannot become the new normal. Consumers should not be punished for 
upgrading to new technology by receiving downgraded protections.
    As the PSTN begins to transition to IP protocols and other upgraded 
technologies, policymakers must come to terms with how they will 
continue to protect consumers post-transition. All signs indicate that 
consumer protection rules will be equally, if not more, important post-
transition than they are today, and if anything consumer protection 
agencies will need flexibility to ensure that current and future 
consumer protection rules serve the same basic social needs as they do 
today.
Network Reliability
    A comprehensive framework for the PSTN would be incomplete without 
a principle ensuring that the basic mechanisms of the network will 
continue to function throughout and after the PSTN transition, even and 
especially in emergency situations. Above all else, Americans rely on 
their communications networks to work consistently and reliably. Above 
all else, a successful transition means that phone numbers still work 
and calls still go through with the same reliability they do today.
    The first and most fundamental criterion for network reliability is 
ensuring that basic network mechanisms will continue to function during 
and after the transition. We must therefore determine how the 
fundamental mechanisms underlying the phone network today will continue 
to operate when the traditional PSTN technology no longer exists. The 
FCC currently exercises its authority over phone numbers to distribute 
phone numbers through the North American Numbering Plan (NANP). Most 
VoIP providers must buy phone numbers through another carrier that uses 
the PSTN instead of obtaining numbers directly from a NANP 
Administrator. This raises the stark and critical question: who will be 
able to obtain numbers when all carriers have transitioned to IP-based 
technology? How will phone numbers work in a world with no TDM-based 
PSTN? These are questions that we absolutely must answer if the phone 
network as users now know it is to continue operating post-transition.
    After the transition, there will also be no ``copper safety net'' 
to offer the reliability that users have come to expect with basic 
phone service. Nevertheless, users' phone service--regardless of the 
protocols or materials it uses--must be able to withstand emergency 
situations. Even at this early point we are witnessing phone network 
technology ``upgrades'' result in less redundancy and back-up power in 
the system and increased reliance on the commercial power grid, 
creating a single point of failure when users need to communicate most. 
This does not mean that the only answer is to hope that fiber or 
wireless services suddenly become self-powered as copper is, but it 
does mean that we must find new ways to ensure a reliable phone system 
that doesn't let customers down when they need it most.
    The impact of the transition to IP-based networks on reliability is 
unfolding before us in real time. After Hurricane Sandy, Verizon 
acknowledged that the storm caused outages in its FiOS voice, internet, 
and video services, while users across the affected areas lined up 
outside to use pay phones connected to the copper network. Similarly, 
this past January customers of AT&T's U-verse voice, internet, and 
video services suffered outages for days due to problems with a 
software upgrade. As one customer hit by the outage put it, ``You go on 
U-verse, and the old handy dandy landlines that would work no matter 
what? . . . That's not happening any longer.'' \13\ This, of course, is 
no new phenomenon. Outages by cable providers have been periodically 
denying subscribers their services for years. Such outages would be 
unacceptable in the TDM-based, circuit-switched world, and they must be 
equally unacceptable in the IP world.
---------------------------------------------------------------------------
    \13\ Brian X.Chen, AT&T's TV, Phone and Internet Service is Down in 
Some States, N.Y. Times Bits Blog (Jan. 23, 2013), http://
bits.blogs.nytimes.com/2013/01/23/atts-tv-phone-and-internet-service-
is-down-in-some-states/.
---------------------------------------------------------------------------
    This means that the FCC, and other regulatory authorities, must 
determine how they can ensure that the post-transition PSTN continues 
to guarantee robust service for everyday uses and for emergency 
circumstances, when users need communications services most. As the 
PSTN continues its transition, policymakers must decide how they will 
ensure that consumers can continue to expect that their phone calls 
will go through, every time.
Public Safety
    Finally, it is unquestioned that when someone calls 9-1-1, that 
person needs to know beyond a shadow of a doubt that she will be 
connected in one second. Everyday Americans rely on 9-1-1 daily to call 
for help in time of need. The FCC has already begun to look to the 
future of public safety requirements with the Next Generation 9-1-1 
transition.\14\ This conversation, however, is best situated in the 
broader context of the overall PSTN transition, both to evaluate the 
effect of 9-1-1 proposals on other aspects of the network, and to 
anticipate the impact of non-9-1-1 proposals on our emergency 
communications structure.
---------------------------------------------------------------------------
    \14\ The FCC is also working with surer authority in this area 
compared to other aspects of the PSTN transition, based on the Next 
Generation 9-1-1 Act. See Middle Class Tax Relief and Job Creation Act 
of 2012, Pub. L. No. 112-96 (2012), Title VI, Subtitle E.
---------------------------------------------------------------------------
    Public safety rules must ensure that emergency services like 9-1-1 
and geolocation technologies continue to help first responders offer 
emergency care, regardless of whether the network that the customer 
uses is wireless or wireline, copper or fiber. The conversion to an 
all-IP network offers an opportunity to further facilitate emergency 
communications, and that opportunity must not be squandered. This also 
includes ensuring that the thousands of alarm systems and alarm system 
standards that rely on access to a ``telephone line'' are not disrupted 
by the transition, as we have seen them be disrupted by the transition 
to Voice Link in Fire Island, New York.
    When the traditional architecture of the PSTN no longer exists, it 
is crucial that consumers are able to contact emergency services when 
they need it most. The moments in which the public relies upon 
emergency services like 9-1-1 are literally life-or-death, and it is 
crucial that policymakers implement rules that maintain the public 
safety components of the phone network. To its credit, the FCC has 
already begun the process of creating a framework for next-generation 
9-1-1 services, but these issues must also be considered in the broader 
context of the overall shift of the PSTN to new technologies.
Conclusion
    The transition of the phone network presents new opportunities and 
new challenges for policymakers seeking to ensure new networks 
constitute a true step forward, not a step backward, for everyday 
Americans. The stakes are high. The choices policymakers make now will 
impact how the public conducts business, communicates with loved ones, 
and reaches emergency services. Public Knowledge urges Congress to 
follow the basic values that have informed our communications networks 
since the founding of our country to ensure we can all continue to 
enjoy a communications network we can count on.
                               Appendix A

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               Appendix B
    The following are just some examples of the hundreds of public 
comments submitted to the New York State Public Service Commission in 
its proceeding on Verizon's Voice Link deployment in Fire Island.\15\
---------------------------------------------------------------------------
    \15\ See New York State Public Service Commission, Tariff Filing by 
Verizon New York Inc. to Introduce Language Under Which Verizon Could 
Discontinue Its Current Wireline Service Offerings in a Specified Area 
and Instead Offer a Wireless Service as Its Sole Service Offering in 
the Area, Case 13-C-0197, http://documents.dps.ny.gov/public/
MatterManagement/CaseMaster
.aspx?MatterSeq=42688.

   1.  ``I bring my 93 year old mother who is in home hospice, to my 
        beach house on Fire Island, and having an old fashioned 
        landline is crucial to my feeling safe about having her 
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        there.''--Sonia Gluckman, 7/15/2013

   2.  ``We have also been relying on cell phone service through 
        Verizon which has been spotty, at best. My cell phone works in 
        our house while my husband's does not. He is a physician at 
        NYPresbyterian Hospital and relies on his cell phone to take 
        emergency calls when he is away from Manhattan. Sometimes these 
        calls are urgent and confidential.''--Maureen and Samuel J. 
        Mann, 7/15/2013

   3.  ``In hurricanes Irene and Sandy the land line phone service was 
        a life saver. Without the land-line phone I would have had to 
        keep my cell phone off to save battery power for 911 calls. I 
        am a senior citizen. With a cell phone I could not receive 
        calls from doctors. If land-line is dropped then people will 
        die. Because cell phones will run out of battery power and 
        people will not be able to call 911. My whole area was out of 
        electricity after Sandy. I lost power for 5 days in hurricane 
        Irene and 8 days after Sandy. My area loses power many times a 
        year. About a month after hurricane Sandy my area lost power 
        again for 12 hours. The land line phone has to stay.''--Albert 
        Dresner, 7/12/13

   4.  ``The bigger issue has been internet. I and most Fire Islander's 
        previously had unlimited DSL service (through the copper wires) 
        for about an additional $30 per month, tagged on to the phone 
        service. Now, for the 4G service (which is admittedly faster), 
        I am paying $80 per month for just 10GIGs per month of data (I 
        believe the cost is $10 per month for each additional 2GIGs). 
        Those 10 GIGs just get me and my family through a month of e-
        mail, normal levels of work related Internet use, and basic 
        household Internet usage. . .. One could easily spend hundreds 
        of dollars or more per month, at Verizon's rates, in order to 
        regain the amount of data we previously had pre-Sandy. This is 
        where Verizon is truly taking advantage of us all, and what 
        people are most upset about.''--Keith B. Stein, 7/10/2013

   5.  ``Cell service is often poor on Fire Island and it can often 
        times requires several minutes to get cell service and may 
        require you to physically move to another location to pick up 
        service. I have previously had a heart attack and do not want 
        to rely solely on cellular service in case of an emergency. We 
        need a hard line service provider on the Island.''--Arthur 
        Rhein, 7/8/2013

   6.  ``Please help with this very bad situation with Verizon service 
        at Fire Island. They will not repair my landline, which my 
        husband really needs, as he has a pacemaker, which has to be 
        monitored by a land-line. They also refused to connect my DSL, 
        even though they charged me the monthly fee right through the 
        winter, when I questioned this, they said they would transfer 
        me to the billing department, and I was promptly 
        disconnected!!!!! I have a Real Estate office here in Fair 
        Harbor, and I am getting SO many complaints about Verizon 
        service, (or, NON service).''--Jean Ufer, 7/8/2013

   7.  ``I'm extremely unhappy and very nervous that our hardline or 
        copper will be cancelled. We are year round residents on Fire 
        Island and need a hard line to run our business and to monitor 
        our property from The DSL line. After the storm, I temporarily 
        had the Home Connect system and it worked poorly. Calls would 
        ring for 30 plus times before I even knew they were coming 
        through and we had no Internet which is essential to run a 
        business. Sometimes calls didn't even go through. Please don't 
        allow Verizon to cut our lines without offering a suitable 
        option. VOICE LINK DOESNT WORK.''--Barbra Heller, 7/6/2013

   8.  ``I'm single, live alone and am now considered `senior.' While I 
        don't use the telephone too often I rely it being there for 
        essential help in emergencies. I am active on the Internet and 
        require it for business connections. Life without a real 
        telephone would be precarious and dangerous on our relatively 
        isolated island.''--Patricia Robbins, 7/5/2013

   9.  ``During superstorm Sandy, we lost power for 2 weeks. Although 
        the telephone line fell and was across the backyard, we had 
        telephone service. We were able to call Verizon to come and fix 
        the line. We were able to call the children and tell them that 
        we're ok. We also were able to call LIPA to tell them about the 
        power outage. We are senior citizens in our 70s and are afraid 
        of not being able to call for assistance if needed.''--Robert 
        and Barbara Grosswald, 7/4/2013

  10.  ``My father was on life alert and many of the seniors who lives 
        alone depend on that service. I work in a Nursing and Rehab 
        Center and many people who have fallen and have medical issues 
        live alone.''--Mr. and Mrs. Howard Bedell, 7/2/2013

  11.  ``As a home owner in Fair Harbor I am distressed and concerned 
        about the `solution' of Voice Link over the copper wire system 
        for our phones. Already I have had an incident with being 
        unable to make a call from my cell phone because the network 
        was busy. Thankfully it was not an emergency call, but if it 
        had been the delay in getting through would have been 
        significant. With an aging mother who does come out to visit, 
        the idea of not being able to reach 911 in an emergency is 
        terrifying.''--Jennifer-jo Moyer, 7/2/2013

  12.  ``As a NY resident with elderly (80+) parents, and an elderly 
        (80+) aunt with health issues and Parkinson's Disease on Fire 
        Island for the entire summer, I am concerned that the Voice 
        Link system will not meet their needs in a time of emergency. 
        Cell phone signals are notoriously erratic particularly in poor 
        weather, and particularly on Fire Island; and I am concerned 
        that this system is more likely to fail in the event of an 
        emergency. In my elderly aunt's case, she will no longer be 
        able to use her medical alert bracelet as it is dependent on a 
        working landline. That she would be able to reach her cell 
        phone after falling down seems unlikely.''--Ken Rothchild, 7/2/
        2013

  13.  ``As a senior-age Fire Island customer since 1970, my wife and I 
        are very dependent on a telephone system that we can rely on, 
        especially during health emergencies. The research that I have 
        done on the Voice-Link System tells me that its very unreliable 
        and would be a terrible down-grading for us causing lots of 
        anxieties. Please do not give Verizon a go-ahead ruling on 
        their `consumer un-friendly plan.' ''--Lee Epstein, 7/1/2013

  14.  We need Life Alert systems, our home alarm system and 
        communication with the outside world, especially in times of 
        weather disasters such as the recent Hurricane Sandy. During 
        that storm, which caused electrical power outages, our cell 
        phone also failed. Our landline made it possible for us to 
        contact our son and daughter, as well as emergency sources, 
        should it become necessary. Since we do not drive, having a 
        landline made it possible to contact neighbors should we need 
        food and help. There are many stresses, which accompany aging. 
        Losing touch with the outside world should not be another 
        source of worry.''--Phyllis and Herbert Hildebrand, 7/1/2013

  15.  ``If Verizon were to abandon the South Bronx for landlines with 
        the argument that the neighborhood is unprofitable due to 
        income, credit worthiness problems or vandalism, it would never 
        fly. Why then can Verizon be allowed to reduce service levels 
        to Fire Island?''--Kevin Lee, 6/28/2013

  16.  We rely on phone service for emergency response. In the short 
        time that we have had Voice Link we have had problems in rainy 
        weather. The Jetpack Internet service that, with our limited 
        mobility, we rely on to order medications, food and 
        communicating with physicians is painfully slow and does not 
        work at all on weekends.''--R. Bruce Minoff, 6/28/2013

  17.  ``My husband and I are seniors, and in the future may need life 
        alert. That does not work on VoiceLink. There have been break-
        ins in our neighborhood, and we are going to install an alarm. 
        That doesn't work on VoiceLink. We have been waiting not so 
        patiently for FiOS to be installed in our neighborhood. I have 
        initiated many complaints to Verizon for noise on our line. Our 
        DSL is so slow, it seems as if we have dial-up Internet 
        service.''--Jean L. Coleman, 6/28/2013

  18.  ``If you are unfamiliar with Fire Island, there is very little 
        medical service and the only way off the island is a scheduled 
        ferry service or, for some people who have permits and trucks, 
        a very long drive. When someone needs to be rushed to the 
        hospital, they are evacuated by helicopter, which makes timely 
        emergency calls of the essence to save lives.''--Nora Olsen, 6/
        20/2013

    Senator Pryor. Thank you.
    Let me go ahead and ask Mr. Gardner the first question. And 
that is, you mentioned in your statement that residential 
retail is basically out of date in terms of the regulatory 
framework. So what is the solution from your standpoint?
    Mr. Gardner. Thank you, Senator Pryor.
    I think when you look at residential markets, it has 
changed greatly in the last 10 years. In 1996, nearly 100 
percent of the people in this country received wireline phone 
service from the telephone company. At the current time, that 
number is in the 25 to 30 percent range. That market share has 
changed a lot. As was mentioned by one of the Senators, 43 
percent of the people are wireless today, wireless only.
    And so I think what we need to do is recognize there are 
big differences between residential and enterprise in terms of 
the market opportunities. We need to look at reforming 
regulatory policy to fit with what the construct is today. 
Wireline companies are a much smaller piece of the pie, yet 
they still carry the brunt of the regulatory burden.
    Senator Pryor. I want to ask Ms. Bloomfield, if I can, a 
follow up from something you said. You talked about there 
should be a Connect America Fund for smaller providers. How 
would that work?
    Ms. Bloomfield. So right now the Connect America Fund that 
you hear so much about is for those carriers that are not the 
rate-of-return carriers. We need to create a Connect America 
Fund for the small rural carriers that will really focus on 
ensuring that they continue to do the good work that they have 
been doing in these markets. When you look at the evolution and 
the fact that there are 92 percent of these subscribers in 
these small rural communities served by these rate-of-return 
carriers that actually have broadband access, it is pretty 
miraculous. And I think we really become a showcase in a lot of 
ways for rural areas of the rest of the world because we 
recognize how important it is to connect everybody.
    So I think that there is a number of different ways to go 
about it. We have been presenting plans to the FCC. There is, I 
think, a recognition that when you look at the carriers' costs 
and reconcile what took place with the transformation order a 
couple of years ago in terms of the lost revenue on the 
intercarrier compensation side, kind of reconciling it to the 
point where there are financial incentives for these companies 
to actually make the investment that we need to have in these 
communities.
    And I would point out, as an example, one of the things 
that I think is a little bit ironic about not having a Connect 
America Fund is right now the way USF is now set for these 
carriers is it supports a voice network. So we are talking 
about people cutting the cord. We are talking about people 
going to different networks, but you still might want that 
wired broadband connection to your home because it has a very 
high data capacity. Well, right now our carriers do not get 
support. If that customer drops the voice service, wants the 
wired network for their broadband, they do not get USF support. 
So all that is going to do is increase the cost for that 
consumer to actually get the broadband service. We need to move 
into a broadband-enabled environment for the rural carriers as 
well.
    Senator Pryor. Senator Wicker?
    Senator Wicker. Thank you very much.
    Let me begin with Mr. Downes. You mentioned that we are in 
the midst of a revolution, that the IP transition is already 
happening.
    And you are based in Silicon Valley, I believe. Is that 
correct?
    Mr. Downes. Yes, sir.
    Senator Wicker. Some people are advocating a regulatory 
route to approaching this transition. Others advocate a lighter 
regulatory touch. As Congress looks at this issue and as the 
FCC looks at this issue, what do you say to that? Do we need a 
lighter touch, or do we need to delve into a whole new 
regulatory scheme?
    Mr. Downes. Well, Senator, I think the easiest way to think 
about it is just to look at the two worlds in which consumers 
are now living. We have the old PSTN world and we have the 
Internet world largely unregulated, the other very regulated 
still. It is clear where consumers are voting. They are moving 
from one to the other, and they are moving from one to another, 
as I say, for very good reasons. The service is available 
through the Internet. The innovation that is possible, the 
entrepreneurship that happens means that things can change and 
evolve very quickly and have very quickly, obviously, quicker 
than anybody would have imagined in the last 15 years.
    Frankly, when we in the technology industry hear discussion 
about which of the title II sections should be applied to IP 
networks in the future, we are baffled. We do not understand 
even how that is possible, but definitely not why we would 
think it is a good idea.
    In matters such as interconnection, for example, we do not 
have interconnection. We have piering arrangements. They have 
worked remarkably well. According to the OECD, 99.5 percent of 
them are not even reduced to writing. That is how sort of 
straightforward they are. Some of them are paid. Some of them 
are unpaid. Some are for large, some are for small networks 
connecting to each other. It is on a global basis, by the way. 
This is not just in the U.S.
    And, of course, it does not always work perfectly, but when 
it does not, the resolution is relatively easy. In fact, this 
is not about networks having power. Increasingly the content 
providers have a leverage that they are exerting on this 
process as well.
    So we like the fact that essentially, whether 
unintentionally or otherwise, the 1996 Act left broadband 
technologies out of the regulatory scheme of the FCC and 
particularly out of title II. That is why it has worked, 
frankly, and it will continue to work as long as we leave it 
alone.
    Senator Wicker. OK. We have two volunteers to answer that.
    I think you said these problems will take care of 
themselves if left to the current regulatory structure. Is that 
correct?
    Mr. Downes. Yes, that is right. As I said in my testimony, 
there are important roles for Congress and the FCC in the 
transition itself making sure that the process happens smoothly 
and hopefully more smoothly than it did in the digital 
television transition. But, yes, in the actual unregulated 
Internet market, things work remarkably well. We have the 
multi-stakeholder governance process. We have all sorts of 
mechanisms, engineering-based regulations. It is not 
unregulated. It is engineering regulated. And that really works 
and has continued to work for a very long time.
    Senator Wicker. Ms. Sohn, I believe your hand was up first, 
and then we will let Mr. James dive into this issue.
    Ms. Sohn. So interconnection has been the law for 100 years 
and nobody has regretted it. Let me give you a real-world 
example of what happens when interconnection does not happen. 
Now, granted, this is in the wireless space, but it is the same 
issue.
    So in Montana, AT&T decided they no longer wanted to have a 
roaming agreement with Verizon. So what is happening is police 
are having to drive 30 miles out of the city so they can get 
connectivity. When you have players--and we are talking really 
about two or three large market players that do not want 
interconnection. Everybody else does. Most of the cable 
companies do. All the competitive telephone companies do. The 
rurals do. We are talking about two or three companies. If they 
can leverage their market power, then you have got trouble.
    And my question is do we really, really want to roll the 
dice and wait until there are interconnection problems so a 
customer from AT&T cannot call their mother who is on Comcast? 
I do not think we want that. And as I said before, 
interconnection has been a value and a mandate for 100 years 
and it has worked marvelously well. And I do not understand why 
we should retreat from that.
    Senator Wicker. Mr. James?
    Mr. James. Thank you, Senator.
    I agree with a lot of what she just said.
    First of all, we need to separate, if we can, some of the 
issues.
    Managed voice traffic that people have depended upon, 
particularly businesses with regard to the quality but 
consumers as well, is a service that has always been handled by 
exchange traffic from one carrier to another. Under the 1996 
Act, those are negotiated for the terms and conditions of that.
    We have made conversions like analog to digital to SS7 
signaling and now to IP. So we are only talking about the 
managed voice. We are not talking about other broadband 
services or the Internet in general. We are talking about 
maintaining a quality, reliable voice service for those 
customers who need that because of their business or because 
they want it at home. So we do not want to confuse the issue 
here. And that is what all carriers have to have in order to 
serve their customers. Otherwise they cannot complete calls, 
and that needs to be done in a just and reasonable manner.
    Thank you.
    Senator Wicker. Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Klobuchar?
    Senator Klobuchar. Thank you very much, Mr. Chair.
    I mentioned earlier this issue of call completion which has 
become a real problem for rural America. I cannot tell you the 
number of businesses that have told me anecdotally that their 
customers told them that the calls were dropped. And then 
actually they have been able to collect statistics showing 
that. And that is why Senator Fischer and I have this 
resolution that will be coming up next week in front of this 
committee.
    As we know, the FCC is making some progress on this issue, 
and there is much more that needs to be done and it needs to be 
done soon. There was a consent decree between the FCC and Level 
3 Communications to see some improved performance, and I 
applaud that but the problems still persist.
    Ms. Bloomfield, do you think that the FCC's recent 
enforcement advisory it published this week means that the FCC 
will be taking further enforcement action?
    Ms. Bloomfield. It is a very encouraging sign. And I think, 
again, the leadership that you and Senator Fischer have shown 
on this has helped elevate the issue. And the stories are 
heart-wrenching.
    I think there are a couple of things. I think the 
enforcement action would be appropriate. I think Level 3 was a 
good measure, but what we saw, interestingly enough, about a 
week after that enforcement action, the problem just picked 
back up in tenfold because, again, these least-cost routers 
then look for new markets and new ways to get into these rural 
markets. And then the calls just do not terminate.
    So I think it would be nice to have the FCC move as quickly 
as possible. I think having this issue hang out there is 
difficult. I continue to get calls from consumers in rural 
America as well, and you know, part of it is they are directed 
to the FCC website. Well, you are just a consumer. Going to 
that website, trying to fill out this form explaining where 
your call originated, where it was terminating, you know, it is 
onerous and it is difficult. So I do think some more data and 
transparency will help a great deal.
    Senator Klobuchar. Very good.
    Ms. Sohn mentioned the copper issue. And I think we all 
know there are benefits to copper, and many companies 
undergoing the IP transition will continue to use copper. Many 
businesses in Minnesota give services up to 220 megabits per 
second over copper with a digitally bonded connection. Copper 
is still valuable in the broadband network. We have a hybrid 
network and we will continue to have copper into the near 
future.
    Could you explain maybe, Mr. James, why copper is so 
valuable?
    Mr. James. Oh, thank you, Senator. It absolutely is. It is 
the most ubiquitous type of facility that is out there, and it 
is capable of handling up to 100 megabits of capacity. It is 
highly reliable. It is DC powered. The other things that are 
very important about that is the technology continues to grow 
the value of copper. So that it now provides all kinds of 
different applications particularly for small-and medium-sized 
businesses because it reduces their cost. And so the Ethernet 
over copper is continuing to expand in our industry. And it is 
similar to all the capabilities to fiber in many ways. It can 
offer video content over it, triple play. So copper is a very 
valuable part of our network, and it is the most crucial last-
mile connection because it is so universal. And many of our 
members who deploy fiber still rely on copper for multi-
location businesses where they are off-net. It is very 
powerful.
    Senator Klobuchar. A somewhat related issue, Mr. Gardner, I 
appreciated the support USTelecom has given to the bill that I 
have with Senator Graham and Senator Schumer and Senator 
Hoeven, which makes it an explicit Federal crime to steal metal 
from critical infrastructure. We have seen a vast increase in 
the number of metal thefts in our State. Some companies, 
electric companies, being preyed upon six, seven times. Bronze 
stars in veterans' graves being taken. And so I know this is a 
concern for telephone companies as well as really all 
businesses. And I just wanted to note that bill if anyone is 
interested in looking at it. We are moving it through the 
Judiciary Committee.
    Ms. Sohn?
    Ms. Sohn. I just wanted to make the Subcommittee aware that 
there are, I believe, two petitions pending in front of the FCC 
asking whether when incumbents give up their copper or leave 
their copper in the ground, whether competitors should have 
access to it either for free because, of course, taxpayers have 
already paid for it or at a reduced price. Again, that has been 
pending since, I believe, 2007. I think with this transition, 
that is something the FCC should look at like sooner rather 
than later.
    Senator Klobuchar. OK, good.
    My last question on rural broadband. I think we know it has 
not expanded as rapidly as we had hoped even though there have 
been improvements. The Universal Service Fund and the support 
from loans made by the Rural Utility Service are important 
tools for supporting broadband expansion. They have been used 
in my State. Several of you mentioned in your testimony--I also 
find it troubling that the RUS Broadband Program only loaned 37 
percent of the money that Congress has appropriated to it.
    Ms. Bloomfield, in your view what is holding back 
investment? What does it mean specifically for states like 
Minnesota that have a very short construction period as the 
winter looms?
    Ms. Bloomfield. It is an excellent question, Senator. It is 
the regulatory uncertainty that is hanging over these carriers 
that because of the fact that the way the quantile regression 
analysis works, the cap is done on an annual basis. So you have 
no idea year to year what your return is going to be. So folks 
are feeling really paralyzed about do I put money in the 
ground, do I go ahead and make this. You know, I have a fiber 
to the node plan or a fiber to the home.
    We actually did a survey and found that 68 percent of our 
member companies have chosen to either stop or to slow down 
their construction progress. And you know, at a time where 
there is more and more demand for broadband, the capacity needs 
to be greater, there is more data that is writing over it, it 
is a frustrating development to see. But I think they are 
looking at it thinking I am not sure I can repay this loan. So 
how do I take out a loan?
    And we are seeing the same on the regular RUS lending 
program on the telephone side as well as the broadband side. 
They are just not going in. And not only are they not going in, 
those that are going in are having a harder time getting loans 
approved because even RUS is unable to assess their credit 
worthiness because they do not know what their revenue stream 
is going to be in the following year. So it just becomes a very 
vicious cycle.
    Senator Klobuchar. Very good. Thank you, all of you.
    Senator Pryor. Thank you, Senator Klobuchar.
    Senator Fischer?
    Senator Fischer. Thank you, Mr. Chairman.
    If I could, Ms. Sohn, follow up a little on the call 
completion that Senator Klobuchar brought up in her 
questioning. In your opinion, what actions do you think 
Congress or maybe the FCC can take in order to continue to 
address this problem?
    Ms. Sohn. I think the most important thing that Congress 
and/or the FCC can do is to make sure that they have the 
authority to make sure that rural residents get their calls 
completed. So once the public-switched telephone network goes 
away, away with it goes the FCC's ability to do anything. As it 
is, they have authority now and it is still taking them 
forever. But again, once this transition is complete, they do 
not have the power under the law--they will not have the power 
under the law to fix a horrible problem like this.
    And I thank you and Senator Klobuchar and the other 
Senators, Senator Pryor for that resolution.
    So that is the single most important thing that Congress 
and/or the FCC can do, is to ensure that they have the ability 
to protect rural residents.
    Senator Fischer. Thank you very much.
    Ms. Bloomfield, as you know from past hearings, I am very 
concerned about the regulatory uncertainty that is out there as 
well. And you just addressed part of that with the quantile 
regression analysis.
    Can you expand on the mechanism that your organization 
proposed to replace that?
    Ms. Bloomfield. So absolutely. Thank you.
    I think there is are a few things, and you have 50 
independent carriers in the state of Nebraska. So you have got 
a lot of folks covering a lot of territory out there.
    So there are a couple of things I think. You know, you have 
got the quantile regression analysis, and the problem is it is 
now in place. So I think 2 years ago we had our own proposal, 
but right now I think we have to look at this and think can we 
fix it, can we eliminate it, can you stretch out the cap so 
that instead of every year they are recalibrated, you have a 
longer period of time, or can you use them as a trigger. And 
again, it is kind of the art of the possible. You know, is 
there a way to make that work to eliminate some of that 
regulatory uncertainty?
    So I think that we are working really hard with the FCC to 
make sure the data is correct. We are having issues with that, 
getting that in place. I think there are also things that we 
need to be looking at like how do you get some of the things 
like the safety net additive dealt with. How do you deal with 
the waiver process so it actually works for carriers? How do we 
do things like--there is a further notice that is out there 
from the FCC that is looking at changing rate of return. It is 
piling on when these carriers do not even know what the impact 
is going to be. Having that rate of return proceeding hanging 
out there is another factor that is just creating more of that 
uncertainty.
    And an issue that I know that we have discussed before is 
USF contributions. You know, if you deal with contributions, 
can you look at the entire Universal Service mechanism a little 
bit more holistically? I think all of those would help a lot.
    Senator Fischer. Do you think you are moving forward in any 
way with the FCC on making any of those changes that you are 
recommending?
    Ms. Bloomfield. We are hoping. We are having a lot of 
discussions. Our team is in there every day. We have probably 
filed about 400 pages worth of suggestions and commentary and 
feedback and analysis. We just continue. You know, that is 
where a lot of this action is taking place at this point in 
time. But I think congressional involvement and oversight is 
incredibly critical.
    Senator Fischer. I hope you will keep my office up to date 
on how that is moving forward.
    Also, you mentioned that the waiver process is inefficient. 
Why do you believe that this application process is so 
cumbersome?
    Ms. Bloomfield. It is very difficult. The process is 
cumbersome enough that folks actually have to hire legal 
counsel to do it. There is a pretty high filing fee, and once 
you get into the process, it is hundreds and hundreds of pages 
that folks have to be able to document, get all of their data 
from their companies to submit. And to date, to be very frank, 
we have not really seen very many approved. So folks are 
willing to go through this because they are under such duress, 
but at the same time, there is no end result that kind of shows 
that the data they have put forth has made any difference. So I 
think a lot of carriers are looking at it thinking I do not 
have $100,000 to spend on a filing process and, at the end 
result, not get any relief. So it is really kind of putting 
folks in a very tough position.
    Senator Fischer. Thank you. I look forward to working with 
you on those issues.
    Ms. Bloomfield. Thank you.
    Senator Fischer. Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Blumenthal?

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman.
    I would like to ask a question relating to legislation that 
I have joined Chairman Rockefeller and Senator Klobuchar in 
introducing, the Fair Telephone Billing Act of 2013. And as you 
know, the bill would prohibit wireline telephone companies and 
other providers from placing third party charges on telephone 
bills, ``cramming'' as it is popularly known. And this issue is 
one of great concern, I think, across the country, spreading 
ramifications. The FCC is currently considering strengthening 
its rules that address cramming for landline services and 
extending those rules, which I hope it will do to wireless.
    Let me begin. Ms. Sohn, what do you think about extending 
the FCC's cramming rules to include wireless and other 
services?
    Ms. Sohn. We absolutely agree with you and we thank you and 
Senator Rockefeller for your leadership on this.
    I mean, cramming practices are no less horrible on wireless 
and voice over IP technologies than they are on wireline 
technologies. Consumers do not get any less hurt.
    Again, to repeat myself a little bit, while the FCC now can 
probably do something about it and they should if Congress does 
not act, once the PSTN goes away, then the FCC's ability to 
deal with something like this goes away. And it does not matter 
what the technology is. People can talk about copper, fiber, 
IP, what have you. It is about the social goals. It is about 
the needs of our society and whether we are going to leave 
anybody behind.
    Senator Blumenthal. Any of the other panelists have views 
on that issue?
    Mr. James. Senator, I would just say we agree with you that 
it is a difficult practice. And we will take a look at the 
legislation and see if we can work with you on it.
    Senator Blumenthal. I would appreciate that, and the same 
with other members of the panel because I do think that there 
is really no justification for this practice. I think everyone 
would agree except for the extreme outliers who engage in it. 
And I do hope that we can extend and strengthen these measures.
    Let me ask also again beginning with Ms. Sohn. What 
consumer problems do you think are most pressing in this area 
when we look at extending protections that copper wire enjoys 
right now or strengthening those protections? In your 
testimony, you note credit card trouble, 911 access. Are those 
the principal ones? And again, I am going to ask the other 
panelists to follow you.
    Ms. Sohn. Well, many of them are important, but what is 
more important than the ability to make a 911 call to make sure 
that if, God forbid, your husband has a heart attack, that you 
can get through to an ambulance? There is really nothing more 
important than that. And similarly that first responders can 
also use the network. That is critical. And medical alerts. 
People on Fire Island reported that their Life Alert would not 
work with Voice Link. Anything that deals with life and death 
is the most important thing in the world.
    But, look, small businesses in Fire Island are suffering 
because credit cards cannot go through, because faxes cannot go 
through. I know people say, oh, fax. That is so old-fashioned. 
But, you know, lawyers depend on that, you know, to get 
documents and things like that. So there are many, many things. 
Again, that list I think is a good start of items that people 
need functionality from their networks to do it.
    And again, it does not matter what the technology is. What 
matters is that people have essential services that protect 
their ability to speak, to engage in economic life, and frankly 
to live a good life.
    Senator Blumenthal. Any of the other panelists?
    Mr. James. Yes, sir. Senator, we could not agree more that 
the last-mile connection is the bottleneck for us to be able to 
provide competitive alternatives to customers, and without it, 
they are isolated from that availability of choice to vote with 
their feet, to pick a provider that they think is providing the 
quality of service or the types of services that they require. 
And that is essential. Over 60-plus percent of the buildings in 
the United States that have 20 or less employees have only 
copper as the only connecting facility. And so it is essential 
for customers to be able to have that alternative, and for our 
members to be able to stay in this market, it is a requirement.
    Senator Blumenthal. Thank you. Thank you very much.
    Senator Pryor. Thank you.
    Let me start, if I may, with Mr. Gardner again, and that is 
in your capacity as running the phone company Windstream. We 
have talked about copper versus IP and all that transition. 
Give us a feel for how your company is making that transition 
and where you are in the process and how you feel like that is 
going.
    Mr. Gardner. Well, I think, Senator Pryor, that is a very 
important issue for us at Windstream. We are both, as I said, 
an ILEC serving many rural customers across America and also 
one of the largest competitive players in the industry. Like 
many of the companies in this country, we are deploying IP 
technology very rapidly into our network.
    I made my comments on the residential market. I think it is 
important to note also, on the rural side, that copper is often 
associated with customers out in the most rural areas. And the 
public-switched telephone companies are still providing the 
bulk of the services. In fact, Windstream has already built out 
broadband to 93 percent of all of our customers. For those most 
rural customers, often we are the only alternative out there as 
it relates to high speed Internet. So that is very important.
    On the enterprise side, we have been deploying IP. We want 
to be in a position to serve some of the biggest companies in 
the country. Windstream today serves 80 percent of the Fortune 
500, and all of our technology going in that side of the 
business are new soft switches, IP technology.
    So I think that as we look at this issue nationally, we 
just have to have a balanced approach to this transition, 
understanding that different companies have different business 
models because of the cap structure, where they are located, et 
cetera.
    Senator Pryor. Mr. James, let me ask you. I know you want 
to follow up on that, and I want you to. But I also want to ask 
you about this trend where states are deregulating when it 
comes to IP, and I think there are maybe 25 states or so that 
have done that now. I would like to get your thoughts on that 
and what the proper role of State regulation is in all this.
    Mr. James. Certainly, Senator. Just as a follow-on to the 
comments just made, IP managed voice is agnostic to whether it 
is over copper or fiber. So those are separate issues.
    As to the states that you mentioned, there are roughly 23 
to 25 states that have deregulated retail residential services 
or retail services but have protected the wholesale obligations 
that are under the 1996 Act. And so we have seen that trend in 
those states.
    Senator Pryor. Is that a good thing?
    Mr. James. I think the markets between residential and 
business are different because people can choose multiple modes 
of how they want to communicate or conduct their business, 
their social life, and such, whereas businesses that are 
relegated to a location who have to have quality hardline 
services to be able to receive and get calls and make calls to 
their customers like a local hardware store or, for example, 
like Walmart or any of those kinds of services--they need to 
have reliable service. That could also be offered by IP 
technology, but it would have the same quality of service 
standards that would be under the interconnection that we 
currently have under the TDM network. And that is what we are 
asking for, is that that same types of standards and network 
architecture be developed and agreed to by the carriers using 
just a different way of exchanging that traffic.
    Senator Pryor. Great.
    Ms. Bloomfield, let me ask you one follow-up to what 
Senator Klobuchar and Senator Fischer were talking about with 
the call completion, especially in rural call completion. Does 
that have anything to do with this transition to all IP 
networks? Are those totally unrelated?
    Ms. Bloomfield. You know, it is a clear example of why we 
really do need rules of the road. I know my fellow panelists 
have talked a lot about you are really just changing a 
switching technology. It is not really a magic switch goes off 
and suddenly we have a whole new network.
    So part of it is no matter what you do, you need to be 
looking at what happens to consumers. What happens to public 
safety. How do you ensure what happens in competition? How do 
you ensure that those safeguards all stay in place? So in a lot 
of ways, the call completion issue is a perfect example of what 
could go wrong if you are not looking at the transition in, 
again, kind of a surgical, piece-by-piece way that ensures that 
those guideposts are maintained.
    Senator Pryor. Thank you.
    Now, we are delighted to have with us our freshman Senator 
from the state of Massachusetts.
    [Laughter.]
    Senator Pryor. He is number 100 in seniority. I used to be 
number 100 in seniority. And the great thing about him is he 
has 37 years of experience in the Congress. We understand 
historically that he is the record holder of the longest tenure 
in the House to come to the Senate, and we are delighted to 
have you. I would invite Senator Markey to ask questions.

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Mr. Chairman, very much, and 
thank you for that warm welcome. It is great to be here. I am 
looking forward to learning a lot about these 
telecommunications issues.
    [Laughter.]
    Senator Markey. So when I started, there was one phone 
company. It had 1.2 million employees and there were no 
competitors. That is my first hearing back in 1977. And this 
hearing really could not happen because there would be no other 
witnesses. And so we have come a long way and we have to 
continue to have discussions about this very dynamic area.
    My bottom-line philosophy always has been that the whole 
key to this goal that we have to ensure that America is number 
one looking over its shoulder at number two, three, four, five 
in the world is that we have to constantly be introducing 
Darwinian paranoia-inducing competition into the marketplace. 
And that is ultimately the key protection for our consumers on 
the one hand because they have more choice and it is also the 
key for the creation of the new jobs here in America because we 
are the innovation center and not some other place in the 
world.
    So that is kind of our challenge and we have to do it with 
consumer protection, with reliability, with Universal Service, 
with all of the old principles. So as you move to new 
technologies, you cannot leave behind old values. They have 
served us very well and ultimately competition is a part of 
that mix in a very big way because consumers are beneficiaries.
    So I guess what I would ask is--I will start with you, Ms. 
Sohn, if I could--to talk a little about this issue of a 
migration toward wireless and kind of the sense that some 
people have that if we continue that migration towards mobile 
phone usage, that is a big reason why we should have less of a 
concern about the protections that are built into the 1996 
Telecommunications Act for wireline. How do you view that 
issue?
    Ms. Sohn. So at the risk of sucking up to you, Senator 
Markey, it is wonderful to see you on the dais. Welcome.
    So my response to that is 141 million users still rely on 
wireline services, both copper-based phone services and managed 
VoIP. And as USTelecom says itself, 99 percent of video, nearly 
99 percent of data still comes over wireline. So wireline is 
still king, and there are many places, particularly in rural 
areas, where mobile just does not work.
    The other thing--I think this is really important--is 
wireless technologies depend on a wireline backbone. It is 
coexistent with wireline. So we really, really have to make 
sure that our wireline systems are built out particularly in 
rural areas. So wireline is not going away anytime soon, and 
the protections that wireline brings----
    Senator Markey. So what could be an unintended consequence 
of removing wireline protections from your perspective?
    Ms. Sohn. As I mentioned before, mobile does not have 
reliable 911 connectivity. You cannot use your alarm systems. 
Many alarm systems do not work with mobile. Medical alerts do 
not work with mobile. There is a wide variety of functionality 
that wireline has. And as I said before, wireless does not work 
in many, many places or it does not work well. And we are 
seeing more and more stories of people complaining that they do 
not have good connectivity. In fact, there is an appendix in my 
testimony that lists 18 of hundreds of them.
    Senator Markey. Mr. James, do you believe that local 
competition rules need to stay in place, that they are still 
necessary even as we move to more of an IP-based phone system?
    Mr. James. Absolutely, Senator. We believe that the 1996 
Act is technology neutral, and the fact that we can progress to 
the IP transition, just like we have done with other 
transitions in the network, also access to last-mile facilities 
is essential. Without the wholesale side of the industry, there 
is no real retail competition, and competition is the best 
protection for consumers to be able to have multiple companies 
who have the ability to offer services that you want to buy at 
a value price and utilizing the network that can be available 
to them. That is why it is so important for copper to be 
accessible, and we are continuing to deploy our own facilities 
but we do need those tenets of the 1996 Act.
    Senator Markey. So you are saying that copper is a way of 
ensuring that there is real access, that there is competition, 
that there is a way for smaller companies to be able to 
compete.
    Mr. James. Absolutely. It is very extremely valuable. The 
technology continues to improve. We are up to 100 megabits. We 
have extended distances. We now have vectoring. There is all 
kinds of technology development that shows that copper has a 
greater value today than it did 2 years ago, 3 years ago. It is 
amazing what is being done with that technology.
    Senator Markey. And that is because you can enhance the 
capacity for copper to be able to deliver digital services.
    Mr. James. Exactly. And if the recent case of the storm in 
New York where all the copper was removed from two central 
offices--our member companies lost their investment that was 
embedded in those central offices, could not offer the advanced 
services that they were offering over Ethernet copper to their 
customers. So they were disconnected from all their customers, 
could not reconnect to them, and those customers had to find an 
alternative because our members could not reach that 
connectivity because of the alternative that was offered to 
them by the carrier at that time was a boxed service which 
could not be added services on top of that the business 
customers really wanted to buy.
    Senator Markey. So what you are saying is that as those 
competitors are removed from the market, then there is less 
pressure to improve the service.
    Mr. James. Exactly.
    Senator Markey. And that the incumbents would be providing. 
You need that competitive dynamic in order to ensure that there 
is a constant upgrade so that customers have choice. When you 
remove the competition, you remove the likelihood that there is 
an upgrade.
    Mr. James. And in that instance, our members were relegated 
from being advanced technology companies of offering enhanced 
services to just resellers, and that is not what they wanted to 
be. They added that value through what they installed, what 
they risked their financial resources in order to provide to 
those customers.
    Senator Markey. Thank you.
    So, Ms. Sohn, can you follow up a little bit on what Mr. 
James is saying?
    Ms. Sohn. Well, look, nobody benefits more from competition 
than consumers. Competition lowers prices. It improves 
services. Look, I am old enough--we are both old enough--to 
remember a time where there were 6,000 competitive ISP's, and 
each American had a choice of 13 different ISP's, Internet 
service providers. That was a great time. Unfortunately, 
because the U.S. has exported many of its competitive policies, 
we really have a shrinking competitive market. And I think in 
this new IP transition we need to see whether we need to expand 
our competitive policies not shrink them.
    Senator Markey. Mr. Gardner, could you comment on this?
    Mr. Gardner. Yes. I think it is very important. You raised 
a point that I think is--one of the things as we look at next 
generation regulation--and you asked earlier what do we think 
about wireless technology, et cetera. There is no doubt 
wireless is an incredible technology that has opened up many 
opportunities for all of our customers in this country.
    But, again, as CEO of a wireline company, just to remind 
everyone of the criticality of our infrastructure, this year 
Windstream and many members of the United States Telecom 
Association have invested hundreds of millions of dollars 
building fiber out to cellular towers. So we are a critical 
part of that infrastructure.
    And then as you look at the limitations that wireless has 
related to spectrum, WiFi is so critically important going 
forward.
    So I would just ask that as you think about the new world, 
do not forget that wireline is still a critical part of the 
infrastructure.
    And as we think about the transition, with all the 
transitions I think our regulatory policy has worked well. The 
world is changing. We just ask that you be balanced and manage 
this transition carefully and understand that different 
companies are at different places in terms of this migration.
    Senator Markey. Yes. When you are creating policies, you 
just want to make sure that certain companies are not 
vindicated posthumously.
    Mr. Gardner. Yes.
    [Laughter.]
    Senator Markey. That the policy did not work. You want to 
think through the policy so that in fact you are ensuring that 
as you are opening up a new world, you are not accidentally 
destroying something which was a vital part of the fabric of 
the communications system.
    Ms. Bloomfield, could you? Again, I am sure that the 
Chairman has already talked about the rural aspects of this. 
But when we were doing the 2009 stimulus bill, we built in 
billions of dollars into the stimulus bill in order to ensure 
that there would be greater funding for the rural aspect of 
this broadband revolution. Could you tell us how that has 
worked so far from your perspective?
    Ms. Bloomfield. So it was a great initiative by the 
administration and I think their emphasis on broadband is 
critical because we all know every one of us would attest to 
the economic impact it has on our society and on the economy.
    The problem has been--you missed my whole story on 
Universal Service.
    Senator Markey. I am sorry.
    Ms. Bloomfield. I would tie together for you why it has 
actually been probably not as successful. We are actually 
really struggling to get a lot of our members to finish their 
stimulus buildouts because they are very concerned about the 
regulatory uncertainty that has been created by the FCC's 
Universal Service Intercarrier Comp order. So they are actually 
not using that funding. We have got a lot of pressure to get 
them to try to use that funding. They have got one more build 
year to do it. Those carriers that are in areas like 
Massachusetts have a very short build season. And I think they 
are feeling stymied by it.
    So I think there have been some great initiatives. 
Broadband is very important in rural areas. In some ways it 
bridges that distance, that handicap of distance that is even 
more important.
    Senator Markey. So I would like to work through the 
chairman to work with you. Perhaps maybe we can make sure that 
policy works correctly.
    Ms. Bloomfield. That would be great. Thank you.
    Senator Markey. Mr. Chairman, Mr. James would like to add 
30 seconds, if you could.
    Senator Pryor. Yes.
    Mr. James. I just want to say that when Verizon was 
entering the Europe market as a new entrant, they had in their 
filings to the regulatories--this is a quote--continued 
regulatory controls must remain in place to safeguard access to 
the necessary wholesale inputs and thereby support competition 
to the benefit of customers. Prices of these core access 
products should be as low as possible in order to facilitate a 
genuinely competitive marketplace and drive down the prices for 
customers. It is clear that the most effective way to achieve 
that is to ensure that the operators who have significant 
market power in the relevant markets adhere to strict price 
controls.
    Senator Markey. So your point is where a big company is an 
entrant as a new competitor, they want competitive principles 
in place, but where an incumbent is already there, their views 
toward competitive policies are not nearly as enthusiastic.
    Mr. James. Yes, sir.
    Senator Markey. And I thank you for that.
    [Laughter.]
    Senator Markey. And, Mr. Chairman, I would yield back the 
balance of my time.
    Senator Pryor. Thank you, Senator Markey. It is great to 
have you here.
    I want to say to all of the panelists I actually have some 
more questions, as do a couple of other of our colleagues, but 
I think what we will do is just submit them for the record. We 
are going to leave the record open for 2 weeks. We would 
encourage all the Senators and their staffs to get the 
questions to the Committee as soon as they can. We will try to 
send those out to the panelists, and we would love for you all 
to respond to those. But we will keep the record open for 2 
weeks.
    With this, what we will do is we will conclude the hearing.
    But I do want to thank the panelists for coming and your 
preparation and your hard work to get here, and we appreciate 
all that you do. And we hope that we will all keep talking.
    Again, Senator Markey, it is great to have you with us 
today.
    So with that, we will conclude the hearing. Thank you.
    [Whereupon, at 1:31 p.m., the hearing was adjourned.]
                            A P P E N D I X

       Prepared Statement of Hon. John D. (Jay) Rockefeller IV, 
                    U.S. Senator from West Virginia
    Today's hearing on the state of wireline communications affords us 
an opportunity to take stock of the nation's public telephone network. 
That network is a source of National pride and ingenuity, and remains 
the envy of the world. In fact, one could argue that the public 
telephone network is a victim of its own success; we only notice the 
value of this network and its reliability and resiliency when we are 
forced to compare other communications networks to it.
    The principle of ``universal access'' to communications is one of 
the basic tenants of the Communications Act of 1934, and it remains as 
vital today as it was then. We have reached out and covered nearly 
everyone--in urban, rural, and even many of the most remote areas of 
the world based in part to our nation's fidelity to the principle that 
all Americans should be able to benefit from the opportunities afforded 
by access to communications. We must continue to make sure that 
everyone has available to them the advantages that come with access to 
modern communications networks.
    The nation's wireline infrastructure is at the heart of this 
nation's communications system and policy. Not only does our public 
telephone network provide a vital voice, data and video service to our 
Nation's citizens and businesses, it is the backbone on which the 
nation's wireless networks also rely. And allows a consumer in a remote 
part of West Virginia to pick up the phone and reach anyone in the 
country.
    The success of the nation's telephone network was not fortuitous. 
It came about by a tremendous amount of private investment and 
innovation and because of sound policy decisions, rooted in the 
fundamental principles of the Communications Act of 1934, and later the 
Telecommunications Act of 1996. And as Americans begin to benefit from 
the next evolution in wireline technology, I remain convinced that 
smart regulation and strong consumer protection is as necessary today 
as it was when the Communications Act was passed almost 80 years ago.
    Rural consumers should not be left behind in this transition. They 
must have access to next-generation high-speed broadband services. The 
need for access to advanced broadband networks throughout the country 
is one of the reasons I believe it is time to strengthen the E-rate 
program. As I said last week, basic Internet connectivity is not 
sufficient to meet our children's 21st century educational needs. 
Bringing next-generation high-speed broadband to schools and libraries 
in rural as well as urban areas is essential to affording students 
access to tomorrow's digital education technologies and services.
    As we look to the future, we must make sure that comparable 
communications services are available at comparable rates for everyone 
in this country, no matter who they are and no matter where they live. 
Even as networks evolve and as companies upgrade their technology, the 
principles undergirding decades of communications law and policy 
remain. And it will be up to Congress and the states to make sure that 
all communications companies comply with the underlying foundations of 
universal access, consumer protection, competition, and public safety 
enshrined in our nation's communications laws.
    I look forward to the testimony from our witnesses today and to 
their perspectives on the state of wireline communications in the 
nation, the challenges facing their companies, and how we can achieve 
our collective goal of bringing advanced communications services to all 
Americans.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                              Jeff Gardner
    Question 1. With respect to the coming IP transition and advancing 
technology, which specific requirements from the Telecommunications Act 
of 1996 are the most important to maintain to ensure fair competition 
in the marketplace?

    Question 1a. For example, the 1996 Act has clear interconnection 
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain 
why not.
    Answer. As I stated in my testimony, communications technology and 
the competitive landscape of the telecommunications industry is 
changing rapidly. This places tremendous pressure on the regulatory 
structure to remain sufficiently flexible to adjust to these changes in 
a timely fashion. As is evidenced by my own company, which is both an 
incumbent phone company and one of the largest competitive phone 
companies, the industry structure is increasingly complex with fewer 
and fewer ``one size fits all'' solutions. It is therefore essential 
that we work together to update rules to a pro-consumer, pro-
competitive framework for the information age.
    As the industry--including wireline, cable and wireless companies--
moves forward in its deployment of new IP-based technologies, core 
policy issues will continue to be important. These include issues such 
as interconnection, competitive access, transport, privacy, and public 
safety. As policymakers evaluate the proper regulatory framework for 
such issues in the course of the IP transition, USTelecom believes it 
is important to properly balance the policy goals of regulatory parity 
among competing platforms, promoting investment in next-generation 
network facilities, avoiding competitive harm, and protecting 
consumers.

    Question 1b. How important is it to maintain the legacy/copper 
communications network as we transition to IP? If so, for how long? If 
not, please explain why not.
    Answer. As you correctly note, the shift to IP-based services is a 
transition, not an event; all communications companies are deploying IP 
in their networks, and the transition is unfolding in different ways 
and at different times for each provider. For example, various 
providers are delivering IP-based services over fiber, copper, coaxial 
cable and wireless facilities. Therefore, it is most important for 
policymakers to avoid imposing a one-size-fits-all approach to this 
transition. Rather, policymakers should be focused on facilitating this 
transition by minimizing regulatory impediments while at the same time 
ensuring protections for consumers and competition. This balanced 
approach applies equally to the replacement of copper facilities. To 
achieve this balance, policymakers and the industry will need to forge 
a consensus on how we can restructure regulatory obligations in a way 
that provides consumers and businesses with all the benefits of the 
Information Age.

    Question 2. Reform of the Universal Service Fund (USF)/creation of 
the Connect America Fund (CAF) is critically important because millions 
of Americans still lack access to high-speed broadband service in many 
areas of the country. According to the National Broadband Plan, 
broadband is available in 98 percent of the nation, but the national 
adoption rate, according to the National Telecommunications and 
Information Administration (NTIA) and Census data, is 72 percent. I 
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies 
that help us to reach 100 percent coverage of U.S. households. However, 
we have a limited amount of money that we can allocate as a nation to 
rural broadband deployment, and I believe we should prioritize funding 
to support buildout in unserved areas or areas below 4 mbps down/1 
mbps. Typically, these areas are still unserved because of the high 
cost of deployment and the low population density. Understandably, this 
makes it difficult for private companies to deploy broadband in these 
areas, and it is also the reason why policymakers decided to create 
programs like USF/CAF--to serve hard-to-reach places in the country.

    Question 2a. Do you believe CAF is adequately focused on broadband 
deployment in unserved areas? If so, how long do you think it will take 
to reach full deployment? If not, please explain what it would take to 
buildout unserved areas of our country given that we only have 
approximately $4.5 billion/year through USF.
    Answer. The FCC's CAF program is limited to larger 
telecommunications providers known as price cap carriers. The CAF 
program is focused on supporting the construction and operation of 
robust broadband and voice networks in areas served by these companies 
where there is no private business case to provide service. The program 
properly recognizes that support is necessary in these areas both to 
build and maintain networks. The program further limits funding to only 
those areas where there is no unsubsidized competitor.
    The cost of full deployment remains unquantified, despite some 
preliminary efforts made during development of the National Broadband 
Plan and later by a coalition of price cap companies. Even by the FCC's 
own rough estimate, reaching all unserved consumers will require much 
more funding than is currently available in the CAF and may require 
technologies other than wired broadband. In the absence of a precise 
estimate, we do not know how long it will take to reach full deployment 
at the rate of $4.5 billion a year. It should also be noted that a 
percentage of that funding will be necessary to sustain operation of 
the phone network in high-cost areas and also high-cost locations that 
already have broadband (and will require investment, as network demands 
have increased steadily year-over-year).
    At a high level, the vision of the Connect America Fund is, 
beginning with a 5-year phase, to deploy 4/1 broadband speeds as widely 
as possible, given that budget constraint. Areas served by price cap 
companies that are so remote and costly to serve that they exceed an 
upper cost threshold that the FCC will establish can receive support 
under the separate Remote Areas Fund.
    Neither USTelecom nor the FCC believes that a 5-year Connect 
America Fund will address all rural broadband needs in areas served by 
price cap companies. There are significant issues yet to be resolved 
with regard to that 5-year phase, as well as what comes next. We 
appreciate your interest and engagement and will need more of it.

    Question 2b. Is the pace of reform moving too slowly?
    Answer. Certainly price companies and our customers feel a sense of 
urgency to extend broadband into more of rural America. Ultimately, 
reform may produce more investment capital for rural deployment in 
price cap areas, although many significant issues remain unresolved. We 
urge the Commission to take the time necessary to do the job right, but 
we would note that development of CAF-2, the permanent funding model 
for price cap areas, has fallen behind schedule. Meanwhile, other key 
aspects of reform have progressed rapidly: The high-cost program is 
operating on a flat-line budget, and intercarrier compensation is being 
eliminated. Phasing out the implicit subsidies from intercarrier comp 
is reducing support for high cost networks, both in price cap and rate-
of-return areas, by billions of dollars.

    Question 3. Based on my experience in Virginia, it is not possible 
to deploy fiber absolutely everywhere. Many areas of my state have 
granite rockbeds, which make it prohibitively expensive to deploy 
fiber. Therefore, I am supportive of cost effective deployment of 
broadband technology to reach universal coverage. Although I recognize 
that the focus of this hearing was on wireline issues, it seems to me 
that we should consider the best technologies based on our national 
goal of providing advanced communications services to all Americans.

    Question 3a. Should the Federal Communications Commission (FCC) 
focus more resources on best-available technology for unserved areas or 
areas below 4/1? If so, please explain what else the FCC could do to 
improve broadband coverage to unserved areas. If not, please explain 
how we can reach full broadband deployment by focusing more on fixed 
services, at a reasonable cost to taxpayers and consumers.
    Answer. Every aspect of universal service is resource-constrained, 
and the FCC has made a commitment to operate within a $4.5 billion 
annual budget. In light of the elimination of intercarrier compensation 
revenues and the formidable amount of work ahead, it is important that 
support for funding broadband and voice service in high cost areas not 
be further eroded. The FCC and our industry have focused considerable 
effort on designing a cost model that will accurately estimate the 
forward-looking costs of providing broadband service over the most 
efficient network. That cost model will play an important role in 
allocating support and ensuring that support is tailored to the costs 
and obligations of providing robust broadband in high-cost areas. I 
believe that wireline is the most robust and cost-effective broadband 
network option in terms of bandwidth, latency, reliability, and 
scalability for the vast majority of locations in the Nation. That 
said, USTelecom believes the FCC's plan to support deployment of 
alternative technologies via a Remote Areas Fund is a practical second-
best solution, in light of budget constraints, to reach the very 
highest-cost locations.

    Question 3b. Please describe what role you see for other 
technologies in terms of serving hard-to-reach areas in the near term. 
Could we be more technology-neutral in our Federal broadband funding 
programs?
    Answer. As I described in my answer to the previous question, I 
think there is a role for satellite or fixed wireless in the very 
highest-cost areas. In addition, the FCC is supporting the provision of 
mobile service through a separate Mobility Fund. Finally, the FCC is 
operating in a technology-neutral manner now, as it is planning a 
competitive bidding process that would be open to all fixed terrestrial 
technologies, including DSL, fiber, cable, and fixed wireless.

    Question 4. Would more targeted broadband mapping--at the address 
level, specifically--help to accelerate deployment to unserved areas? 
If not, please explain why less granular data models are sufficient to 
target deployment to unserved households. Do you believe the current 
level of data gathered by the National Broadband Map contributes to 
overbuilding? If not, please explain.
    Answer. Accurate data is important to thoughtful policy-making, and 
USTelecom members, including Windstream, continue to work on providing 
updated, granular data for inclusion in the National Broadband Map. 
Given that the NBM is informing important policy decisions, including 
the distribution of universal service funding, it should be a priority 
to ensure that broadband service providers are using the same 
methodologies for submitting data and--in light of the fact that the 
NBM is based on self-reported data--are providing data that accurately 
reflects existing service.
    As your question recognizes, more targeted reporting would not 
serve to accelerate deployment in the 95 percent of locations in the 
U.S. that are already served by fixed broadband. Even in unserved areas 
of the country, however, targeting broadband mapping at the census 
block level--the current level of granularity of the NBM--is 
appropriate. Because broadband service providers base deployment 
decisions on the costs of multi-location projects or routes, it is not 
useful to target broadband mapping at the address level. Moreover, 
requiring the collection of household-level data would place a 
substantial burden on providers and require them to divert resources 
toward administrative matters and away from broadband investment, thus 
undermining the goals of universal broadband availability. Targeting 
the collection of mapping data on the census block level strikes an 
appropriate balance, providing sufficiently granular detail while 
minimizing the burden on providers.

    Question 5. As many experts have noted, there is ``rural-rural 
divide'' when it comes to the presence of broadband infrastructure in 
rural America. According to the FCC, more than 83 percent of the 
approximately 18 million Americans that lack access to residential 
fixed broadband at or above the basic level of acceptable service 
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by 
establishing an incremental support component in the Phase I CAF Fund 
for price cap carriers. The initial support was established at $300 
million, but more than half of the allocated funds went unclaimed. 
Different types of carriers have expressed opinions about whether or 
not it was a good idea for the FCC to set aside this amount of money 
even though the bulk of the $4.5 USF program was allocated to other 
types of carriers.

    Question 5a. Regardless of your views on the Phase I Fund, do you 
think the FCC has done enough to provide coverage to the 14.9 million 
people who still lack any sort of basic broadband service?

    Question 5b. If so, when do you think we can expect to provide 
broadband service to all Americans? If not, what else could the FCC do 
to provide universal broadband service?
    Answer. See question #2. If I am missing the point of your 
question, I would be happy to arrange a meeting with you or your staff.

    Question 6. There has been a great deal of discussion about the 
FCC's models for CAF. Given that technology is advancing at a rapid 
rate, it seems like the FCC should be focused on establishing a cost 
model that is updated frequently enough to provide an accurate sense of 
the marketplace. How important is the timeliness of the FCC's proposed 
cost model in delivering service to unserved areas?
    Answer. USTelecom has long urged that an essential feature of CAF 
in general, and of the Connect America Cost Model (CAM) in particular, 
must be the proper alignment of funding and the service obligations 
attached to such funding. The FCC's CAM is timely in that it models the 
cost that an efficient provider using forward-looking technology would 
incur to provide robust broadband and voice services. The FCC has 
correctly adopted a multi-year support period for CAF Phase II, in 
recognition that few if any carriers would undertake the enormous 
upfront investment cost of building out a broadband network, especially 
in rural locations where there is no business case to do so, without a 
set, multi-year support period. Likewise, it is crucial that carriers 
have certainty with regard to the amount of funding they will receive 
over the support period and the obligations attached to such funding. 
Without such certainty, carriers will be less likely to take on CAF 
Phase II service commitments, which would undermine the goal of 
delivering service to unserved areas.
    USTelecom agrees that the CAM should provide an accurate sense of 
the marketplace and the cost of serving high-cost areas, and we have 
been working with the FCC to ensure that the CAM achieves these 
objectives. It is our belief that a CAM that provides certainty with 
regard to support amounts over a multi-year period, rather than a CAM 
that is updated frequently, is most appropriately aligned with the 
realities of network-building and most likely to result in the 
deployment of broadband service in unserved areas.

    Question 6a. Do you agree with the revisions the FCC has made to 
its cost model? Does the cost model accurately predict needs/services 
under CAF? If not, or if you believe the FCC model should lock in rates 
for a longer period of time, please explain how a longer view would 
deliver broadband to unserved areas more quickly than an annualized 
model.
    Answer. The development of the CAM is still underway, with many key 
decisions as yet unmade. Therefore, while we are working with the FCC 
and other interested parties to ensure that the various components of 
the CAM work together to accurately predict the costs of serving high-
cost areas, it is too soon to say whether the CAM does or does not do 
so.
    As noted above, USTelecom believes the FCC correctly adopted a 
multi-year support period for CAF Phase II; in fact, USTelecom member 
companies advocated for a longer support period than the one ultimately 
adopted by the FCC because a longer support period more accurately 
reflects the sunk-cost nature of much network investment in providing 
broadband services. Carriers must undertake an enormous upfront 
investment cost to build out a broadband network, especially in rural 
and high-cost locations where there is no business case to do so. The 
longer the guaranteed period of support, the more likely carriers are 
to assume those massive costs. Conversely, an annualized model, which 
would not provide carriers with certainty regarding the support they 
will receive to underwrite these investments, would make carriers less 
likely to undertake the deployment of broadband in high-cost areas. In 
this way, a longer view will deliver broadband to unserved areas more 
quickly than an annualized model.

    Question 7. A report by the nonpartisan Congressional Research 
Service analysis captures one of the major challenges of USF reform as 
follows:

        ``Smaller, rural, rate-of-return carriers are particularly 
        dependent on USF subsidies, and have expressed concern that the 
        reforms that the USF Order will implement could place them 
        under financial hardship. Many RUS telecommunications and 
        broadband borrowers (loan recipients) receive high cost USF 
        subsidies. In many cases, the subsidy received from USF helps 
        provide the revenue necessary to keep the loan viable. The 
        Telecommunications Infrastructure Loan program is highly 
        dependent on high-cost USF revenues, with 99 percent (476 out 
        of 480 borrowers) receiving interstate high-cost USF support. 
        This is not surprising, given that the RUS Telecommunications 
        Loans are available only to the most rural and high-cost areas 
        (towns with populations less than 5,000). Regarding broadband 
        loans, 60 percent of BIP (stimulus) borrowers draw from state 
        or interstate USF support mechanisms, while 10 percent of farm 
        bill (Rural Broadband Access Loan and Loan Guarantee Program) 
        broadband borrowers receive interstate high-cost USF support. 
        Thus, to the extent that USF may be reformed, this could have 
        an impact on the viability of RUS telecommunications and 
        broadband loans, and ultimately the overall financial health of 
        the carrier.

        Although the FCC included a waiver process in its USF Order for 
        those carriers that felt they would be subject to significant 
        economic stress, due to the reforms, many smaller carriers 
        assert that the waiver process is too burdensome and difficult 
        and that the requirements for qualifying for relief are too 
        restrictive.''

    Additionally, according to the U.S. Department of Agriculture, 
demand for RUS loan funds was only 37 percent of loan funds 
appropriated by Congress in FY2012. This is indicative of the fact that 
the restructuring and uncertainty around USF/CAF reform could diminish 
the desirability of RUS broadband loans to borrowers going forward.

    Question 7a. Given that the RUS and USF broadband programs share 
the goal of deploying broadband to rural America, and many RUS 
borrowers appear to be significant beneficiaries of USF as well, are 
these programs effectively targeted towards providing broadband to 
unserved areas of the nation?

    Question 7b. Are these programs the most cost-effective way for 
Congress to fund rural broadband development? If so, please explain 
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.

    Question 7c. Given that these two programs (USF and RUS) share the 
same goals, to what extent are they duplicative and to what extent are 
they complementary?

    Question 7d. Do you think that the FCC waiver process, as designed 
and described above, is appropriate? If so, why? If not, what changes 
would you recommend?
    Answer. Because Windstream is a price-cap carrier and this question 
pertains to rate-of-return carriers, I have asked Walter McCormick, 
President and CEO of the USTelecom Association, to respond for the 
Association and respectfully request that his answer be incorporated 
into the record.
    [Mr. McCormick's answer follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                                     ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                           Shirley Bloomfield
    Question 1. With respect to the coming IP transition and advancing 
technology, which specific requirements from the Telecommunications Act 
of 1996 are the most important to maintain to ensure fair competition 
in the marketplace?

    Question 1a. For example, the 1996 Act has clear interconnection 
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain 
why not.

    Question 1b. How important is it to maintain the legacy/copper 
communications network as we transition to IP? If so, for how long? If 
not, please explain why not.
    Answer. NTCA-The Rural Broadband Association (``NTCA'') filed an 
``IP Evolution'' Petition with the Federal Communications Commission 
(``FCC'') arguing precisely that certain fundamental statutory 
principles transcend mere technology transitions and should therefore 
be promoted and sustained regardless of the protocols used within 
underlying communications networks. A copy of that Petition, as filed 
in November 2012, can be found in the attachment titled ``Petition of 
the National Telecommunications Cooperative Association for a 
Rulemaking to Promote and Sustain the Ongoing TDM to IP Evolution.'' It 
explains how the FCC should undertake a thoughtful and comprehensive 
review to modernize its regulations in light of technology 
transitions--but only against a statutory backdrop that above all else: 
(1) preserves and advances universal service; (2) promotes competition, 
and (3) ensures consumer protection (which includes the need for 
reliable service quality and access to public safety emergency 
services). This review would include not the narrow question of how to 
sustain technology neutral interconnection requirements between 
carriers consistent with the Communications Act of 1934, as amended 
(the ``Act''), but also a broader consideration of what additional 
steps are needed to ensure that there is sufficient and predictable 
universal service support so that all Americans--including those in 
high-cost areas and low-income consumers--can enjoy meaningful access 
to sustainable IP-enabled, broadband-capable services at affordable 
rates.

    Question 2. Reform of the Universal Service Fund (USF)/creation of 
the Connect America Fund (CAF) is critically important because millions 
of Americans still lack access to high-speed broadband service in many 
areas of the country. According to the National Broadband Plan, 
broadband is available in 98 percent of the nation, but the national 
adoption rate, according to the National Telecommunications and 
Information Administration (NTIA) and Census data, is 72 percent. I 
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies 
that help us to reach 100 percent coverage of U.S. households. However, 
we have a limited amount of money that we can allocate as a nation to 
rural broadband deployment, and I believe we should prioritize funding 
to support buildout in unserved areas or areas below 4 mbps down/1 
mbps. Typically, these areas are still unserved because of the high 
cost of deployment and the low population density. Understandably, this 
makes it difficult for private companies to deploy broadband in these 
areas, and it is also the reason why policymakers decided to create 
programs like USF/CAF--to serve hard-to-reach places in the country.

    Question 2a. Do you believe CAF is adequately focused on broadband 
deployment in unserved areas? If so, how long do you think it will take 
to reach full deployment? If not, please explain what it would take to 
buildout unserved areas of our country given that we only have 
approximately $4.5 billion/year through USF.

    Question 2b. Is the pace of reform moving too slowly?
    Answer. The Connect America Fund (``CAF'') is a program intended by 
the FCC to implement the high-cost universal provisions of Section 
254(b)(3) of the Act, which requires among other things that:

        Consumers in all regions of the Nation, including low-income 
        consumers and those in rural, insular, and high cost areas, 
        should have access to telecommunications and information 
        services, including interexchange services and advanced 
        telecommunications and information services, that are 
        reasonably comparable to those services provided in urban areas 
        and that are available at rates that are reasonably comparable 
        to rates charged for similar services in urban areas.

    Section 254(b)(5) further compels that ``[t]here should be 
specific, predictable and sufficient Federal and State mechanisms to 
preserve and advance universal service.''
    Thus, universal service--and by extension, the CAF--must not be 
merely about ``getting services out there'' to unserved areas. Instead, 
by Congressional mandate, any universal service program must also seek 
to ``preserve and advance universal service'' by keeping services in 
all areas of the United States, and by making sure that those services 
are and remain affordable. Universal service will fail in the long-
run--and the investments used to deploy broadband will be inefficient 
or even wasted--if there is not a co-equal focus on sustainability as 
compared to merely reaching unserved areas in the first instance. More 
specifically, if networks are built, but services on them are 
unaffordable or do not remain ``reasonably comparable'' to services 
available in urban areas over time, then universal service has failed.
    Particularly given that broadband speeds are evolving and 
increasing, it is important that the high-cost USF program continue to 
be seen--as it was until the past few years -as both an 
``availability'' and ``adoption'' program that helps to justify both 
the deployment of networks and then the use of services on them by 
consumers. A network that is built merely to meet 4/1 Mbps speeds today 
will become quickly outdated; the FCC has acknowledged this in 
indicating that CAF Phase II recipients will be required to ensure that 
their networks are capable of offering 6/1.5 Mbps speeds in several 
years. Unfortunately, it appears that even 6/1.5 Mbps speeds are 
already surpassed, as studies (including the ``State of the Internet'' 
report published regularly by Akamai) indicate that the average 
nationwide use of broadband is already in excess of this speed 
threshold. Moreover, given that networks are built to last for twenty 
years or longer--and given that it takes at least this long to recover 
the costs of deploying a network in sparsely populated, high-cost rural 
areas--a forward-looking and efficient universal service policy should 
aim to deploy and maintain/sustain networks that will be capable of 
delivering ``reasonably comparable'' speeds for the next several 
decades in lieu of clinging to quickly surpassed arbitrary speed 
targets.
    Such efforts will almost certainly require more resources in the 
end than the $4.5 billion available under the FCC's ``budget target'' 
for high-cost universal service through 2017. Yet the fact remains that 
small rural carriers, such as those within NTCA's membership, have 
already made ``commendable'' strides (according to the Federal-State 
Joint Board on Universal Service) in deploying broadband, even as their 
use of high-cost USF support grew only roughly equal to the historic 
pace of inflation (3 percent per year, per FCC Order 11-161). It is 
also worth noting that the ``budget'' risk in the high-cost USF program 
was ultimately ``a solution in need of a problem'' since, once again 
per FCC Order 11-161, the overall high-cost program budget had been 
declining slightly for years, even in advance of the FCC's 2011 
reforms.
    Unfortunately, with uncertainty arising out of the FCC's 2011 
order--specifically as a result of the ``Quantile Regression Analysis'' 
caps and the threat of more cuts to come in a further notice of 
proposed rulemaking--many small carriers have been forced to put their 
investments on hold. A NTCA survey in early 2013 indicated that out of 
more than one hundred small carriers responding, nearly 70 percent had 
postponed or cancelled broadband network deployment projects 
specifically due to regulatory uncertainty arising out of the FCC's 
reforms and the threat of further cuts to come.
    Thus, while more remains to be done to achieve truly universal 
broadband, if regulatory certainty can be restored and a more 
sufficient and predictable support mechanism put into place, it may be 
possible on a reasonable budget that includes some reflection of the 
fact that costs are subject to inflation over time--particularly labor 
costs that represent the overwhelming portion of network deployment 
costs--to re-commence the ``edging out'' of broadband in rural areas 
that smaller carriers had been making prior to the FCC's reforms, and 
to thereby achieve nearly universal broadband deployment over the 
course of time.

    Question 3. Based on my experience in Virginia, it is not possible 
to deploy fiber absolutely everywhere. Many areas of my state have 
granite rockbeds, which make it prohibitively expensive to deploy 
fiber. Therefore, I am supportive of cost effective deployment of 
broadband technology to reach universal coverage. Although I recognize 
that the focus of this hearing was on wireline issues, it seems to me 
that we should consider the best technologies based on our national 
goal of providing advanced communications services to all Americans.

    Question 3a. Should the Federal Communications Commission (FCC) 
focus more resources on best-available technology for unserved areas or 
areas below 4/1? If so, please explain what else the FCC could do to 
improve broadband coverage to unserved areas. If not, please explain 
how we can reach full broadband deployment by focusing more on fixed 
services, at a reasonable cost to taxpayers and consumers.

    Question 3b. Please describe what role you see for other 
technologies in terms of serving hard-to-reach areas in the near term. 
Could we be more technology-neutral in our Federal broadband funding 
programs?
    Answer. As noted in a prior response, small carriers, such as those 
in NTCA's membership, have made ``commendable'' strides according to 
Federal and state regulators in deploying broadband in hard-to-serve 
rural areas. Still, there is more clearly to be done to upgrade many of 
those networks to ensure they remain ``reasonably comparable'' over 
time with services available in urban areas. To date, NTCA members have 
utilized every possible tool available to them to provide broadband, 
leveraging a mix of fiber and copper, coaxial cable, and wireless 
technologies to reach consumers. In fact, NTCA estimates that nearly 
half of its members hold some spectrum assets, and it is our 
understanding that some of those carriers have used fixed wireless to 
reach some portion of their customers where other technologies were not 
yet feasible.
    This being said, it remains clear that fiber networks remain the 
best, most efficient option to achieve true universal service in the 
long-run--that is, to ensure that all Americans have access to 
reasonably comparable service at reasonably comparable rates. Copper 
networks installed in rural areas decades ago during the transition 
from party-line to single-line telephone service are in many cases long 
past their useful life, and as those networks deteriorate, consumers 
run the risk of losing access even to voice service, never mind 
obtaining access to reasonably comparable broadband. And while fixed 
wireless may be an option in certain cases to help deploy broadband, it 
is worth noting that many fixed wireless solutions do not enable voice 
service; in fact, many fixed wireless providers specifically disavow 
the offering of voice services. Similarly, satellite services present 
significant limitations in the carriage of real-time voice traffic, and 
NTCA understands that capacity limitations are even precluding the 
placement of new orders now for satellite broadband in wide swaths of 
rural America. Thus, while each of these technologies could represent 
niche parts of a comprehensive national solution, the fact remains that 
the only reliable means of offering both voice services and ensuring 
``reasonably comparable'' broadband in rural areas is through the 
deployment and ongoing operation of robust, fixed networks.
    Just as the nation committed to wiring all of America to ensure 
rural electrification and rural telephony decades ago, it should 
recommit to re-wiring America now--over time if needed to help manage 
within reasonable ``budget targets''--to ensure that the statutory 
mandate of universal service is served in an IP-enabled era.

    Question 4. Would more targeted broadband mapping--at the address 
level, specifically--help to accelerate deployment to unserved areas? 
If not, please explain why less granular data models are sufficient to 
target deployment to unserved households. Do you believe the current 
level of data gathered by the National Broadband Map contributes to 
overbuilding? If not, please explain.

    Question 4a. While the collection of address level data is a 
laudable goal, the implementation on a nationwide basis would be 
extremely difficult for a number of reasons. First of all, not every 
home in the country actually has a street address. Many homes located 
in rural areas have post office boxes and not street addresses. 
Additionally, wireless providers who claim to serve an entire area 
would be unable to tie their coverage with an actual street address. 
Finally, the sheer amount of data needed to accomplish this goal on a 
nationwide basis would likely overwhelm the programs used to run the 
mapping tools. The FCC recently took over the mapping initiative and 
there are concerns about their ability to maintain the detail needed.
    Answer. Networks are not built address-by-address or customer-by-
customer. Particularly in a broadband world, there are aggregation 
points and middle mile connections that link entire rural communities 
``back to the Internet.'' Thus, while better mapping to understand what 
providers operate where and which services they actually offer could be 
helpful in guiding Federal policy, such mapping cannot play an 
exclusive or dispositive role in deciding where and to what degree to 
provide universal service support in a given area. For example, while 
multiple providers may provide broadband in a given area, only one may 
be offering voice service and, moreover, a ``broadband coverage map'' 
will not yield any information that indicates whether the rates for 
voice and broadband are ``reasonably comparable'' for purpose of 
actually carrying out the statutory mandates of universal service.
    NTCA has filed extensive comments at the FCC on the proper role of 
mapping in guiding universal service policy, and raising concerns with 
respect to the accuracy of the maps as they might be utilized to inform 
USF support decisions. In particular, NTCA has noted that the states--
given their proximity to the consumer and better awareness generally of 
competitive and marketplace conditions ``on the ground''--should play a 
more prominent role in helping to identify what areas are truly 
unserved or served by multiple providers. Examples of such comments can 
be found in the attached Comments of NTCA et al., dated March 28, 2013 
and Comments of NTCA et al., dated January 9, 2013.

    Question 5. As many experts have noted, there is ``rural-rural 
divide'' when it comes to the presence of broadband infrastructure in 
rural America. According to the FCC, more than 83 percent of the 
approximately 18 million Americans that lack access to residential 
fixed broadband at or above the basic level of acceptable service 
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by 
establishing an incremental support component in the Phase I CAF Fund 
for price cap carriers. The initial support was established at $300 
million, but more than half of the allocated funds went unclaimed. 
Different types of carriers have expressed opinions about whether or 
not it was a good idea for the FCC to set aside this amount of money 
even though the bulk of the $4.5 USF program was allocated to other 
types of carriers.

    Question 5a. Regardless of your views on the Phase I Fund, do you 
think the FCC has done enough to provide coverage to the 14.9 million 
people who still lack any sort of basic broadband service?

    Question 5b. If so, when do you think we can expect to provide 
broadband service to all Americans? If not, what else could the FCC do 
to provide universal broadband service?
    Answer. Interestingly, the ``rural-rural divide'' notion fails to 
take into account that, even as small carriers have made 
``commendable'' strides to deploy broadband in high-cost areas as noted 
in prior answers, many Americans living in rural areas served by those 
small carriers still lack access to even 4/1 Mbps broadband. Thus, 
while these customers may have access to some very basic levels of 
broadband because of the hard work of the small carriers that serve 
them and public-private partnerships made possible through USF, the 
fact remains that more remains to be done in all rural areas--both 
those served by larger carriers and those served by smaller carriers--
to realize sustainable universal service in which all consumers have 
access to reasonably comparable broadband at reasonably comparable 
rates.
    There is also increasing concern that a misplaced focus on a 
perceived ``rural-rural divide'' will result in missing the much more 
concerning gap arising between rural and urban areas generally. As the 
National Telecommunications and Information Administration and the 
Economic and Statistics Administration of the Department of Commerce 
highlighted in their joint June 2013 report entitled ``Exploring the 
Digital Nation: America's Emerging Online Experience,'' broadband 
adoption in rural areas trails adoption in urban areas by a substantial 
degree (72 percent in urban areas; 58 percent in rural areas). Without 
sufficient USF support to help ensure that sustainable rural broadband 
is available and to help ensure that the prices for broadband access in 
high-cost areas are and remain reasonably comparable, it will become 
only more difficult over time to overcome this growing and troubling 
``rural-urban divide.''
    As for whether the FCC has done enough to provide coverage to those 
who lack access to any sort of basic broadband in rural areas, it is 
simply too soon to tell whether the CAF Phase I program (and certainly 
the CAF Phase II program) will ultimately succeed in actually enabling 
better access to broadband in areas served by larger companies--and 
whether that access is sustainable over time. It is clear, however, 
that in areas served by smaller carriers such as those within NTCA's 
membership, the effect of the reforms--as explained in prior answers--
has been to put much of the investment in more broadband-capable 
networks on hold as carriers sort through the byzantine ``Quantile 
Regression Analysis'' caps or await the prospect of further cuts to USF 
support through the FCC's further notice of proposed rulemaking.
    In the wake of the 2011 reforms, NTCA has presented to the FCC 
several different ways in which it could create regulatory certainty 
and build a broadband future in which ``universal broadband service'' 
comes closer to realization across all of rural America. Of particular 
note, NTCA has made a number of filings and has had productive 
conversations with FCC staff in recent months regarding the creation of 
a Connect America Fund for areas served by smaller companies--a support 
mechanism that would enable the deployment and upgrade/maintenance of 
sustainable broadband-capable networks regardless of whether consumers 
choose to buy regulated voice service on any given line--and also 
regarding replacements for the ``Quantile Regression Analysis'' caps 
that would remove the complex retroactive impacts of those caps while 
still meeting the FCC's desire for additional fiscal responsibility 
measures in the context of small carriers' USF distribution mechanisms. 
Details regarding these proposals and ongoing discussions with the FCC 
regarding consideration of these issues can be found in the following 
attached documents: Comments of NTCA et al., dated June 17, 2013, Reply 
Comments of NTCA et al., dated July 15, 2013, and Ex Parte Letter from 
NTCA dated September 12, 2013.

    Question 6. There has been a great deal of discussion about the 
FCC's models for CAF. Given that technology is advancing at a rapid 
rate, it seems like the FCC should be focused on establishing a cost 
model that is updated frequently enough to provide an accurate sense of 
the marketplace.

    Question 6a. How important is the timeliness of the FCC's proposed 
cost model in delivering service to unserved areas?

    Question 6b. Do you agree with the revisions the FCC has made to 
its cost model? Does the cost model accurately predict needs/services 
under CAF? If not, or if you believe the FCC model should lock in rates 
for a longer period of time, please explain how a longer view would 
deliver broadband to unserved areas more quickly than an annualized 
model.
    Answer. The cost model currently under consideration for CAF by the 
FCC does not apply to small, rate-of-return-regulated carriers pursuant 
to the terms of FCC order 11-161. Instead, the CAF model currently 
being developed for implementation is applicable by FCC rule and order 
only to larger, price cap-regulated carriers. NTCA has, however, 
submitted several rounds of comments to the FCC regarding the model, 
noting many of the ways in which it would need to be reviewed and 
modified to provide a potential alternative means by which smaller 
carriers could voluntarily seek distribution of USF support. These 
observations can be found in the June 17, 2013 Comments, the July 15, 
2013 Reply Comments, and the September 12, 2013 Ex Parte letter noted 
in the prior answer and attached hereto.
    As noted in prior answers, there is not yet a Connect America Fund 
for areas served by smaller carriers, although NTCA continues to engage 
in productive conversations with the FCC regarding the development of 
such a program tailored for the unique challenges faced by smaller 
carriers that operate exclusively in rural, high-cost areas.
    Beyond these general clarifications regarding the inapplicability 
of the model to small carrier operations today and the need for 
substantial modifications to the extent a model of some kind might be 
used by smaller carriers on a voluntary basis at some future point to 
obtain USF support, NTCA cannot speak to the questions of how the model 
might spur--or fail to spur--delivery of broadband services to rural 
areas served by price cap-regulated carriers. NTCA notes once again, 
however, that it is essential (and required by statutory universal 
service mandate) that the problem to solve is not viewed merely as a 
one-time challenge of ``delivering'' broadband to unserved areas; 
rather, the question to address must also examine the extent to which 
USF/CAF resources can help promote sustainable broadband-capable 
networks and affordable services throughout all rural areas.

    Question 7. A report by the nonpartisan Congressional Research 
Service analysis captures one of the major challenges of USF reform as 
follows:

        ``Smaller, rural, rate-of-return carriers are particularly 
        dependent on USF subsidies, and have expressed concern that the 
        reforms that the USF Order will implement could place them 
        under financial hardship. Many RUS telecommunications and 
        broadband borrowers (loan recipients) receive high cost USF 
        subsidies. In many cases, the subsidy received from USF helps 
        provide the revenue necessary to keep the loan viable. The 
        Telecommunications Infrastructure Loan program is highly 
        dependent on high-cost USF revenues, with 99 percent (476 out 
        of 480 borrowers) receiving interstate high-cost USF support. 
        This is not surprising, given that the RUS Telecommunications 
        Loans are available only to the most rural and high-cost areas 
        (towns with populations less than 5,000). Regarding broadband 
        loans, 60 percent of BIP (stimulus) borrowers draw from state 
        or interstate USF support mechanisms, while 10 percent of farm 
        bill (Rural Broadband Access Loan and Loan Guarantee Program) 
        broadband borrowers receive interstate high-cost USF support. 
        Thus, to the extent that USF may be reformed, this could have 
        an impact on the viability of RUS telecommunications and 
        broadband loans, and ultimately the overall financial health of 
        the carrier.

        Although the FCC included a waiver process in its USF Order for 
        those carriers that felt they would be subject to significant 
        economic stress, due to the reforms, many smaller carriers 
        assert that the waiver process is too burdensome and difficult 
        and that the requirements for qualifying for relief are too 
        restrictive.''

    Additionally, according to the U.S. Department of Agriculture, 
demand for RUS loan funds was only 37 percent of loan funds 
appropriated by Congress in FY2012. This is indicative of the fact that 
the restructuring and uncertainty around USF/CAF reform could diminish 
the desirability of RUS broadband loans to borrowers going forward.

    Question 7a. Given that the RUS and USF broadband programs share 
the goal of deploying broadband to rural America, and many RUS 
borrowers appear to be significant beneficiaries of USF as well, are 
these programs effectively targeted towards providing broadband to 
unserved areas of the nation?
    Answer. Although FCC order 11-161 has been perceived as 
``modernizing'' the fund to allow more companies to invest in 
broadband-capable networks in rural areas, as noted in prior answers: 
(1) smaller carriers, such as those in NTCA's membership, have already 
leveraged USF support for years to make ``commendable'' progress in 
deploy multi-use, broadband-capable networks (although more remains to 
be done); and (2) FCC order 11-161 did not create a Connect America 
Fund for smaller carriers. As noted in prior answers, small carriers 
and their representatives are currently working with the FCC to address 
these issues and to determine what additional steps might be taken to 
implement a CAF that promotes sustainable upgrades to broadband 
networks in areas served by smaller carriers as well, and we remain 
hopeful that such discussions will yield productive results.
    Rural Utilities Service (``RUS'') financing and USF programs play a 
complementary role in supporting the deployment and sustainability of 
broadband-capable networks in rural areas. Much like a commercial 
lender, RUS provides reasonable access to capital--but unlike many 
commercial lenders, RUS is willing to do so (and charged by statute to 
do so) in some of the most challenging reaches of the United States. 
The high-cost USF program, in turn, helps to ensure that consumers can 
pay ``reasonably comparable'' rates for ``reasonably comparable'' 
services on the networks that RUS (and only a small handful of other 
commercial lenders) help to finance in the first instance. In this 
regard, it is once again important to recall that USF is much more--by 
law--than an ``availability'' program; instead, the high-cost USF 
program is in many respects an ``adoption'' program, helping to ensure 
that rates for services on networks in rural areas are not 
unaffordable.
    Thus, the RUS financing programs and the high-cost USF program play 
two very different, but complementary and very important, roles in 
promoting and sustaining rural broadband.

    Question 7b. Are these programs the most cost-effective way for 
Congress to fund rural broadband development? If so, please explain 
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.
    Answer. These programs are extremely cost-effective. In fact, the 
RUS traditional telecommunications loan program is what is commonly 
known as a ``super program.'' It is one of the few government programs 
that actually pays down the deficit by returning funds to the U.S. 
Treasury when loans are repaid. Meanwhile, as noted in prior answers, 
the high-cost USF program overall had a slightly declining ``budget'' 
for several years even before the reforms in 2011, and the portion of 
high-cost support received by smaller carriers was increasing by only 3 
percent per year on average leading up to those reforms even as these 
rural providers edged out broadband to more than 92 percent of their 
consumers. Thus, at least prior to the 2011 reforms, both programs 
represented rare and remarkable successes in policy--yielding funds 
back to the American taxpayer while promoting broadband investment (in 
the form of the RUS programs) and helping to justify such investments 
and the ongoing provision of affordable rates for broadband to 
consumers (in the form of the high-cost USF programs).

    Question 7c. Given that these two programs (USF and RUS) share the 
same goals, to what extent are they duplicative and to what extent are 
they complementary?
    Answer. As noted above, the two programs are not at all 
duplicative; they are instead entirely complementary. The high-cost 
portion of the USF is designed to be part of a revenue base to allow 
companies to operate in areas where it would otherwise be uneconomical 
to operate, and to keep consumer rates ``reasonably comparable'' in 
such hard-to-serve. As stated in Section 254 of the Act, it was the 
policy of Congress to attempt to equalize the cost and availability for 
advanced telecommunications services for all parts of the country, 
regardless of where someone lived.
    On the other hand, the Rural Utilities Service, initially through 
the Rural Electrification Administration, has helped to provide capital 
financing for the build-out first of basic telephone networks across 
the country. Moreover, many years ago (well before the 2011 FCC 
reforms), the RUS adopted a forward-looking policy of ensuring that the 
networks it financed--given that they would be in place and the costs 
of them recovered over decades to come--should be broadband-capable, 
thereby representing an ``early adoption'' of focusing deployment on 
future-proof networks on which consumers could receive advanced 
services.

    Question 7d. Do you think that the FCC waiver process, as designed 
and described above, is appropriate? If so, why? If not, what changes 
would you recommend?
    Answer. The process by which a carrier can obtain relief from 
certain of the reforms in FCC order 11-161 remains problematic. 
Initially, under the 2011 order, a consumer could see an unreasonable 
increase in broadband rates, degradation in broadband speeds or service 
quality, or even lose access to broadband service altogether as a 
result of a FCC rule change, and yet no waiver would be available. In 
its Fifth Order of Reconsideration, however, the FCC confirmed that 
these too could be factors justifying the grant of a waiver, and the 
agency also took certain other steps to relieve some (but not all) of 
the burdens associated with obtaining a waiver.
    The FCC has touted the waiver process as an important safety valve 
where the reforms are having the effect of undermining, rather than 
promoting, universal service. Unfortunately, even in the wake of the 
Fifth Order on Reconsideration, waivers continue to take incredibly 
long periods of time to address, cost carriers large amounts of money 
to seek, and, to date, we have seen little, if any, improvement in the 
process or the outcomes. If the waiver process is to be cited as the 
last line of defense for universal service, it needs marked 
improvement--and it should be clear in the first instance that any 
universal service program that relies as much as the current system on 
a protracted and opaque waiver process raises serious concerns in light 
of the statutory requirement that USF support must be specific, 
predictable, and sufficient.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Begich to 
                           Shirley Bloomfield
    Question 1. Thank you for your testimony. The recent FCC order 
released on July 26, 2013 provided a reprieve from FCC and USF changes 
and was a positive step for Alaska. However, how does the FCC's order 
resolve the underlying problems associated with the USF/ICC 
Transformation Order?
    Answer. Although NTCA-The Rural Broadband Association (``NTCA'') 
welcomed the delay of implementation in the next round of cuts for 
providers, the most recent Federal Communications Commission (``FCC'') 
order does not fix the many underlying issues with the Quantile 
Regression Analysis (``QRA'') caps. We have continued to engage with 
the FCC on the need to undertake a substantial review of and likely 
replacement for the QRA system, and we are hopeful that the FCC might 
even adopt a different mechanism to avoid once and for all the 
byzantine, retroactive caps that still apply pursuant to the QRA 
mechanism. A copy of our latest proposal to the FCC in this regard can 
be found in the attached Ex Parte Letter from NTCA dated September 12, 
2013.

    Question 2. If you don't think the Quantile Regression Analysis 
works in current form, what alternatives have you proposed to the QRA?
    Answer. First and foremost, it is essential to fix the underlying 
data issues that are known to be resident within the QRA mechanism. As 
NTCA has shown in repeated filings since the Sixth Order on 
Reconsideration, many steps are needed to determine whether and to what 
degree the QRA can (or even should) be salvaged--and those steps cannot 
begin until the acknowledged errors in the underlying model are 
identified and corrected. Additionally, NTCA along with USTelecom and 
WTA worked with former Chief Economist of the FCC, Simon Wilkie, to 
examine the volatility of the QRA. A copy of the study is attached 
hereto. Copies of other filings since earlier this year on these points 
can be found in the attached documents: Ex Parte Letter from NTCA and 
WTA dated March 6, 2013 Ex Parte Letter from NTCA dated April 18, 2013, 
Ex Parte Letter from NTCA dated May 31, 2013, and Ex Parte Letter from 
NTCA dated July 19, 1013.
    In recent months, however, NTCA has worked with other stakeholders 
to create an alternative proposal that would satisfy the FCC's desire 
for ``fiscal responsibility'' in the form of a reasonable, well-defined 
constraint on future investments without injecting byzantine levels of 
complexity and uncertainty into the recovery of both past and future 
investment. A summary of this proposal, entitled the ``Capital Budget 
Mechanism,'' can be found in the Ex Parte Letter from NTCA dated 
September 12, 2013 attached hereto. This proposal would define each 
small carrier's ``budget'' for future USF-eligible investment based 
upon a transparent identification of its need to replace depreciated 
plant over a series of years, and the mechanism includes a ``trigger'' 
that could be used by the FCC to adjust a given carrier's future 
investment budget without putting at risk recovery of costs associated 
with investments made years ago in accordance with then-current rules 
and reasonable expectations.

    Question 3. If you think the current waiver process is broken, what 
specific steps would you take, or urge Congress to take to fix it?
    Answer. The process by which a carrier can obtain relief from 
certain of the reforms in FCC order 11-161 remains problematic. 
Initially, under the 2011 order, a consumer could see an unreasonable 
increase in broadband rates, degradation in broadband speeds or service 
quality, or even lose access to broadband service altogether as a 
result of a FCC rule change, and yet no waiver would have been granted. 
In its Fifth Order of Reconsideration, however, the FCC confirmed that 
these too could be factors justifying the grant of a waiver, and the 
agency also took certain other steps to relieve some (but not all) of 
the burdens associated with obtaining a waiver.
    The FCC has touted the waiver process as an important safety valve 
where the reforms are having the effect of undermining, rather than 
promoting, universal service. Unfortunately, even in the wake of the 
Fifth Order on Reconsideration, waivers continue to take incredibly 
long periods of time to address, cost carriers large amounts of money 
to seek, and, to date, we have seen little, if any, improvement in the 
process. If the waiver process is to be cited as the last line of 
defense for universal service, it needs marked improvement--and it 
should be clear in the first instance that any universal service 
program that relies as much as this current system on a protracted and 
opaque waiver process raises serious concerns in light of the statutory 
requirement that USF support must be specific, predictable, and 
sufficient.
    Ultimately, if a well-functioning Connect America Fund can be set 
up that provides predictable and sufficient support for investments in 
broadband-capable networks by smaller carriers, if the QRA mechanism 
can be addressed as suggested by NTCA and others in recent proposals, 
and if the FCC can eliminate the regulatory uncertainty created by the 
``overhang'' prospect of even more cuts in the further notice of 
proposed rulemaking issued in 2011, this could help to reduce the need 
for and reliance upon a waiver mechanism in the first instance.

    Question 4. Please explain in more detail your proposal for a 
Connect American Fund for RLECs--why it is needed and how it would 
work?
    Answer. Details of the proposal (including specific recommended 
rules to implement the proposal) can be found in the following filings 
made in recent months by NTCA and allied stakeholders with the FCC and 
included in the addendum: Comments of NTCA et al., dated June 17, 2013, 
Reply Comments of NTCA et al., dated July 15, 2013, and Ex Parte Letter 
from NTCA dated September 12, 2013.
    NTCA's proposal is intended to solve a technical gap in 
``connecting the dots'' between FCC order 11-161 and the rules that 
govern distribution of USF support to smaller carriers. In the order, 
the FCC clearly grasped the need to evolve how it would support 
broadband-capable networks. Specifically, the FCC ruled in the order 
that the service to be supported through high-cost USF going forward 
would no longer be the actual sale of ``Plain Old Telephone Service'' 
(or ``POTS''), but rather the offer of ``voice telephony service'' on 
broadband-capable networks. Specifically, the FCC determined that to be 
eligible for receipt of USF support, carriers should be required ``to 
offer voice telephony as a standalone service throughout their 
designated service areas.'' The Commission further stated that 
``Section 254 grants . . . the authority to support not only voice 
telephony service but also the facilities over which it is offered,'' 
and that ``the modified definition simply shifts to a technology 
neutral approach, allowing companies to provision voice service over 
any platform, including the PSTN and IP networks.
    Unfortunately, the unmistakably clear, forward-looking vision in 
the text of the FCC's order did not carry through as a simple 
mechanical matter to the rules that actually govern the distribution of 
USF support for smaller carriers such as those in NTCA's membership. 
Instead, while these smaller carriers can and already do leverage USF 
support to justify the deployment and enable the operation of 
broadband-capable networks in high-cost areas, these smaller carriers 
cannot receive USF support for the portion of the network used to serve 
a given customer unless that customer actually chooses to buy POTS 
service. Thus, where a customer chooses to buy wireless voice service 
or wants to take an over-the-top VoIP service (such as Vonage) but then 
desires to keep fixed broadband service from the smaller carrier, that 
customer's broadband rates ironically spike several times over because, 
pursuant to rules that were left unchanged in the 2011 reforms, USF 
support is no longer available in connection with that portion of the 
small carrier's network.
    This result flies in the face of the vision of the order, as well 
as the intent to promote and sustain an IP evolution and ``modernize'' 
the USF program for a broadband-capable, IP-enabled world. To remedy 
this disconnect between the FCC's vision as stated in the order and the 
rules that govern distribution, NTCA and other stakeholders have 
proposed support for ``data-only broadband'' or ``standalone 
broadband'' in the form of a Connect America Fund for smaller carriers. 
Under this proposal, while a smaller carrier would be required to offer 
voice telephony service to each and every consumer, as with the CAF for 
price cap carriers, the availability of USF support to deliver 
affordable services would not be dependent upon whether any given 
customer chooses to buy POTS service when offered. The exact amount of 
USF/CAF support available to each carrier under this proposal would be 
calculated based upon an assessment of the costs required to provide 
service on the supported network as compared to the ``reasonably 
comparable'' rate that the carrier should be expected to obtain from 
the consumer in connection with the provision of such service.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                              Jerry James
    Question 1. With respect to the coming IP transition and advancing 
technology, which specific requirements from the Telecommunications Act 
of 1996 are the most important to maintain to ensure fair competition 
in the marketplace?

    Question 1a. For example, the 1996 Act has clear interconnection 
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain 
why not.
    Answer. The provisions of the Communications Act establish the 
preconditions for competition in the telecommunications market by 
requiring that competitors have access to last-mile end-user 
connections and interconnection on reasonable rates, terms, and 
conditions. These provisions are crucial to the IP transition because 
the most effective way of promoting efficient investment in new IP 
technologies is to promote competition. Moreover, these provisions are 
technologically neutral. They have applied to every technology used in 
the network since its inception, and it is crucial that the FCC apply 
them to IP networks.
    First, it is impossible to overstate the importance of ensuring 
access to last-mile, end-user connections on reasonable rates, terms 
and conditions. The incumbent telephone companies own the only physical 
connection to many business customers in the U.S. It is not 
economically possible for competitors to replicate these facilities 
because the steep costs associated with building new facilities (e.g., 
obtaining access to rights of way, digging up streets, etc.) often far 
exceed the revenues that can be earned from serving business customer 
locations. This is so regardless of whether the services provided to 
the customers utilize legacy technologies or new IP technologies. As a 
result, incumbent telephone companies have market power over last mile 
connections to business customers, and they have little or no incentive 
to make these facilities available to their competitors.
    This is why the terms of the Communications Act, both those adopted 
in the original 1934 Act (sections 201(b) and 202(a), which govern 
special access) and the amendments added in 1996 (sections 251(c)(3) 
and 252(d)(1), which govern unbundled network elements), mandate that 
incumbent LECs provide these facilities to competitors on reasonable 
rates, terms, and conditions. Competitors rely on last mile facilities 
made available pursuant to these statutory provisions to provide 
innovative, game-changing services to business customers. This would 
not be possible if last-mile facilities were unavailable to competitors 
at wholesale, and, again, this is true regardless of the technology 
used to provide services over the end user connections. Thus, if 
incumbent telephone companies are no longer required to provide 
competitors access to last mile facilities after the transition to IP 
networks, U.S. businesses would lose the benefit of competition, 
yielding less innovation, higher prices, and degraded service quality.
    Second, interconnection is also critically important. A provider of 
voice services must be able to interconnect its network with other 
providers' networks in order to ensure that its customers can call the 
other providers' customers. But so-called ``network effects'' prevent 
incumbent telephone companies from having an incentive to cooperate 
with competitors in establishing interconnection arrangements. As the 
FCC has explained, ``[n]etwork effects arise when the value of a 
product increases with the number of customers who purchase it.'' \1\ 
For instance, the value of a subscriber's telephone service increases 
as the number of other people the subscriber can reach using that 
service increases.\2\ And, ``[i]f the attractiveness of a [telephone or 
other communications] network increases as it enlarges, consumers will 
tend to choose the larger network, which in turn will make it even 
larger and more attractive.'' \3\ For this reason, large incumbent 
telephone companies--which have far larger voice subscriber bases than 
virtually any of their competitors--do not need to interconnect with 
competitors nearly as much as competitors need to interconnect with 
them. As the FCC explained it in 1997, ``incumbent LECs have no 
economic incentive . . . to provide potential competitors with 
opportunities to interconnect with . . . the incumbent LEC's network.'' 
\4\
---------------------------------------------------------------------------
    \1\ USF/ICC Transformation FNPRM  1336.
    \2\ See id.
    \3\ See Network Effects in Telecommunications Mergers MCI WorldCom 
Merger: Protecting the Future of the Internet, Address by Constance K. 
Robinson, Director of Operations and Merger Enforcement, DOJ Antitrust 
Division, before the Practicing Law Institute, at 2 (Aug. 23, 1999), 
available at http://www.justice.gov/atr/public/speeches/3889.pdf (``DOJ 
Network Effects in Telecommunications Mergers Address'').
    \4\ Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996; Interconnection Between Local Exchange 
Carriers and CMRS Providers, First Report and Order, 11 FCC Rcd. 15499, 
 55 (1996) (``Local Competition Order'') (subsequent history omitted).
---------------------------------------------------------------------------
    This is as true today as it was in 1997. The size of a carrier's 
customer base is still the most important determinant of its leverage 
in interconnection negotiations and its willingness to interconnect 
with other carriers. And incumbent LECs such as AT&T and Verizon still 
have far more voice subscribers than non-incumbent LECs.\5\ The 
resulting market power over interconnection persists, regardless of 
whether a competitor seeks interconnection using legacy technology or 
IP.
---------------------------------------------------------------------------
    \5\ This point can be illustrated by measuring the value of a large 
incumbent LEC's network relative to that of a competitor. Under one 
such measure (known as ``Metcalfe's law''), the relative value of a 
network is proportional to the square of the number of subscribers 
served by the network. See Michael Kende, FCC Office of Plans and 
Policy, The Digital Handshake: Connecting Internet Backbones, OPP 
Working Paper No. 32, at 3 n.5 (Sept. 2000), available at http://
www.fcc.gov/Bureaus/OPP/working_papers/oppwp32.pdf. The difference in 
the relative values of incumbent LECs' voice networks and competitive 
LECs' voice networks is enormous. For example, Cbeyond, a CompTel 
member, provides voice and data services to approximately 59,000 
business customers. See Cbeyond, Inc., SEC Form 10-Q, Item 2 (filed May 
2, 2013); Integra Telecom, About Us, http://www.integratelecom.com/
about/Pages/default.aspx (last visited Aug. 1, 2013). AT&T provides 
approximately 122.9 million total voice connections. See AT&T Inc., SEC 
Form 8-K, Items 8.01, 9.01 (filed July 24, 2013). This total includes 
92.7 million wireless connections (excluding data-centric devices such 
as tablets), 26.8 million switched access lines, and 3.4 million U-
Verse VoIP connections. See id. Even under the conservative assumptions 
that all of Cbeyond's business customers purchase voice services and 
that those customers each purchase numerous voice connections (e.g., 
100 voice connections), Metcalfe's law would yield the conclusion that 
AT&T's voice network is hundreds of times more valuable than Cbeyond's 
and Integra's voice networks.
---------------------------------------------------------------------------
    This is why the terms of the Communications Act mandate that 
service providers interconnect with each other. Of particular 
importance is Section 251(c)(2), which requires that incumbent 
telephone companies interconnect at any technically feasible point with 
a requesting competitor. This provision evens an otherwise highly 
imbalanced playing field and makes it possible for competitors to 
interconnect and exchange traffic with incumbent voice service 
providers.
    Direct interconnection rights are crucial for managed IP voice 
services demanded by business customers because those services do not 
traverse the public Internet and cannot be exchanged over established 
Internet backbone networks. Rather, providers of business IP voice 
services must interconnect using separate, managed connections, a 
situation in which incumbents can exploit, and have exploited, to their 
advantage by refusing to interconnect on an IP basis. My understanding 
is that AT&T incumbent telephone company operations have not 
interconnected in IP with a single competitor for the exchange of voice 
traffic. Verizon has only agreed to establish such interconnection with 
one competitor, and that was with Comcast, one of the very few 
competitors with a large customer base. In contrast competitors have 
established IP interconnection with each other. For example, Sprint 
``currently has IP interconnection agreements with 12 major [non-
incumbent LEC] carriers.'' \6\ Similarly, tw telecom has entered into 
five VoIP interconnection agreements with non-incumbent LECs, including 
with one cable company. But competitors must eventually establish these 
arrangements with incumbent telephone companies, and that outcome can 
only be assured if the requirements of Section 251(c)(2) apply to 
interconnection in IP.
---------------------------------------------------------------------------
    \6\ See Comments of Sprint, GN Docket No. 13-5, at 6 (filed July 8, 
2013).
---------------------------------------------------------------------------
    As the FCC has stated:

        The technology change does not alter the fact that carriers 
        must still interconnect. ``Basic interconnection regulations, 
        which ensure that a consumer is able to make and receive calls 
        to virtually anyone else with a telephone, regardless of 
        service provider, network configuration or location, have been 
        a competition to thrive, the principle of interconnection--in 
        which customers of one service provider can communicate with 
        customers of another--needs to be maintained.\7\
---------------------------------------------------------------------------
    \7\ The National Broadband Plan at 49.

    The change in technology also does not alter the incumbent LEC's 
subscriber base or its control of the physical facilities used to 
provide the service. Moreover, in the case of managed VoIP services, 
which constitute the vast majority of interconnected VoIP 
subscriptions,\8\ the end-user service is fundamentally the same as 
one's traditional phone service. Unlike over-the-top service, managed 
VoIP services do not traverse the public Internet and provides 
substantially higher quality of service, security and reliability. A 
consumer is unlikely to view a managed VoIP service any differently 
from their traditional phone service. Managed VoIP service meets the 
statutory definition of a telecommunications service.\9\
---------------------------------------------------------------------------
    \8\ Only 10 percent of interconnected VoIP subscribers use an 
Internet based service. The FCC reported 37 million interconnected VoIP 
subscriptions at the end of 2011, see Local Telephone Competition, 
Status as of December 31, 2011, Industry Analysis and Technology 
Division, Wireline Competition Bureau, January 2013, p. 1 (``FCC 2013 
Local Competition Report''), and USTELECOM estimates there to be a mere 
3.5 million of OTT VoIP lines, see USTELECOM, ``Evidence of Voice 
Competition and ILEC Non-Dominance Mounts,'' April 2, 2013, at 8 (``UST 
Brief''). Available at: http://www.ustelecom.org/news/research-briefs/
ustelecom-research-brief-april-4-2013. COMPTEL does not endorse the 
USTELECOM analysis (which generally understates ILEC dominance).
    \9\ 47 U.S.C. 153(46) [``The term ``telecommunications service'' 
means the offering of telecommunications for a fee directly to the 
public, or to such classes of user as to be effectively available 
directly to the public, regardless of the facilities used.''(Emphasis 
added).
---------------------------------------------------------------------------
    Finally, there can be no dispute that the terms of the 
Communications Act that mandate access to last-mile end-user 
connections and interconnection are technology neutral. This is evident 
from the terms of the provisions, which make no distinction between 
legacy and new technologies. Moreover, as, the Federal Communications 
Commission (``FCC'') explained when addressing the 1996 amendments, 
``[n]othing in the statute or legislative history indicates that it was 
intended to apply only to existing technology. . .Congress was well 
aware of. . .packet-switched services in 1996, and the statutory terms 
do not include any exemption for those services.'' \10\
---------------------------------------------------------------------------
    \10\ Memorandum Opinion and Order, and Notice of Proposed 
Rulemaking, Deployment of Wireline Services Offering Advanced 
Telecommunications Capability, CC Docket Nos. 98-147, 98-11, 98-26, 98-
32, 98-78, 98-91, CCB/CPD No. 98-RM 9244, FCC 99-188,  48-49 (1998).

    Question 1b. How important is iti to maintain the legacy/copper 
communications netowrks as we transition to IP? If so, for how long? If 
not, please explain why not?
    Answer. As an initial matter, IP alone cannot get traffic from 
Point A to Point B. The reason is that IP is nothing more than a 
software protocol--a set of rules; it is not a physical network. IP, 
therefore, needs a physical network framework over which to transport 
traffic according to its rules. Just as with TDM, IP can be used with 
the legacy copper, fiber or wireless networks.
    As explained, the ability for competitors to have access to last 
mile facilities to the consumer is critical for consumers to have a 
choice in service providers. As also explained, competitors cannot 
possibly replicate the ILEC network in many locations. So where 
building facilities is not a viable option, competitors have no choice 
but to rely on access to ILEC last-mile facilities.
    The most efficient last-mile connections for providing IP service 
utilize packet-based technology, such as Ethernet. Incumbent LECs have 
market power over last-mile end-user connections that utilize this 
technology just as they have market power over last-mile end-user 
connections that utilize legacy technologies. In order to ensure that 
business customers receive the benefits of competition during and after 
the transition to IP, it is critical that the FCC adopt rules requiring 
that incumbent telephone companies offer packet-based last-mile end-
user connections, including those that utilize Ethernet, to competitors 
on reasonable rates, terms, and conditions. These rules should apply 
regardless of whether the underlying physical connection to the end 
user consists of copper, fiber or some other material. Failure to 
ensure this outcome will ultimately hobble competition and harm the 
U.S. economy.
    But until the FCC adopts such rules, it must make sure that legacy 
copper loops are available to competitors. Existing FCC last-mile 
access rules severely curb the access competitors have to incumbent LEC 
last mile facilities. Among the few kinds of last-mile facilities that 
are subject to regulation are legacy copper loops. Competitors use the 
last mile access they obtain through the copper loop to serve business 
customers. They have done so by providing innovative and valued 
services to small and medium size businesses and to supplement service 
to multi-location enterprise customers in locations where it has been 
uneconomical for them to build their own facilities. Competitors have 
invested millions of dollars to be able to offer these advanced 
services which are at risk when such last mile facilities are 
unavailable. In other words, the availability of the copper loop 
provides business consumers a choice in providers they otherwise would 
lack and encourages substantial infrastructure investment by 
competitors in the electronics that translate a bare copper wire to a 
broadband facility. Thus, until the FCC updates its rules governing 
access to last-mile end user connections to encompass facilities to 
utilize packet technology such as Ethernet, it must ensure that 
competitors continue to have access to copper loops.

    Question 2. Reform of the Universal Service Fund (USF)/creation of 
the Connect America Fund (CAF) is critically important because millions 
of Americans still lack access to high-speed broadband service in many 
areas of the country. According to the National Broadband Plan, 
broadband is available in 98 percent of the nation, but the national 
adoption rate, according to the National Telecommunications and 
Information Administration (NTIA) and Census data, is 72 percent. I 
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies 
that help us to reach 100 percent coverage of U.S. households. However, 
we have a limited amount of money that we can allocate as a nation to 
rural broadband deployment, and I believe we should prioritize funding 
to support buildout in unserved areas or areas below 4 mbps down/1 
mbps. Typically, these areas are still unserved because of the high 
cost of deployment and the low population density. Understandably, this 
makes it difficult for private companies to deploy broadband in these 
areas, and it is also the reason why policymakers decided to create 
programs like USF/CAF--to serve hard-to-reach places in the country.

    Question 2a. Do you believe CAF is adequately focused on broadband 
deployment in unserved areas? If so, how long do you think it will take 
to reach full deployment? If not, please explain what it would take to 
buildout unserved areas of our country given that we only have 
approximately $4.5 billion/year through USF.

    Question 2b. Is the pace of reform moving too slowly?
    Answer. COMPTEL agrees that ensuring all consumers in the U.S. have 
access to broadband services is an important goal for our Nation and 
that increasing the broadband adoption rate in the U.S. is necessary to 
ensure that the entire nation benefits from the broadband economy. As 
you know, the FCC's effort to reform the high-cost program in USF was 
largely focused on reallocating money to areas not served by broadband, 
which are largely in the price cap carrier territories.
    Generally, COMPTEL members are not eligible to receive funding in 
the reform of the high-cost program; however, we do have one member 
that is an incumbent price cap telephone company that qualifies, and it 
has accepted funding in both rounds of CAF Phase I and is deploying 
broadband services to unserved areas. During CAF Phase II, should the 
incumbents not accept a statewide commitment to serve at the funding 
amount to be determined by the FCC using a cost model (that is under 
development), then other qualified providers may have the opportunity 
to apply for the support and meet the service obligations (the process 
by which is still to be determined by the FCC). COMPTEL believes that 
every provider that is willing to serve those areas should be eligible 
to apply for and receive funding if they can meet the service 
obligations.
    With respect to your last question about the pace of reform, yes 
implementation of the reforms is taking a significant amount of time. 
Unfortunately, any time a Federal funding program undergoes a major 
overhaul such as this, delays are to be expected.

    Question 3. Based on my experience in Virginia, it is not possible 
to deploy fiber absolutely everywhere. Many areas of my state have 
granite rockbeds, which make it prohibitively expensive to deploy 
fiber. Therefore, I am supportive of cost effective deployment of 
broadband technology to reach universal coverage. Although I recognize 
that the focus of this hearing was on wireline issues, it seems to me 
that we should consider the best technologies based on our national 
goal of providing advanced communications services to all Americans.

    Question 3a. Should the Federal Communications Commission (FCC) 
focus more resources on best-available technology for unserved areas or 
areas below 4/1? If so, please explain what else the FCC could do to 
improve broadband coverage to unserved areas. If not, please explain 
how we can reach full broadband deployment by focusing more on fixed 
services, at a reasonable cost to taxpayers and consumers.

    Question 3b. Please describe what role you see for other 
technologies in terms of serving hard-to-reach areas in the near term. 
Could we be more technology-neutral in our Federal broadband funding 
programs?
    Answer. The FCC's reform establishes two different types of 
funding--one for fixed service (with its CAF) and one for mobile 
service (with its Mobility Fund), acknowledging the importance of both 
fixed and mobile service to consumers in the U.S. COMPTEL has 
consistently advocated for policies that are competitively and 
technologically neutral. The FCC maintains that its approach to USF 
reform is technologically neutral. Many of COMPTEL's members use an 
``all of the above'' strategy, offering a combination of fiber, copper, 
mobile and fixed wireless, to achieve the broadest possible reach to 
consumers and businesses in unserved and underserved areas. There is no 
``one size fits all'' approach to serving those communities that are 
the hardest to reach and the FCC should continue to look at all 
reasonable avenues to address Federal broadband funding programs and 
other incentives to expand and improve broadband coverage.

    Question 4. Would more targeted broadband mapping--at the address 
level, specifically--help to accelerate deployment to unserved areas? 
If not, please explain why less granular data models are sufficient to 
target deployment to unserved households. Do you believe the current 
level of data gathered by the National Broadband Map contributes to 
overbuilding? If not, please explain.
    Answer. Revisions to the FCC's broadband data collection form (the 
Form 477) are expected to go into effect next year and as a result, the 
FCC will be collecting the deployment information that is used for the 
National Broadband Map as well as broadband subscriber information. It 
is our understanding that the FCC is using the Map to evaluate the CAF-
funded builds and a challenge process has been adopted to avoid funding 
overbuilds in the second round of CAF Phase I. We believe that the 
FCC's collection of data (as reformed) is sufficient at this time, 
especially given the challenge process established so that competitors 
may dispute a specific build plan using CAF Phase I funds.

    Question 5. As many experts have noted, there is ``rural-rural 
divide'' when it comes to the presence of broadband infrastructure in 
rural America. According to the FCC, more than 83 percent of the 
approximately 18 million Americans that lack access to residential 
fixed broadband at or above the basic level of acceptable service 
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by 
establishing an incremental support component in the Phase I CAF Fund 
for price cap carriers. The initial support was established at $300 
million, but more than half of the allocated funds went unclaimed. 
Different types of carriers have expressed opinions about whether or 
not it was a good idea for the FCC to set aside this amount of money 
even though the bulk of the $4.5 USF program was allocated to other 
types of carriers.

    Question 5a. Regardless of your views on the Phase I Fund, do you 
think the FCC has done enough to provide coverage to the 14.9 million 
people who still lack any sort of basic broadband service?

    Question 5b. If so, when do you think we can expect to provide 
broadband service to all Americans? If not, what else could the FCC do 
to provide universal broadband service?
    Answer. The challenge of serving all Americans with broadband is 
great given the diverse geographic areas of the Nation. Moreover, 
reforming USF so that it could more effectively target funds to 
unserved areas was a significant accomplishment for the FCC. The FCC 
balanced the burden on consumers who contribute to USF with its goal of 
reaching unserved Americans when it established the $4.5 billion budget 
for the high-cost programs. At the same time, the FCC unfortunately has 
yet to address contribution reform or to broaden the contribution base 
to include users of broadband services.
    The National Broadband Plan that the FCC staff formulated under 
Chairman Genachowski's leadership recommended that Congress provide 
additional funding to build broadband infrastructure in unserved areas. 
Given the national importance of broadband infrastructure, this 
recommendation could be taken up by Congress to the extent that it is 
dissatisfied with the pace of broadband deployment in the unserved 
portions of rural America. Should you do so, COMPTEL would encourage an 
application process for those funds that permits all technologies and 
service providers that can meet the service requirements an opportunity 
to compete for the support.

    Question 6. There has been a great deal of discussion about the 
FCC's models for CAF. Given that technology is advancing at a rapid 
rate, it seems like the FCC should be focused on establishing a cost 
model that is updated frequently enough to provide an accurate sense of 
the marketplace.

    Question 6a. How important is the timeliness of the FCC's proposed 
cost model in delivering service to unserved areas?

    Question 6b. Do you agree with the revisions the FCC has made to 
its cost model? Does the cost model accurately predict needs/services 
under CAF? If not, or if you believe the FCC model should lock in rates 
for a longer period of time, please explain how a longer view would 
deliver broadband to unserved areas more quickly than an annualized 
model.
    Answer. COMPTEL has not been participating in this process at the 
Commission. Under the current structure of the FCC's USF Reforms, the 
principal role of the cost model will be to allocate ``relative'' 
support among areas served by incumbent local exchange carriers. 
Because the vast majority of COMPTEL members are not incumbent local 
exchange carriers--and, therefore, are not eligible for support 
determined by the cost model--we have not been engaged in a process 
that largely impacts only incumbents.

    Question 7. A report by the nonpartisan Congressional Research 
Service analysis captures one of the major challenges of USF reform as 
follows:

        ``Smaller, rural, rate-of-return carriers are particularly 
        dependent on USF subsidies, and have expressed concern that the 
        reforms that the USF Order will implement could place them 
        under financial hardship. Many RUS telecommunications and 
        broadband borrowers (loan recipients) receive high cost USF 
        subsidies. In many cases, the subsidy received from USF helps 
        provide the revenue necessary to keep the loan viable. The 
        Telecommunications Infrastructure Loan program is highly 
        dependent on high-cost USF revenues, with 99 percent (476 out 
        of 480 borrowers) receiving interstate high-cost USF support. 
        This is not surprising, given that the RUS Telecommunications 
        Loans are available only to the most rural and high-cost areas 
        (towns with populations less than 5,000). Regarding broadband 
        loans, 60 percent of BIP (stimulus) borrowers draw from state 
        or interstate USF support mechanisms, while 10 percent of farm 
        bill (Rural Broadband Access Loan and Loan Guarantee Program) 
        broadband borrowers receive interstate high-cost USF support. 
        Thus, to the extent that USF may be reformed, this could have 
        an impact on the viability of RUS telecommunications and 
        broadband loans, and ultimately the overall financial health of 
        the carrier.

        Although the FCC included a waiver process in its USF Order for 
        those carriers that felt they would be subject to significant 
        economic stress, due to the reforms, many smaller carriers 
        assert that the waiver process is too burdensome and difficult 
        and that the requirements for qualifying for relief are too 
        restrictive.''

    Additionally, according to the U.S. Department of Agriculture, 
demand for RUS loan funds was only 37 percent of loan funds 
appropriated by Congress in FY2012. This is indicative of the fact that 
the restructuring and uncertainty around USF/CAF reform could diminish 
the desirability of RUS broadband loans to borrowers going forward.

    Question 7a. Given that the RUS and USF broadband programs share 
the goal of deploying broadband to rural America, and many RUS 
borrowers appear to be significant beneficiaries of USF as well, are 
these programs effectively targeted towards providing broadband to 
unserved areas of the nation?

    Question 7b. Are these programs the most cost-effective way for 
Congress to fund rural broadband development? If so, please explain 
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.

    Question 7c. Given that these two programs (USF and RUS) share the 
same goals, to what extent are they duplicative and to what extent are 
they complementary?

    Question 7d. Do you think that the FCC waiver process, as designed 
and described above, is appropriate? If so, why? If not, what changes 
would you recommend?
    Answer. The Commission also reformed aspects of the support rate-
of-return carriers receive for serving their areas, and it continues to 
look at ways to achieve additional reforms. We have not taken a 
position on this aspect of USF reform, but we do believe that it is 
important for the Commission to ensure that the high-cost funding is 
competitively-neutral, is as efficient and effective as possible, and 
only is used in areas where, but for Federal assistance, consumers 
would not have access to services in rural areas that are comparable to 
services available in urban areas.
                                 ______
                                 
    Responses to Written Questions Submitted by Hon. Mark Warner to 
                              Larry Downes
    Question 1. With respect to the coming IP transition and advancing 
technology, which specific requirements from the Telecommunications Act 
of 1996 are the most important to maintain to ensure fair competition 
in the marketplace?
    Question 1a. For example, the 1996 Act has clear interconnection 
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain 
why not.
    Answer. I do not believe that interconnection requirements or any 
other requirements of Title II of the Communications Act are 
``technology neutral,'' and I would advise Congress not to attempt to 
transport or translate any specific requirements of Title II of the 
Communications Act to IP networks.
    Title II was inherited into the 1996 Act to deal with lingering 
competitive issues of the former wireline monopoly. One could argue 
that its continued application has contributed significantly to the 
obsolescence of the PSTN network, but in any case it has no place--
either as a matter of sound engineering or sound policy--in an all-IP 
world.
    IP networks have developed as well as they have precisely because 
they have not been subject to the kind of legacy regulation that has 
applied to the former PSTN telephone monopoly. That has provided 
significant incentives for providers to make massive capital 
investments, and for engineers to innovate constantly in the 
development of better and cheaper hardware, software, and standards 
that have always been at the core of the Internet.
    From a design and engineering standpoint, the concept of mandated 
interconnection as the FCC has implemented it under Sections 251 and 
252 of the Communications Act is a non sequitur in the context of IP 
networks. The Internet has always operated on the basis of peering 
arrangements, over 99.5 percent of which, according to the OECD, are so 
simple that they aren't even memorialized in written documents.
    It is hard to imagine how, as a matter of sound engineering, it 
would even be possible to sub-divide IP traffic in a way that would 
make it possible to apply Section 251 and Section 252 on voice-related 
IP traffic moving solely between networks of ILECs and CLECs. Indeed, 
some parties in the FCC's on-going IP Transition trials proceeding are 
trying to use that engineering impossibility as an opportunity to apply 
``interconnection'' mandates to all IP traffic, effectively bringing 
all Internet traffic under Title II--in clear violation of the 
Communications Act and Congress's sensible decision to leave 
information services including data, text, and video outside of the 
obsolete legacy rules.
    As I explained in my written testimony:

        Some critics of proposed IP transition trials have argued for 
        the continued application of existing regulations (particularly 
        interconnection mandates under Sections 251 and 252 of the 
        Communications Act), arguing that these provisions should apply 
        in a ``technology neutral'' fashion.\1\
---------------------------------------------------------------------------
    \1\ See, e.g., Comments of Competitive Carriers Association, In re 
AT&T Petition, GN Docket No. 12-353 (Filed Jan. 28, 2013), available at 
http://apps.fcc.gov/ecfs/document/view?id
=7022113646.

        According to these critics, ``the policy justifications for 
        requiring ILECs to provide interconnection and to submit to 
        arbitration--namely, the ubiquity of ILECs' telecommunications 
        networks and market power that these pervasive networks 
        confer--arise regardless of the technology used by those 
        networks to transmit and exchange telecommunications traffic.'' 
        \2\
---------------------------------------------------------------------------
    \2\ Id. at 3.

        Not only are these complaints irrelevant to the proposed trials 
        (which are small steps aimed at determining precisely whether 
        constraints such as Sections 251 and 252 are appropriate), but 
        their alleged policy justification is not, in fact, 
        ``technology neutral.'' Instead, it is a call to apply 
        barnacled rules, crafted over decades specifically for the 
        technology and business realities of the PSTN, to a new 
---------------------------------------------------------------------------
        ecosystem that shares few, if any, of the same characteristics.

        Technology neutrality does not mean blindly enforcing design 
        principles suited for tree houses as buildings codes for steel 
        skyscrapers. Modern structures are clearly better. They require 
        entirely different rules, and different kinds of enforcement. 
        Applying PSTN rules to IP networks is bad business and bad 
        public policy. There are no regulated monopolies in the IP 
        ecosystem, and no need for the kind of regulations aimed at 
        controlling them.

        An all-IP-infrastructure is clearly better for everyone. The 
        sooner we can complete the transition, the sooner we will reap 
        the full dividends of continuing private and public investments 
        in this new infrastructure. Getting the transition right will 
        not only save the legacy PSTN operators from irrelevance. It 
        will likely bolster the U.S. economy, accelerate the 
        technological empowerment of Americans as both citizens and 
        consumers, and sustain global competitiveness for U.S. 
        technology companies.

        As the National Broadband Plan put it,

                [B]roadband is a foundation for economic growth, job 
                creation, global competitiveness and a better way of 
                life. It is enabling entire new industries and 
                unlocking vast new possibilities for existing ones. It 
                is changing how we educate children, deliver health 
                care, manage energy, ensure public safety, engage 
                government, and access, organize, and disseminate 
                knowledge.\3\
---------------------------------------------------------------------------
    \3\ National Broadband Plan, supra note 14, at xi. See also 
chapters 10-16. And see Robert E. Litan and Hal Singer, The Need for 
Speed: A New Framework for Telecommunications Policy in the 21st 
Century (Brookings Institution Press 2013).

        In The Politics of Abundance, former FCC Chairman Reed Hundt 
        and his one-time chief of staff Blair Levin make a persuasive 
        case that the shift to ``connected computing''--broadband 
        Internet, cloud-based services, and widespread mobile devices--
        is essential to jumpstart the U.S. economy. Hundt and Levin 
        urge all levels of government to take immediate steps to 
        support what they call the ``knowledge platform''--ultra high-
        speed broadband with high reliability and low latency, able to 
        support high-bandwidth, video-intensive applications and cloud-
---------------------------------------------------------------------------
        based services.

        As Hundt and Levin write, ``[t]o increase growth, job creation, 
        productivity gains, and exports at a faster rate, government 
        should double down on what is already doubling in the Internet 
        sector.'' \4\ They point, for example, to the fact that 
        Internet transit prices have improved as much as 50 percent 
        each year. (See Figure 1)
---------------------------------------------------------------------------
    \4\ Reed Hundt & Blair Levin, The Politics of Abundance: How 
Technology Can Fix the Budget, Revive the American Dream, and Establish 
Obama's Legacy 9 (2012), 16-17.
---------------------------------------------------------------------------
         Figure 1--Internet Transit Price per 1 Mbps, 1998-2015

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: Hundt & Levin, supra note 22, Figure 2.1, p. 105

        The kind of high-speed, widely accessible and affordable 
        broadband Hundt and Levin describe also provides the tools that 
        innovators need to launch more Big Bang Disruptions. All-IP 
        networks will vastly expand the possibilities of the next 
        generation of cloud services like Google, Facebook, Twitter and 
        Salesforce. These services and others that will follow will be 
        superior in ways both easily imaginable (instant, more reliable 
        interaction with richer media like video, streaming 
        presentations, and more robust tools) but also in ways that we 
        cannot yet imagine.

        Preserving Peer-Based Interconnection

        The IP Transition will accelerate the ongoing transformation of 
        our digital experiences in ways that could be as revolutionary 
        as the introduction of the Internet itself. It is imperative 
        that government, private sector companies, and consumers work 
        together to get it done as quickly as possible.

        Government, in particular, should work to undo much of the 
        regulatory mess that unnecessarily constrains legacy PSTN 
        providers as they transition to IP. For example, Congress and 
        the FCC should reject self-serving calls to impose outdated 
        regulations mandating network interconnection, devised for an 
        era of monopoly voice carriage, on the well-functioning market 
        for private Internet peering agreements, which already ably 
        provides for the efficient transport of voice as well as video 
        and data traffic.

        Private peering arrangements have long provided an efficient 
        mechanism for interconnection on packet-switched networks, 
        regardless of whether the packets contain data, video, and 
        voice applications. The shutdown of PSTN networks and the 
        migration of additional voice traffic to the Internet do not 
        change the dynamics of that system. As Michael Kende, former 
        Director of Internet Policy Analysis at the FCC has recently 
        written:

                [T]he competitive concerns that historically drove 
                interconnection regulations for PSTN-based voice 
                service are no longer valid due to the rapid take-up of 
                many different types of alternative communications 
                services to traditional voice, such as cable telephony, 
                software-based voice over IP (VoIP), and other IP-based 
                forms of communications. Therefore, as voice migrates 
                to the Internet there is no need for any regulation of 
                IP voice traffic which mirrors the regulation of the 
                PSTN on competition grounds, because the current IP 
                interconnection arrangements show how traffic will flow 
                end-to-end without a regulatory mandate.\5\
---------------------------------------------------------------------------
    \5\ Michael Kende, Voice Traffic Exchange in an IP World, Analyses 
Mason, April 12, 2013, at 2.

        Today, marketplace and reputational incentives drive 
        interconnection and consumer protections. These incentives are 
        buttressed by various multistakeholder processes that continue 
        to evolve to supplement direct company-to-company dispute 
        resolution.\6\ At the same time, the FCC retains authority 
        under Title I of the Communications Act to regulate for public 
        safety, and antitrust and consumer protection laws govern IP 
        services precisely because they are not regulated as common 
        carriers (which are excluded from the FTC's general 
        jurisdiction over the economy).\7\
---------------------------------------------------------------------------
    \6\ Most notable among these is the Broadband Internet Technical 
Advisory Group (BITAG), ``a technical advisory group to discuss and 
opine on technical issues pertaining to the operation of the Internet, 
as a means of bringing transparency and clarity to network management 
processes as well as the interaction among networks, applications, 
devices and content.'' BITAG History, http://www.bitag.org/
bitag_organization.php?action=history (last visited February 25, 2013).
    \7\ See Federal Trade Commission, Broadband Connectivity 
Competition Policy, 3 (2007), available at http://www.ftc.gov/reports/
broadband/v070000report.pdf (``[FTC] jurisdiction [over broadband 
Internet access services] had once been regarded as limited to the 
extent that the FTC's general enforcement authority under the FTC Act 
did not extend to entities that were `common carriers' under the 
Communications Act. The regulatory and judicial decisions at issue, 
however, confirmed that the larger categories of broadband Internet 
access services, as information services, are not exempt from FTC 
enforcement of the FTC Act.'').

        If significant issues do arise in the IP transition that escape 
        these multiple layers of regulatory and governance constraints, 
        Congress can of course enact legislation appropriately targeted 
        to address clear consumer harms. But narrowly tailored 
        legislation from Congress after the IP transition has evolved 
        of its own accord is the proper mechanism for addressing such 
        issues--not by bringing the dead weight of old regulatory 
---------------------------------------------------------------------------
        baggage to new markets.

        Not surprisingly, several parties in the FCC's on-going IP 
        transition proceedings have urged the agency to transplant 
        legacy interconnection requirements on IP networks as part of 
        the retirement of the PSTN. PSTN interconnection requirements, 
        however, were formulated when the Bell System was a true, 
        regulated monopoly. They were a necessary evil to control 
        monopolistic risks, and they have imposed considerable waste, 
        fraud and unnecessary cost in exchange for that benefit. 
        Consider, for example, recent FCC reforms of intercarrier 
        compensation aimed at reducing such interconnection arbitrage 
        as traffic pumping, phantom traffic and other abuses.\8\
---------------------------------------------------------------------------
    \8\ Report and Order and Further Notice of Proposed Rulemaking, In 
re Developing a Unified Intercarrier Compensation Regime, CC Docket No. 
01-92 (November 18, 2011), available at http://www.fcc.gov/document/
fcc-releases-connect-america-fund-order-reforms-usficc-broadband.

        In the IP world, by contrast, network operators worldwide 
        negotiate all manner of peering agreements absent any 
        regulation. Indeed, peering within the IP network is so easily 
        achieved, as the OECD has pointed out, that ``the terms and 
        conditions of the Internet interconnection model are so 
        generally agreed upon that 99.5 percent of interconnection 
        agreements are concluded without a written contract.'' \9\ 
        Simply put, there is no evidence that anything is broken in the 
        IP network ecosystem.
---------------------------------------------------------------------------
    \9\ OECD, Committee for Information, Computer and Information 
Policy, Internet Traffic Exchange: Market Developments and Policy 
Changes, 3 (June, 2011), available at http://search.oecd.org/
officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(2011)2/
FINAL&docLanguage=En.

        Those asking regulators to invent an IP interconnection 
        regulatory scheme for voice (or perhaps for all Internet 
        traffic) invoke public interest concerns, but the real 
        motivation is simple rent-seeking. Smaller carriers prefer 
        below-market rates for backhaul, and CLECs are eager to protect 
        their subsidized business model in new ecosystems that are 
        already highly competitive. But these desires have nothing to 
        do with consumer harms, let alone the public interest. In any 
        case, the FCC should avoid ``prophylactic'' regulations for 
        interconnection problems that, as even those asking for them 
---------------------------------------------------------------------------
        admit, are speculative.

        That Internet peering works so well absent regulation is no 
        surprise. Major ISPs have strong business incentives to 
        interconnect. For example, ISP customers increasingly demand 
        access to streaming video content from services such as Netflix 
        and Amazon, and ISPs know that streaming video is the primary 
        reason that customers are willing to pay for high-speed 
        broadband connections at home.

        Where disputes have arisen (often around the distinction 
        between settlement-free transit vendors and paid-peering 
        content delivery networks (CDN), for example \10\), they have 
        taken the form of contract disputes between large commercial 
        players over the specific terms of interconnection, not whether 
        it will be available.
---------------------------------------------------------------------------
    \10\ See, e.g., Marguerite Reardon, Understanding the Level 3-
Comcast spat (FAQ), C-Net (November 30, 2010), available at http://
news.cnet.com/8301-30686_3-20024197-266.html.

        Moreover, demand for streaming video has become so strong that 
        Netflix, having established its own CDN, can now sidestep such 
        disputes and pressure ISPs to accede to its peering demands by 
        threatening to withhold new content or services. It is now 
        content providers, in other words, and not ISPs, who threaten 
        to withhold traffic.\11\ The newfound market power of content 
        providers--as well as increasing intermodal competition from 
        mobile broadband--upends the weathered assumption that ISPs 
        hold all of the bargaining power in interconnection 
        negotiations.
---------------------------------------------------------------------------
    \11\ See, e.g., Betsy Isaacson, Netflix Says 3D and 'Super-HD' 
Movies Are Just Around The Corner--But Only For Some Customers, 
Huffington Post (January 9, 2013), available at http://
www.huffingtonpost.com/2013/01/09/netflix-3d-movies_n_2441394.html; 
Fred Campbell, Netflix Blocking Internet Access to HD Movies, The 
Technology Liberation Front (January 17, 2013), available at http://
techliberation.com/2013/01/17/netflix-blocking-internet-access-to-hd-
movies/; Fred Campbell, What Does Netflix's Decision to Block Internet 
Content Tell Us About Internet Policy?, The Technology Liberation Front 
(January 23, 2013), available at http://techliberation.com/2013/01/23/
what-does-netflixs-decision-to-block-internet-content-tell-us-about-
internet-policy/.

    Question 1b. How important is it to maintain the legacy/copper 
communications network as we transition to IP? If so, for how long? If 
not, please explain why not.
    Answer. It is, of course, essential to continue providing service 
to customers of the obsolete PSTN network until such time as a final 
cutover date is set and approved. (As for the actual infrastructure 
technology, copper is perfectly capable of carrying IP traffic at 
broadband speeds for short distances and of course does so today. The 
retirement of the PSTN network and the replacement of copper are not 
the same thing, and I presume the question refers to the former and not 
the latter.)
    It is, however, essential that Congress and the FCC move quickly to 
organize and establish a date certain for moving the remaining PSTN 
customers to better and cheaper IP networks. The transition is already 
happening, driven by consumers who see no benefit to continue 
maintaining connections to the limited and technically-inferior PSTN 
network. Already, over half of U.S. homes have voluntarily cut the cord 
to the PSTN network, integrating their voice communications with other 
IP-based services offered by cable, fiber, satellite, and mobile 
providers. By 2015 that number may reach as high as 75 percent.
    As more customers abandon the PSTN network, the cost per remaining 
user of maintaining old and obsolete equipment and other infrastructure 
has already become uneconomic. It is also wasting money that would be 
far more effectively spent as capital investment in IP networks. The 
continued maintenance of the PSTN network is throwing good money after 
bad.
    That is why it is essential, following the proposed trials, to set 
a date certain for complete shutdown of the PSTN network and use the 
remaining time to resolve any lingering technical issues and to ease 
the transition of remaining PSTN customers to alternative IP networks. 
As I explained in my written testimony:

        PSTN providers can't beat better and cheaper with worse and 
        more expensive, especially when worse and more expensive has to 
        stay that way as a matter of law.

        They must move faster. Customers are abandoning wired telephone 
        service in favor of fiber and cable-based Voice over IP (VoIP) 
        and mobile broadband at a remarkable rate. At its peak, the 
        PSTN network connected nearly every American. By the end of 
        2011, less than half of all American homes still had a wired 
        connection. That number could fall to as little as 25 percent 
        by 2015.\12\
---------------------------------------------------------------------------
    \12\ Larry Downes, Telcos Race Toward an all-IP Future, CNET 
News.com, Jan 8, 2013, available at http://ces.cnet.com/8301-34435_1-
57562644/telcos-race-toward-an-all-ip-future/.

        The disruptor here, of course, is networking technology that 
        operates natively using the packet-switching protocols of the 
        Internet. IP networks, crucially, don't care if the packets 
        contain voice, data, or video content. While phone companies 
        once dismissed IP as unsuitable for voice communications, 
        carriers large and small have now embraced IP as the only 
        option to satisfy exploding demand of consumers, cloud-based 
        services, and the coming data deluge of machine-to-machine 
---------------------------------------------------------------------------
        communications known as ``the Internet of Things.''

        That superior design has created an enormous black hole for 
        PSTN network operators. As fewer customers subscribe to 
        wireline services, the cost of maintaining aging copper and 
        analog switches is increasing dramatically, both in absolute 
        terms and on a per-customer basis. As much as 50 percent of 
        current wireline expenditures go toward maintenance. By 
        comparison, the operating expenses of native IP networks can be 
        as much as 90 percent less than for PSTN.\13\
---------------------------------------------------------------------------
    \13\ Id. See also Larry Downes, AT&T Moves Dramatically Towards 
`Internet Everywhere,' Forbes, Nov. 8, 2012, available at http://
www.forbes.com/sites/larrydownes/2012/11/08/att-moves-dramatically-
towards-internet-everywhere/.

        To their credit, the incumbent providers are trying to retire 
        and replace what had been, until recently, their most valuable 
        assets. Both Verizon and AT&T have spent billions accelerating 
        the replacement of copper with fiber, and circuit-switched with 
---------------------------------------------------------------------------
        packet-switched equipment.

        But turning off the old network isn't as simple as it sounds. 
        By law, carriers cannot retire the switched network without 
        Federal and perhaps state regulatory approval, even if superior 
        alternatives are in place. And the FCC and state regulators 
        have balked at giving permission for the switchover, calling 
        for more study on proposed trials for PSTN to IP switchovers in 
        test markets.\14\
---------------------------------------------------------------------------
    \14\ Larry Downes, FCC Again Balks on Telephone Network Shutdown, 
CNET News.com, May 14, 2013, available at http://news.cnet.com/8301-
1023_3-57584306-93/fcc-again-balks-on-telephone-network-shutdown/.

        The longer the carriers are required to spend money maintaining 
        the obsolete networks, however, the less capital budget is 
        available to accelerate the replacement of aging and obsolete 
        equipment with better and cheaper IP technologies, including 
        fiber optics, digital switches, and upgrades to straining 
---------------------------------------------------------------------------
        cellular networks.

        In the end, the real victims of the regulatory logjam are the 
        remaining wireline customers who are also, not surprisingly, 
        the ones least likely to be benefiting from Internet services. 
        The customer segments that are farthest behind in broadband 
        adoption, according to FCC data, are those most likely to be 
        relying on switched telephone networks as their only form of 
        communication access.\15\ These include rural users, seniors, 
        and low-income customers.
---------------------------------------------------------------------------
    \15\ FCC, Eighth Broadband Progress Report, GN Docket 11-121 (Aug 
21, 2012),  122 at p. 54, available at http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-12-90A1.pdf.

        Getting these communities onto IP networks sooner rather than 
        later eliminates the need for expensive duplication of the 
        obsolete switched infrastructure. It will also make it easier 
        and less expensive for them to connect to other broadband 
---------------------------------------------------------------------------
        services including video and Internet access.

        In that sense, allowing the carriers to accelerate the 
        transition to IP would overcome many of the obstacles that keep 
        20 percent of American adults from joining the Internet. 
        According to the Pew Internet Project, almost half of that 
        group cite as their primary reason not to connect a lack of 
        relevance to their needs, rather than cost.\16\ With IP-based 
        telephony in place, however, the relevance for employment, 
        education, health care, family life, entertainment and commerce 
        would be far easier to communicate.
---------------------------------------------------------------------------
    \16\ Pew Internet and American Life Project, Digital Differences, 
April 13, 2012, available at http://pewinternet.org/Reports/2012/
Digital-differences/Main-Report/Internet-adoption-over-time.aspx.

        For Congress and the FCC, this is the moment of truth. The IP 
        Transition is gaining speed, and its ultimate completion is 
        inevitable. But even inevitable advances in technological 
        progress can be delayed significantly by over-regulation, 
        denying some consumers the full benefits of the Internet 
---------------------------------------------------------------------------
        ecosystem.

        The FCC has an unavoidable role to play in the process. As 
        communications markets are being simultaneously destroyed and 
        recreated, regulations designed to dull the sharper edges of 
        once-static and siloed technologies are now, as the agency 
        recognizes, posing the very real danger of unintentionally 
        holding back the progress of innovation. The agency must 
        unravel itself from its complicated relationships with the 
        affected industries, and quickly.

        To begin with, the FCC should expeditiously grant pending 
        petitions for trials to switchover PSTN networks to native IP. 
        And, while the trials are underway, the FCC should begin 
        planning a pro-transition agenda that can be enacted swiftly 
        upon successful completion of the trials--or modified as 
        necessary to adjust for any lessons learned.

        Specifically, Congress and the FCC should:

  1.  Clearly define the IP Transition as a central Federal policy 
        objective and make clear its intentions that VoIP be left 
        unregulated.

  2.  The FCC should preempt state regulators' efforts to preserve PSTN 
        networks beyond their useful lives to the long-term detriment 
        of ratepayers.

  3.  Plan and set a date certain for PSTN retirement, based on the 
        results of market trials being proposed and lessons learned 
        during the successful transition from analog to digital 
        television.

  4.  Retire legacy Federal regulations that are unintentionally 
        slowing the transition to all-IP infrastructure and retarding 
        the adoption of broadband, especially among rural and low-
        income populations.

  5.  Make clear that Title II regulations will never apply to IP 
        networks.

  6.  Refrain from asserting Title I ancillary authority to impose 
        mandated interconnection requirements on IP networks, and 
        instead leave interconnection in the hands of the private 
        parties exchanging the traffic.

        There has been some progress in achieving these objectives, 
        albeit slow. The National Broadband Plan, in particular, showed 
        vision in urging the Commission to move immediately to 
        accelerate the transition away from circuit-switched networks 
        to native IP.\17\ As the Plan noted, ``[r]egulations require 
        certain carriers to maintain [legacy TDM networks]--a 
        requirement that is not sustainable--and lead to investments in 
        assets that could be stranded.'' \18\
---------------------------------------------------------------------------
    \17\ See Connecting America: The National Broadband Plan, Sec. 4.5 
at p. 59 (2010) (``National Broadband Plan''), available at http://
download.broadband.gov/plan/national-broadband-plan.pdf.
    \18\ Id.

        In creating the Technology Transitions Policy Task Force, the 
        FCC likewise took an important step to encourage the rapid 
        transition ``from special purpose to general purpose, from 
        circuit-switched to packet-switched, and from copper to fiber 
        and wireless-based networks.'' \19\ Then-Chairman Genachowski 
        noted at the time:
---------------------------------------------------------------------------
    \19\ FCC, FCC Chairman Announces Formation of ``Technology 
Transitions Policy Task Force'', (Dec. 10, 2012), http://www.fcc.gov/
document/fcc-chairman-announces-technology-transitions-policy-task-
force.

                Technological transitions don't change the basic 
                mission of the FCC. But technology changes can drive 
                changes in markets and competition. And many of the 
                Commission's existing rules draw technology-based 
                distinctions. So the ongoing changes in our nation's 
                communications networks require a hard look at many 
                rules that were written for a different technological 
                and market landscape.\20\
---------------------------------------------------------------------------
    \20\ Id.

        The point of these farsighted statements is both clear and 
        accurate: Regulators should not pick winners and losers in the 
        broadband ecosystem. But that truism does not mean the 
        Commission should not take action to advance new technologies 
        that are clearly superior.\21\ IP networks, in design and 
        implementation, are in every relevant measure exponentially 
        better than PSTN. Lawmakers and regulators should continue to 
        hasten their adoption, focus on making the transition as smooth 
        as possible for all consumers and refrain from placing 
        regulatory impediments in the way of their success.
---------------------------------------------------------------------------
    \21\ In nearly every government provision of spectrum in the last 
hundred years, Congress has clearly picked what it felt were ``better'' 
technologies and used policy levers to promote their adoption. 
Similarly, by excluding broadband Internet access from Title II 
regulations in the 1996 Communications Act, Congress affirmatively and 
wisely promoted an unregulated market for IP-based services, and 
mandated the FCC to do the same. See, e.g., Communications Act of 1996, 
47 U.S.C. Sec. Sec. 153(24), 230, 706 (1996). See also NCTA v. Brand X 
Internet Services, 545 U.S. 967 (2005).

---------------------------------------------------------------------------
        [. . .]

        In encouraging the rapid transition of wireline providers to 
        all-IP networks, Congress should heed the lessons of the 
        earlier transition from analog to digital television (DTV). The 
        DTV experience underscores the importance of accelerating 
        deregulation of obsolete networks before consumers abandon 
        them, of setting and sticking to a date certain, and to 
        avoiding the temptation to prophylactically regulate for 
        consumers harms that have yet to appear.

        At its height in the 1970s, 93 percent of all American homes 
        relied on antennas. But analog broadcast couldn't compete with 
        the quality or the quantity of cable channels. As digital 
        technology expanded the scope and efficiency of cable and later 
        fiber-based programming, it became clear that over-the-air 
        broadcasters would likewise need to convert to digital signals 
        to compete.

        Shutting down analog broadcast, however, required government 
        coordination. In 1996, Congress mandated the conversion from 
        analog to digital broadcast in 1996, setting a deadline of 2006 
        and authorizing the FCC to coordinate the transition.

        The coordinated switch to DTV was intended to make the highly-
        regulated broadcasters more competitive with the relatively 
        unregulated cable industry.

        How? Digital TV lowered costs and created new opportunities for 
        broadcasters. As part of the transition, for example, 
        broadcasters traded their analog radio spectrum allocations in 
        the 700 MHz band for a new 6 MHz block in the 600 MHz band. 
        Because digital signals are more compressed, each 6 MHz block 
        could be split and used for multiple channels, all of them 
        capable of high-definition broadcast, as well as new mobile 
        business opportunities for the broadcasters.

        So far, however, few station operators have been able to make 
        use of that capacity to offer extra channels or to repurpose 
        underutilized spectrum for mobile or other premium services. 
        That's largely because, in the end, the DTV transition was 
        delayed until 2009. By then, over-the-air television had 
        already entered an unrecoverable dive in viewership and 
        revenue.\22\ According to research from the Consumer 
        Electronics Association, the decline in over-the-air audience 
        became irreversible between 2005, when the transition should 
        have happened, and 2009, when it finally did.\23\
---------------------------------------------------------------------------
    \22\ See Sam Schechner and Rebecca Dana, Local TV Stations Facing a 
Fuzzy Future, The Wall Street Journal, Feb. 10, 2009, available at 
http://online.wsj.com/article/SB123422910
357065971.html.
    \23\ CEA Study: Consumers are Tuning Out Over-the-Air TV, May 31, 
2011, available at http://www.ce.org/News/News-Releases/Press-Releases/
2011-Press-Releases/20110531-CEA-Study-Consumers-Are-Tuning-Out-Over-
t.aspx.

        Delays in the DTV transition were largely the result of 
        unfounded and exaggerated fears that some consumers would not 
        be ready in time. A 2006 article in Fortune, for example, 
        warned breathlessly that the DTV transition would ``render 
        about 70 million TV sets obsolete,'' and that ``for consumers 
        with one of those 70 million sets--many of whom are likely to 
        be poor, elderly or uneducated, being forcibly switched from 
        one technology to another will be a nightmare.'' \24\
---------------------------------------------------------------------------
    \24\ Marc Gunther, Digital TV: Leaving Viewers in Limbo, Fortune, 
Jan. 19, 2006, available at http://money.cnn.com/2006/01/04/technology/
pluggedin_digitaltv/index.htm.

---------------------------------------------------------------------------
        [. . .]

        The reality, of course, was very different. Consumers who 
        weren't already cable or satellite subscribers and whose 
        energy-inefficient tube television sets were too old to receive 
        digital signals were barely inconvenienced, let alone 
        ``forcibly switched.''

        Many had already moved to cable or satellite by the time the 
        DTV transition occurred. For the rest, all they had to do was 
        to buy and attach small digital converter boxes to their old 
        TVs. Under a plan implemented by the Department of Commerce, 
        consumers could even apply for up to two $40 coupons with which 
        to purchase the converters, funded by proceeds from the 700 MHz 
        spectrum auctions.

        On the fateful day, June 12, 2009, according to Nielsen, almost 
        no one was left without television service. As Figure 2 shows, 
        nearly all ``unready homes'' had successfully made the 
        transition by using the converter box, or by switching to 
        digital cable or satellite. No television was rendered 
        ``obsolete,'' let alone 70 million.\25\
---------------------------------------------------------------------------
    \25\ Nielsen, The Switch from Analog to Digital TV, Nov. 2, 2009, 
available at http://www.nielsen.com/us/en/newswire/2009/the-switch-
from-analog-to-digital-tv.html.
---------------------------------------------------------------------------
           Figure 2--Consumers Adapted to the DTV Conversion

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: The Nielsen Company

        Delaying the transition by three years, however, blunted the 
        potential of a coordinated and timely switchover in crucial 
        ways. Consumers had more time to switch to cable or satellite 
        to avoid dealing with the transition at all, imposing real 
        damage on broadcasters. That loss of viewers makes it harder to 
        this day for the broadcasters to offer new and competing 
        products using their new spectrum and digital technology 
        upgrades.

        Ultimately, that translates to a loss to consumer of more 
        competition in the video marketplace. Delays that were intended 
        to protect consumers, in the end, did just the opposite.

        As with DTV transition, however, ungrounded fears of what could 
        go wrong could continue to delay the IP transition, with 
        dangerous and unintended consequences for consumers--
        particularly those for whom advocates most claim to be looking 
        out.

    Question 2. Reform of the Universal Service Fund (USF)/creation of 
the Connect America Fund (CAF) is critically important because millions 
of Americans still lack access to high-speed broadband service in many 
areas of the country. According to the National Broadband Plan, 
broadband is available in 98 percent of the nation, but the national 
adoption rate, according to the National Telecommunications and 
Information Administration (NTIA) and Census data, is 72 percent. I 
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies 
that help us to reach 100 percent coverage of U.S. households. However, 
we have a limited amount of money that we can allocate as a nation to 
rural broadband deployment, and I believe we should prioritize funding 
to support buildout in unserved areas or areas below 4 mbps down/1 
mbps. Typically, these areas are still unserved because of the high 
cost of deployment and the low population density. Understandably, this 
makes it difficult for private companies to deploy broadband in these 
areas, and it is also the reason why policymakers decided to create 
programs like USF/CAF--to serve hard-to-reach places in the country.

    Question 2a. Do you believe CAF is adequately focused on broadband 
deployment in unserved areas? If so, how long do you think it will take 
to reach full deployment? If not, please explain what it would take to 
buildout unserved areas of our country given that we only have 
approximately $4.5 billion/year through USF.

    Question 2b. Is the pace of reform moving too slowly?
    Answer. My experience with CAF is insufficient to comment on these 
questions. What is clear, however, is that there are direct economic 
and societal benefits that derive from access to high speed broadband. 
Efforts to foster more and faster broadband in areas that do not 
currently have access to same would seem important, and worthy of close 
analysis.
    Though the FCC has done a worthy job in reforming USF over the last 
two years, there is clearly still much to be done. As recent 
announcements of settlements with Lifeline providers abusing the system 
makes clear, there is still considerable waste, inefficiency, fraud and 
corruption in the system.\26\
---------------------------------------------------------------------------
    \26\ See Brendan Sasso, FCC Moves to Fine `Obamaphone' Companies 
$14 Million, The Hill.com, Oct. 1, 2013, available at http://
thehill.com/blogs/hillicon-valley/technology/325779-fcc-moves-to-fine-
obamaphone-companies-14-million.

    Question 3. Based on my experience in Virginia, it is not possible 
to deploy fiber absolutely everywhere. Many areas of my state have 
granite rockbeds, which make it prohibitively expensive to deploy 
fiber. Therefore, I am supportive of cost effective deployment of 
broadband technology to reach universal coverage. Although I recognize 
that the focus of this hearing was on wireline issues, it seems to me 
that we should consider the best technologies based on our national 
---------------------------------------------------------------------------
goal of providing advanced communications services to all Americans.

    Question 3a. Should the Federal Communications Commission (FCC) 
focus more resources on best-available technology for unserved areas or 
areas below 4/1? If so, please explain what else the FCC could do to 
improve broadband coverage to unserved areas. If not, please explain 
how we can reach full broadband deployment by focusing more on fixed 
services, at a reasonable cost to taxpayers and consumers.

    Question 3b. Please describe what role you see for other 
technologies in terms of serving hard-to-reach areas in the near term. 
Could we be more technology-neutral in our Federal broadband funding 
programs?
    Answer. I am not in a position to comment specifically on the 
effectiveness of Federal broadband funding programs or the FCC's role 
in improving coverage to those remaining areas of the U.S. that do not 
have broadband access as that term is defined by the National Broadband 
Plan.
    But there are clearly other technologies besides fiber optic cable 
that support broadband speeds. Cable, mobile, and satellite-based 
broadband all have important roles to play in both the middle-mile and 
last-mile Internet today, and will continue to do so. Broadband over 
power lines remains a high-potential option as well, especially for 
remote areas where power lines have already been deployed at high cost. 
While experimentation with this approach in the U.S. has largely 
stalled due to resistance and delays by the FCC to approve 
applications, it is not too late to restart the industry.
    Access, however, is not the most urgent issue. Rather, it is 
adoption. In that sense, enabling the carriers to accelerate their 
transition to all-IP infrastructure would overcome many of the 
obstacles that keep 15 percent of American adults (mostly those over 
age 65 or adults without a high school diploma) from joining the 
Internet. According to the most recent Pew Internet Project survey, 
more than half of that group cite as their primary reason not to 
connect a lack of relevance to their needs or usability, rather than 
cost or availability. (See Figure 3.) \27\
---------------------------------------------------------------------------
    \27\ Kathryn Zickuhr, Who's Not Online and Why, Pew Internet and 
American Life Project, September 25, 2013, available at http://
pewinternet.org//media//Files/Reports/2013/PIP
_Offline%20adults_092513.pdf.
---------------------------------------------------------------------------
                Figure 3--Obstacles to Internet Adoption

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: Pew Research Center's Internet & American Life Project 
Surveys.

    With IP-based telephony in place, however, the relevance for 
employment, education, health care, family life, entertainment and 
commerce would be far easier to communicate. A transition to all-IP 
networks, in other words, bring those Americans who have resisted the 
Internet revolution at least one step closer to adoption--if only as a 
side-effect.
    As I wrote recently, the most current data on adoption issues 
suggests that the best use of limited government resources may not be 
subsidizing access or the build-out of network infrastructure in high-
cost areas. Rather, it may be in public education:

        [G]overnments can play a critical role in encouraging the few 
        remaining Americans who have so far failed to see the benefit 
        of Internet adoption. But in allocating limited public 
        resources, it's essential to read the data for what it actually 
        says before deciding how to proceed.

        For example, the most-frequently cited reason given by 
        Americans not to use the Internet, according to the Pew survey, 
        is that they are ``just not interested.'' Is that because the 
        Web really holds no relevance to them, or because the case for 
        connectivity just hasn't been made? Given the increased 
        importance of Internet technologies and protocols for basic 
        communications, entertainment, education, employment, health 
        care, and public safety, going online is becoming a crucial 
        part of daily life, especially for the groups who today have 
        the lowest levels of adoption. They just may not fully 
        appreciate the value to them of doing so.

        Governments could be much more effective in using their bully 
        pulpit to make that case. The FCC's exceptional 2010 National 
        Broadband Plan, for example, included detailed descriptions of 
        the promise of the Internet to improve the lives of all 
        Americans in each of these core areas. Yet the agency did 
        almost nothing to promote the hard work of the plan's authors 
        once the document was published.

        It would cost little for the FCC and the rest of the 
        administration to dust off the plan and highlight the vision it 
        painted for a fully connected America. This could take the form 
        of speeches, government websites, and public demonstrations 
        coordinated with industry leaders. Much of that activity 
        already exists; it just needs to be focused.

        The FCC could also accelerate its ongoing efforts to remove 
        regulatory roadblocks, especially at the state and local level, 
        that cause unnecessary delay and cost in the deployment of 
        additional and critical broadband infrastructure. Despite a 
        modest ``shot clock'' established by the FCC in 2009, for 
        example, permit requests for new cell towers and equipment 
        changes on existing utility poles and buildings continue to 
        drag on for months or even years, often held back or even 
        denied based on little or no zoning-related justification. 
        Laying new fiber-optic cable, likewise, often requires 
        navigating a maze of local authorities.

        The agency should also restart stalled efforts to begin trials 
        for a final switchover from the aging, obsolete public switched 
        telephone network to all-IP networks.

        A majority of Americans have already cut the cord to the old 
        networks. Maintenance costs for providers who have to support 
        both the old and new networks are inhibiting even more 
        investments in broadband. Landline carriers have asked the FCC 
        for permission to conduct trials on switching over the 
        remaining customers to better and cheaper IP networks, but the 
        agency has stalled, with special-interest groups gumming up the 
        works.

        Ironically, households still using analog telephone switches 
        are also those most likely not to be Internet users. 
        Accelerating the transition to IP networks would get those 
        customers onto the Internet, at least for voice services.

        These are the kind of government interventions that will 
        actually help those few Americans who still don't see the value 
        of Internet adoption. And they require no new laws--just a 
        careful analysis of data that is already clear and convincing 
        for those who are willing to read it.\28\
---------------------------------------------------------------------------
    \28\ Larry Downes, Who's Still Offline and Why? The Real Reasons, 
CNET News.com, Sept. 30, 2013, available at http://news.cnet.com/8301-
1023_3-57605169-93/whos-still-offline-and-why-the-real-reasons/.

    Question 4. Would more targeted broadband mapping--at the address 
level, specifically--help to accelerate deployment to unserved areas? 
If not, please explain why less granular data models are sufficient to 
target deployment to unserved households. Do you believe the current 
level of data gathered by the National Broadband Map contributes to 
overbuilding? If not, please explain.
    Answer. My experience with the National Broadband Map is 
insufficient to comment on these questions.

    Question 5. As many experts have noted, there is ``rural-rural 
divide'' when it comes to the presence of broadband infrastructure in 
rural America. According to the FCC, more than 83 percent of the 
approximately 18 million Americans that lack access to residential 
fixed broadband at or above the basic level of acceptable service 
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by 
establishing an incremental support component in the Phase I CAF Fund 
for price cap carriers. The initial support was established at $300 
million, but more than half of the allocated funds went unclaimed. 
Different types of carriers have expressed opinions about whether or 
not it was a good idea for the FCC to set aside this amount of money 
even though the bulk of the $4.5 USF program was allocated to other 
types of carriers.

    Question 5a. Regardless of your views on the Phase I Fund, do you 
think the FCC has done enough to provide coverage to the 14.9 million 
people who still lack any sort of basic broadband service?

    Question 5b. If so, when do you think we can expect to provide 
broadband service to all Americans? If not, what else could the FCC do 
to provide universal broadband service?
    Answer. My experience with CAF is insufficient to comment on these 
questions. Again, per my response to question 3 above, the more urgent 
issue is not access but adoption. The FCC did an admirable job of 
making the use cases for broadband adoption by all Americans in the 
National Broadband Plan, but has done little since its publication to 
underscore the benefits of broadband in education, employment, health 
care, public safety, citizenship, government, and energy. Thus, I 
believe it would be very productive if the FCC were to use its bully 
pulpit to educate American consumers on the value of having access to 
broadband.
    However, I do not believe it is accurate to say that 18 million 
Americans ``lack access to residential fixed broadband,'' or that 14.5 
million of that number are rural Americans. Those numbers, which 
originate with the FCC's most recent Broadband Progress Report,\29\ are 
both misleading and highly inaccurate.
---------------------------------------------------------------------------
    \29\ FCC, Eighth Annual Broadband Progress Report, GN Docket No. 
11-121 (August 14, 2012), available at http://www.fcc.gov/reports/
eighth-broadband-progress-report .
---------------------------------------------------------------------------
    For one thing, the FCC ended its data collection in June 2011. But 
network providers and their investors have spent billions in 
infrastructure improvements over the last two years, as they have every 
year since the broadband revolution began. Between 2010 and 2011 alone, 
when the FCC's data runs out, the number of Americans without access to 
a single home broadband provider fell by 7.4 million, a number almost 
certain to have dropped further since 2011.
    More important, the FCC report completely ignores the availability 
of mobile broadband. Although 4G and other networking technologies can 
and do deliver speeds that exceed the FCC's broadband threshold, the 
agency excluded mobile entirely from its statistics on access, citing a 
lack of ``reliable'' data on precisely how many of the 19 million could 
or even do get service from mobile broadband providers.
    Rather than estimate, the FCC simply counted the entire wireless 
industry as zero. Yet with the explosion in smartphone use, as every 
consumer knows, wireless broadband growth far exceeds that for wired 
broadband. Mobile carriers in the US, according to the same FCC report, 
invested more than $25 billion in network improvements just in 2011, 
compared with $18.6 billion in the 15 largest European economies 
combined.
    Including data on mobile broadband access provided in the FCC's 
report but left out of its calculations, the number of Americans 
without any home broadband provider falls as low as 5.5 million. That's 
less than 2 percent of the population.
    To put that number in perspective, consider that landline telephone 
service never achieved more than 95 percent adoption in American homes. 
Indeed, according to the U.S. Census Bureau, more than 3.5 million 
Americans still lacked complete indoor plumbing as recently as 2011. 
Yet universal telephone service has been the policy of the U.S. since 
the formation of the FCC in 1934. And public efforts to improve 
household sanitation predate the founding of the Republic.
    So the fact that broadband Internet access and adoption are still 
less than 100 percent less than two decades after its invention, while 
unfortunate, is hardly a crisis. Even excluding mobile broadband, the 
FCC report found that 95 percent of American homes have access to a 
broadband connection, in most cases with two or more choices of 
provider. We can and will do better, but realistically, if herculean 
efforts over decades or even centuries have failed to achieve 100 
percent adoption of more basic technologies, it seems unlikely that any 
intervention over any period of time will ultimately achieve complete 
Internet adoption, let alone at broadband speeds.

    Question 6. There has been a great deal of discussion about the 
FCC's models for CAF. Given that technology is advancing at a rapid 
rate, it seems like the FCC should be focused on establishing a cost 
model that is updated frequently enough to provide an accurate sense of 
the marketplace.

    Question 6a. How important is the timeliness of the FCC's proposed 
cost model in delivering service to unserved areas?

    Question 6b. Do you agree with the revisions the FCC has made to 
its cost model? Does the cost model accurately predict needs/services 
under CAF? If not, or if you believe the FCC model should lock in rates 
for a longer period of time, please explain how a longer view would 
deliver broadband to unserved areas more quickly than an annualized 
model.
    Answer. My experience with CAF is insufficient to comment on these 
questions.

    Question 7. A report by the nonpartisan Congressional Research 
Service analysis captures one of the major challenges of USF reform as 
follows:

        ``Smaller, rural, rate-of-return carriers are particularly 
        dependent on USF subsidies, and have expressed concern that the 
        reforms that the USF Order will implement could place them 
        under financial hardship. Many RUS telecommunications and 
        broadband borrowers (loan recipients) receive high cost USF 
        subsidies. In many cases, the subsidy received from USF helps 
        provide the revenue necessary to keep the loan viable. The 
        Telecommunications Infrastructure Loan program is highly 
        dependent on high-cost USF revenues, with 99 percent (476 out 
        of 480 borrowers) receiving interstate high-cost USF support. 
        This is not surprising, given that the RUS Telecommunications 
        Loans are available only to the most rural and high-cost areas 
        (towns with populations less than 5,000). Regarding broadband 
        loans, 60 percent of BIP (stimulus) borrowers draw from state 
        or interstate USF support mechanisms, while 10 percent of farm 
        bill (Rural Broadband Access Loan and Loan Guarantee Program) 
        broadband borrowers receive interstate high-cost USF support. 
        Thus, to the extent that USF may be reformed, this could have 
        an impact on the viability of RUS telecommunications and 
        broadband loans, and ultimately the overall financial health of 
        the carrier.

        Although the FCC included a waiver process in its USF Order for 
        those carriers that felt they would be subject to significant 
        economic stress, due to the reforms, many smaller carriers 
        assert that the waiver process is too burdensome and difficult 
        and that the requirements for qualifying for relief are too 
        restrictive.''

    Additionally, according to the U.S. Department of Agriculture, 
demand for RUS loan funds was only 37 percent of loan funds 
appropriated by Congress in FY 2012. This is indicative of the fact 
that the restructuring and uncertainty around USF/CAF reform could 
diminish the desirability of RUS broadband loans to borrowers going 
forward.

    Question 7a. Given that the RUS and USF broadband programs share 
the goal of deploying broadband to rural America, and many RUS 
borrowers appear to be significant beneficiaries of USF as well, are 
these programs effectively targeted towards providing broadband to 
unserved areas of the nation?

    Question 7b. Are these programs the most cost-effective way for 
Congress to fund rural broadband development? If so, please explain 
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.

    Question 7c. Given that these two programs (USF and RUS) share the 
same goals, to what extent are they duplicative and to what extent are 
they complementary?

    Question 7d. Do you think that the FCC waiver process, as designed 
and described above, is appropriate? If so, why? If not, what changes 
would you recommend?
    Answer. My experience with RUS is insufficient to comment on these 
questions.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                              Gigi B. Sohn
    Question 1. With respect to the coming IP transition and advancing 
technology, which specific requirements from the Telecommunications Act 
of 1996 are the most important to maintain to ensure fair competition 
in the marketplace?

    Question 1a. For example, the 1996 Act has clear interconnection 
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain 
why not.

    Question 1b. How important is it to maintain the legacy/copper 
communications network as we transition to IP? If so, for how long? If 
not, please explain why not.
    Answer. The challenge of the IP transition is for the country to 
agree upon what fundamental principles should guide any future 
statutory revision process. The interconnection requirements of the 
Communications Act of 1996 are a good example. Section 251 is 
technology neutral. It applies to copper lines as equally as it does to 
interconnected VoIP. The fundamental principle at play is, does the 
network connect to everyone? For example, does a resident in Wise, 
Virginia know that when they make a call to family in Richmond or New 
York, the providers will connect as one large network? Smaller 
providers in rural areas should not have to pay a premium to connect to 
larger incumbent carriers. The phone system has always worked as one 
network and this fundamental principle must be maintained as we make 
the transition to IP.
    Additionally, competition provisions in the Communications Act 
provide for the connection of a variety of competitive services over 
the network that have brought new innovations to consumers, such as 
home security systems and telemedicine services. If we as a nation 
decide that we still value competitive services that ride over the 
network, then we must ensure that we maintain policies that protect 
competition for these innovative services.
    In regard to how important it is important to maintain copper 
networks, it is important to point out that we are already 
transitioning away from copper networks. For example, there is no 
longer functioning copper networks on most of Fire Island, New York 
following the destruction of Hurricane Sandy. Verizon, the only network 
provider on the island, is deploying fiber to its consumers as a 
replacement. In other words, for communities like Fire Island, the 
transition has already happened.
    It is not the material or technology of the network that is 
important, it is that the new network and the policies supporting it do 
not take a step back in quality and consumer protections that have 
expected for decades. Americans do not care if the wire running to 
their home is copper or fiber, they care that they don't lose access at 
a reasonable cost. Does it works reliably, and with the privacy and 
other consumer protections we expect? Will it work when there is a 
storm or a medical emergency? These are the sorts of questions that 
Americans are concerned with.
    The question of ``how long'' is why real trials to answer these 
technological questions must be conducted by the FCC. Americans deserve 
to know that when the Federal Government allows companies to turn one 
network off, the replacement will not be a downgrade in service. We do 
not use our consumers as guinea pigs when it comes to access to 
critical communications. Once we determine what is required to ensure 
Americans are able to receive comparable service, we will have a sense 
of how long the dependability of TDM networks will be necessary.

    Question 2. Reform of the Universal Service Fund (USF)/creation of 
the Connect America Fund (CAF) is critically important because millions 
of Americans still lack access to high-speed broadband service in many 
areas of the country. According to the National Broadband Plan, 
broadband is available in 98 percent of the nation, but the national 
adoption rate, according to the National Telecommunications and 
Information Administration (NTIA) and Census data, is 72 percent. I 
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies 
that help us to reach 100 percent coverage of U.S. households. However, 
we have a limited amount of money that we can allocate as a nation to 
rural broadband deployment, and I believe we should prioritize funding 
to support buildout in unserved areas or areas below 4 mbps down/1 
mbps. Typically, these areas are still unserved because of the high 
cost of deployment and the low population density. Understandably, this 
makes it difficult for private companies to deploy broadband in these 
areas, and it is also the reason why policymakers decided to create 
programs like USF/CAF--to serve hard-to-reach places in the country.

    Question 2a. Do you believe CAF is adequately focused on broadband 
deployment in unserved areas? If so, how long do you think it will take 
to reach full deployment? If not, please explain what it would take to 
buildout unserved areas of our country given that we only have 
approximately $4.5 billion/year through USF.

    Question 2b. Is the pace of reform moving too slowly?
    Answer. I agree that the Connect America Fund (CAF) is an important 
piece of the puzzle of making broadband accessible to all Americans. 
The difficulty in structuring a fund to support broadband deployment is 
that the standard of what is considered adequate service is a moving 
target over time. The National Broadband Plan set a standard of 4mbps 
down/1mbps up because of the capabilities that such a service provides. 
However as we see new innovative, and higher bandwidth services become 
more widely available (i.e., HD video conferencing) the definition of 
what is unserved is likely to change. The more funding that is 
available to support broadband deployment in unserved areas (CAF or 
otherwise), the faster the country will be able to reach near-full 
deployment as we have with phone service. This is why it is essential 
that the FCC complete the process of reforming the Universal Service 
Fund (USF), including reform of the contributions side in order to 
broaden the base of revenue for the fund.
    While Public Knowledge supports the creation of the CAF, I 
understand that there have been many concerns raised by stakeholders 
about the formulas used to determine subsidy levels. It is important 
that the FCC work with stakeholders to address these concerns and 
ensure that the CAF is making efficient use of the billions of 
consumer's fees that make the CAF subsidies possible. The pace of 
reform has slowed under a 3 member Commission, but I trust that the FCC 
will be able to resume the USF reform process when a permanent chair is 
sworn in.

    Question 3. Based on my experience in Virginia, it is not possible 
to deploy fiber absolutely everywhere. Many areas of my state have 
granite rockbeds, which make it prohibitively expensive to deploy 
fiber. Therefore, I am supportive of cost effective deployment of 
broadband technology to reach universal coverage. Although I recognize 
that the focus of this hearing was on wireline issues, it seems to me 
that we should consider the best technologies based on our national 
goal of providing advanced communications services to all Americans.

    Question 3a. Should the Federal Communications Commission (FCC) 
focus more resources on best-available technology for unserved areas or 
areas below 4/1? If so, please explain what else the FCC could do to 
improve broadband coverage to unserved areas. If not, please explain 
how we can reach full broadband deployment by focusing more on fixed 
services, at a reasonable cost to taxpayers and consumers.

    Question 3b. Please describe what role you see for other 
technologies in terms of serving hard-to-reach areas in the near term. 
Could we be more technology-neutral in our Federal broadband funding 
programs?
    Answer. Support for deployment of broadband should be technology 
neutral, but it should not be standards neutral. If a technology cannot 
meet certain basic standards that provide for basic IP enabled 
broadband services then it is not a wise investment for the FCC and 
other Federal broadband funding programs. Standards typically start 
with speed, but due to the transition of the phone system to all IP 
networks, it makes sense to include other quality standards such as 
latency and reliability. The Federal Government can improve broadband 
coverage by completing the transition of Federal programs such as USF 
to fully support broadband. As I addressed in question #2, it is 
essential that the FCC complete the process of reforming the Universal 
Service Fund (USF), including reform of the contributions side in order 
to broaden the base of revenue for the fund. Public Knowledge also 
supports the transition of the USF Lifeline program to broadband as we 
have done with eRate and the CAF. Technology neutral funding programs 
such as USF/CAF provide the flexibility to develop and invest in 
innovative ways to deploy in rural areas. For example, recent advances 
in the use of TV White Spaces (TVWS) have demonstrated the potential to 
provide a wireless broadband service in high-cost rural areas. The 
excellent propagation properties of the TVWS band combined with the 
lower cost of deployment makes this potential a possible solution for 
areas of Virginia and other states that face challenges to fiber 
deployment for various reasons.

    Question 4. Would more targeted broadband mapping--at the address 
level, specifically--help to accelerate deployment to unserved areas? 
If not, please explain why less granular data models are sufficient to 
target deployment to unserved households. Do you believe the current 
level of data gathered by the National Broadband Map contributes to 
overbuilding? If not, please explain.
    Answer. More granular data could make a real difference as the 
National Broadband Map is only as good as the data provided. National 
Broadband Map data is self-reported by broadband providers and some 
stakeholders have found the map to be inaccurate at times. Broadband 
providers may show that a census block is served when in truth it is 
only partially served. Americans living in the unserved portions of 
census blocks may suffer from a lack of connectivity due to the cost to 
deploy to their part of the census block, while the National Broadband 
Map and Federal programs using the Map ignore their lack of access.
    While more granular data in broadband mapping would create a more 
accurate picture of the need for deployment, broadband providers will 
not deploy to streets and addresses that are currently unserved unless 
there is a business case to do so, or the Federal Government mandates 
that they serve everyone. The repeal of many state level Carrier of 
Last Resort (COLR) policies has reduced the commitment to rural phone 
deployment that drove broadband providers that offer phone service to 
deploy fully in service areas. As the IP transition continues, we must 
ensure that our policies remain committed to serving to all Americans. 
IP networks deployed as phone networks provide the added opportunity to 
bring high speed broadband services as well.
    National Broadband Map data is provided by broadband providers at 
the census block level, the smallest geographic area used to track 
demographics before moving to the address level. If data from the 
providers show that there are unserved in a census block, it is 
unlikely that funding directed at these blocks would lead to 
overbuilding. However we should take into account that providers often 
must build in surrounding areas to make the new deployment profitable. 
While this additional deployment create competition for neighboring 
providers, it benefits unserved Americans by making their newly 
deployed broadband affordable.

    Question 5. As many experts have noted, there is ``rural-rural 
divide'' when it comes to the presence of broadband infrastructure in 
rural America. According to the FCC, more than 83 percent of the 
approximately 18 million Americans that lack access to residential 
fixed broadband at or above the basic level of acceptable service 
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by 
establishing an incremental support component in the Phase I CAF Fund 
for price cap carriers. The initial support was established at $300 
million, but more than half of the allocated funds went unclaimed. 
Different types of carriers have expressed opinions about whether or 
not it was a good idea for the FCC to set aside this amount of money 
even though the bulk of the $4.5 USF program was allocated to other 
types of carriers.

    Question 5a. Regardless of your views on the Phase I Fund, do you 
think the FCC has done enough to provide coverage to the 14.9 million 
people who still lack any sort of basic broadband service?

    Question 5b. If so, when do you think we can expect to provide 
broadband service to all Americans? If not, what else could the FCC do 
to provide universal broadband service?
    Answer. As I addressed in question #2, it is essential that the FCC 
complete the process of reforming the Universal Service Fund (USF), 
including reform of the contributions side in order to broaden the base 
of revenue for the fund. While Public Knowledge supports the creation 
of the CAF, I understand that there have been many concerns raised by 
stakeholders about the formulas used to determine subsidy levels. It is 
important that the FCC work with stakeholders to address these concerns 
and ensure that the CAF is making efficient use of the billions of 
consumer's fees that make the CAF subsidies possible. As the National 
Broadband Plan noted, Congress could choose to appropriate more funding 
to the CAF and other broadband deployment programs if they wished to 
accelerate the efforts beyond the limits of the $4.5 million CAF.

    Question 6. There has been a great deal of discussion about the 
FCC's models for CAF. Given that technology is advancing at a rapid 
rate, it seems like the FCC should be focused on establishing a cost 
model that is updated frequently enough to provide an accurate sense of 
the marketplace.

    Question 6a. How important is the timeliness of the FCC's proposed 
cost model in delivering service to unserved areas?

    Question 6b. Do you agree with the revisions the FCC has made to 
its cost model? Does the cost model accurately predict needs/services 
under CAF? If not, or if you believe the FCC model should lock in rates 
for a longer period of time, please explain how a longer view would 
deliver broadband to unserved areas more quickly than an annualized 
model.
    Answer. As important as timeliness is to delivering critical 
broadband services, it is equally important for the FCC to get it 
right. As I have previously noted, while Public Knowledge supports the 
creation of the CAF, I understand that there have been many concerns 
raised by stakeholders about the formulas used to determine subsidy 
levels. It is important that the FCC work with stakeholders to address 
these concerns and ensure that the CAF is making efficient use of the 
billions of consumer's fees that make the CAF subsidies possible.
    At a high level, the CAF cost model must be equitable, taking into 
account both the variety regional difference that impact cost, as well 
as comparison of the costs of similarly situated companies. In the end 
however, if the amount of funds in the CAF remain relatively constant, 
there will always be winners and losers when models are adjusted.

    Question 7. A report by the nonpartisan Congressional Research 
Service analysis captures one of the major challenges of USF reform as 
follows:

        ``Smaller, rural, rate-of-return carriers are particularly 
        dependent on USF subsidies, and have expressed concern that the 
        reforms that the USF Order will implement could place them 
        under financial hardship. Many RUS telecommunications and 
        broadband borrowers (loan recipients) receive high cost USF 
        subsidies. In many cases, the subsidy received from USF helps 
        provide the revenue necessary to keep the loan viable. The 
        Telecommunications Infrastructure Loan program is highly 
        dependent on high-cost USF revenues, with 99 percent (476 out 
        of 480 borrowers) receiving interstate high-cost USF support. 
        This is not surprising, given that the RUS Telecommunications 
        Loans are available only to the most rural and high-cost areas 
        (towns with populations less than 5,000). Regarding broadband 
        loans, 60 percent of BIP (stimulus) borrowers draw from state 
        or interstate USF support mechanisms, while 10 percent of farm 
        bill (Rural Broadband Access Loan and Loan Guarantee Program) 
        broadband borrowers receive interstate high-cost USF support. 
        Thus, to the extent that USF may be reformed, this could have 
        an impact on the viability of RUS telecommunications and 
        broadband loans, and ultimately the overall financial health of 
        the carrier.

        Although the FCC included a waiver process in its USF Order for 
        those carriers that felt they would be subject to significant 
        economic stress, due to the reforms, many smaller carriers 
        assert that the waiver process is too burdensome and difficult 
        and that the requirements for qualifying for relief are too 
        restrictive.''

    Additionally, according to the U.S. Department of Agriculture, 
demand for RUS loan funds was only 37 percent of loan funds 
appropriated by Congress in FY2012. This is indicative of the fact that 
the restructuring and uncertainty around USF/CAF reform could diminish 
the desirability of RUS broadband loans to borrowers going forward.

    Question 7a. Given that the RUS and USF broadband programs share 
the goal of deploying broadband to rural America, and many RUS 
borrowers appear to be significant beneficiaries of USF as well, are 
these programs effectively targeted towards providing broadband to 
unserved areas of the nation?

    Question 7b. Are these programs the most cost-effective way for 
Congress to fund rural broadband development? If so, please explain 
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.

    Question 7c. Given that these two programs (USF and RUS) share the 
same goals, to what extent are they duplicative and to what extent are 
they complementary

    Question 7d. Do you think that the FCC waiver process, as designed 
and described above, is appropriate? If so, why? If not, what changes 
would you recommend?
    Answer. The targeting of the RUS and USF programs is not effective 
due to the fact that both programs give to the same projects. Loans 
should be offered to borrowers based on the ability of companies to 
create profits and pay them back, not based on the Federal Government's 
ability to provide the funding to pay itself back through CAF grants. 
While the reforms of the USF/CAF have created uncertainty for these 
loans, perhaps this will provide RUS and the FCC the opportunity to 
gradually create reasonable rules to eliminate the overlap of their 
borrowers and grantees.
    Keeping the two group separate would be a more cost-effective way 
of funding broadband deployment. Given the high cost of deployment, it 
would make more sense to structure RUS loans and the CAF in a more 
complementary way. It is appropriate for the FCC to have designed a 
waiver process to help the two agencies transition away from their 
overlapping financial arrangements. It is difficult for this transition 
process to be painless, but it is important to be clear that, in the 
end, companies and the government will no longer structure Federal 
loans based on the expectation of receiving a Federal grant.

                                  
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