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HOW INTERNET PROTOCOL-ENABLED SERVICES

ARE CHANGING THE FACE OF COMMUNICATIONS: A VIEW FROM GOVERNMENT OFFICIALS

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND

THE INTERNET

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 27, 2005

Serial No. 109–4

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

Vice Chairman

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

ROY BLUNT, Missouri

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

C.L. ‘‘BUTCH’’ OTTER, Idaho

SUE MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

TOM ALLEN, Maine

JIM DAVIS, Florida

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

BUD ALBRIGHT, Staff Director

DAVID CAVICKE, Deputy Staff Director and General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

JOHN SULLIVAN, Oklahoma

MARSHA BLACKBURN, Tennessee

JOE BARTON, Texas,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

Ranking Member

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

MIKE DOYLE, Pennsylvania

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Testimony of:

Billings, Hon. Lewis K., Mayor, Provo City, Utah ......................................... 4

Davidson, Charles M., Commissioner, Florida Public Service Commission 33

Fellman, Hon. Kenneth, Mayor, Arvada, Colorado, on Behalf of National

Association of Telecommunications Officers and Advisors Board of Directors ............................................................................................................ 20

Munns, Diane, Commissioner, Iowa State Utilities Board, on Behalf of

National Association of Regulatory Utility Commissioners ...................... 28

Perkins, John R., Iowa Consumer Advocate, President, National Association of State Utility Consumer Advocates .................................................. 44

Quam, David C., Director, Federal Relations, National Governors Association ................................................................................................................. 48

Strauss, Karen Peltz, KPS Consulting, on Behalf of Alliance for Public

Technology ..................................................................................................... 52

Material submitted for the record by:

Billings, Hon. Lewis K., Mayor, Provo City, Utah, letter dated May 26,

2005, enclosing response for the record ...................................................... 81

Davidson, Charles M., Commissioner, Florida Public Service Commission,

letter dated May 27, 2005, enclosing response for the record ................... 85

Fellman, Hon. Kenneth, Mayor, Arvada, Colorado, on Behalf of National

Association of Telecommunications Officers and Advisors Board of Directors, letter dated May 27, 2005, enclosing response for the record ..... 94

Munns, Diane, Commissioner, Iowa State Utilities Board, on Behalf of

National Association of Regulatory Utility Commissioners:

Letter dated May 17, 2005, enclosing response for the record .............. 96

Letter dated May 27, 2005, enclosing response for the record .............. 98

Perkins, John R., Iowa Consumer Advocate, President, National Association of State Utility Consumer Advocates, letter dated May 17, 2005,

enclosing response for the record ................................................................ 147

Quam, David C., Director, Federal Relations, National Governors Association, letter dated May 27, 2005, enclosing response for the record .......... 150

Strauss, Karen Peltz, KPS Consulting, on Behalf of Alliance for Public

Technology, letter dated May 27, 2005, enclosing response for the

record ............................................................................................................. 152

(III)

(1)

HOW INTERNET PROTOCOL-ENABLED SERVICES ARE CHANGING THE FACE OF COMMUNICATIONS: A VIEW FROM GOVERNMENT

OFFICIALS

WEDNESDAY, APRIL 27, 2005

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:22 p.m., in room

2322 of the Rayburn House Office Building, Hon. Fred Upton

(chairman) presiding.

Members present: Representatives Upton, Stearns, Gillmor,

Whitfield, Shimkus, Pickering, Bass, Terry, Blackburn, Markey,

Engel, Wynn, Gonzalez, Inslee, Boucher, Gordon, Rush, and Stupak.

Staff present: Howard Waltzman, Chief Counsel; Neil Fried,

Counsel; Will Norwind, Policy Coordinator; Jaylyn Jensen, Senior

Legislative Analyst; Anh Nguyen, legislative clerk; Johanna

Shelton, Telecommunications Counsel; Peter Filon, Counsel; and

Alec Gerlach, Staff Assistant.

Mr. UPTON. Sorry about the delays. I think most of you know,

we had a series of votes that started right about the time that we

were supposed to be here, so I appreciate you all waiting patiently.

Today’s hearing is entitled ‘‘How Internet Protocol-Enabled Services are Changing the Face of Communications: A View from Government Officials.’’ This hearing is a finale of sorts in a series of

hearings that this subcommittee has held in regard to IP-enabled

services. Previous hearings have explored how, without a doubt, IPenabled services are dramatically changing the face of communications.

Many of these hearings have underscored the need for Congress

to modernize our communications laws in order to account for this

new technology and to ensure its speediest deployment as widely

as possible, and bring true intermodable facilities based competition to the American consumer.

At the close of this hearing, it is my intention to get to the business of legislating along those very lines, which brings us to why

we are here today. The FCC has held that Internet services are inherently interstate in nature, and that even if there is also an

intrastate component, it is not technologically feasible to separate

it for purposes of State versus Federal jurisdiction. So Federal juVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 20750.TXT HCOM1 PsN: HCOM1
2

risdiction and the unified Federal broadband policy trumps State

jurisdiction.

I have to say that I agree with that approach to creating a Federal policy for IP-enabled voice, video, and data services, and that

that will serve as my guiding principle for legislating in this arena.

What that means for how we approach the traditional role of State

public utility commissions and local franchise authorities in an IPenabled world is what we will be exploring today.

I want to thank today’s distinguished panel of witnesses for

being with us this afternoon to help us explore that very important

subject, and I will yield to Mr. Gordon for an opening statement.

Mr. GORDON. Thank you, Mr. Chairman, and thanks again for

these continuing very informational hearings you are having.

First, let me take just a moment. I would like to recognize a

friend from Tennessee, Ms. Debbie Tate. She is the chairman of our

Tennessee Regulatory Commission. More importantly, a native of

Murfreesboro, Tennessee, often thought of as a dead hole in the

universe by many folks.

As we consider legislation to create a Federal framework for regulating IP-enabling services, it is critically important for us to consider what role State and local governments have to play in this

new scheme. State and local governments have traditionally implemented and enforced issues such as consumer protection, CLEA,

and the 911. While the technology may have changed, consumers

and providers will continue to expect full government—local governments to fulfill these functions. I am particularly interested in

hearing from the panel on the 911 issue. I am working with my colleague, Chip Pickering, on 911 legislation for IP-based services.

I look forward to hearing from the panel, how they think the

States can partner with the Federal Government to make sure that

all IP-enabled telephony providers can provide full 911 services as

quickly as possible.

I yield back my time. Thank you.

Mr. UPTON. Mr. Stupak for an opening statement.

Mr. STUPAK. Thank you, Mr. Chairman. Thanks for holding this

hearing in the series that you have held on—in-depth hearings on

the IP-enabled services. I think the committee now has a better understanding of where both the opportunities and challenges lie as

we look at the Telecommunications Act.

There are opportunities to update the Act to recognize and promote the promise of IP-enabled services, but we must do so with

an eye on rural America, and with an understanding that these

services can only go where broadband takes them.

We heard last week that the U.S. has fallen further behind the

industrialized world with regard to the deployment of broadband.

Yes, new technologies will stimulate demand for and deployment of

broadband in the U.S., and yes, regulatory certainty will help with

the deployment of broadband as well. But will the market alone get

broadband to rural America? I think this is a central question this

committee needs to address. We need to draft our telecom laws in

a way that embraces these new technologies, while helping all communities become connected to the future.

Broadband is coming to my district by cable, DSL, wireless, and

satellites. It is being provided by national companies, locally owned

3

companies, local governments, and public utilities. For instance,

the city of Gladstone in my district, with a population of 5,000, offers wireless broadband. The citizens of Gladstone benefit; so do

those who live outside the city in very rural areas. They receive

their broadband through a privately owned wireless system that

connects to the Gladstone system. Other municipal utilities in my

district may soon be offering DSL quality satellite broadband.

Some have suggested that local government should not have the

ability to offer broadband, and several states have implemented

laws prohibiting it. I look forward to hearing from the witnesses

today about what role they think local government should play in

broadband deployment.

I am also very interested in hearing from local governments

about local franchise agreements for cable providers. We heard at

last week’s hearing that cable franchise must meet a series of local

obligations, and I look forward to hearing from you why these obligations are necessary, especially the build-out requirements.

I look forward to hearing from today’s distinguished panel. As

this distinguished panel knows, you do very hard, often thankless

work, including answering consumer complaints, arbitrating disputes, and maintaining critical infrastructure. There is a reason

why the Act gives State and local governments the responsibility

they have today, and the committee needs to tread carefully when

looking at moving some of the responsibilities to the Federal level.

With that, I will yield back, Mr. Chairman. Thank you.

Mr. UPTON. Thank you.

Mr. Inslee.

Mr. INSLEE. I just want to thank you for being so great at serving the local government. We are Congressmen and we don’t have

that kind of pull.

Mr. UPTON. Mr. Gonzalez.

Mr. GONZALEZ. Waive opening. Thank you.

Mr. UPTON. Thank you. There are a number of subcommittees

that are meeting today. I have talked to a number of members that

I know that are going to be coming for this hearing. Again, I apologize it is starting on a delayed basis. But at this point, we are prepared to listen to our witnesses.

[Additional statement submitted for the record follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Mr. Chairman, thank you for holding this hearing. During the past several

months, this subcommittee has conducted three hearings on how Internet Protocol

technology is revolutionizing communications. Today, we will hear from state and

local officials, and other interested parties, who hold views regarding the proper distribution of authority over Internet services among federal, state, and local governments.

Given the global reach of the Internet, Internet services are inherently interstate

in nature. Even if Internet services have intrastate and interstate components, the

FCC has determined that it is not possible to separate those components for jurisdictional purposes. As a result, states cannot regulate Internet services without conflicting with federal policy over the Internet and interstate services.

And a federal policy for Internet services is critical. We cannot expect new entrants to succeed in the Internet market if they have to comply with 52 different

jurisdictions, not to mention if they have to comply with rules set by thousands of

local franchising authorities.

We need a federal policy with federal rules. There may be a constructive role for

States and localities to play in implementing national rules, a role that I hope we

4

examine fully in this hearing. But the Internet has thrived because it has been

largely free from regulation. Burdening the Internet with multiple layers of bureaucracy will slow down its growth and slow down the deployment of innovative

new services to consumers.

I look forward to today’s testimony, and welcome our witnesses’ help in examining

the proper distribution of authority over Internet services among federal, state, and

local officials.

Today we stand on the threshold of a new age in communications. The 1996 Telecommunications Act served an important purpose, but technology has moved on.

This year, one of my high priorities is to update the old act and to do it well. The

right approach will invigorate the tech sector and produce jobs, growth and opportunity for its workers. American consumers will get an array of services and choices

that were unimagined just a few years ago. I can’t wait to get started.

I yield back.

Mr. UPTON. We are joined by a distinguished panel, as all of us

have indicated. We will start with the Honorable Lewis Billings,

the Mayor of Provo City, Utah. Honorable Ken Fellman, Mayor of

Arvada, Colorado, on behalf of the National Association of Telecommunications Officers and Advisors Board of Directors. We will

hear from Ms. Diane Munns, Commissioner of the Iowa State Utilities Board. Mr. Charles Davidson, Commissioner of the Florida

Public Service Commission. Mr. John Perkins, Iowa Consumer Advocate, President of the National Association of State Utility Consumer Advocates. Mr. David Quam, Director of Federal Relations,

the National Governors Association; and Ms. Karen Peltz Strauss,

KPS Consulting, on behalf of the Alliance for Public Technology.

I want to start off by saying we appreciate you submitting your

testimony in full so we could take it home last night. Your statements are made as part of the record in their entirety, and we

would like to limit your remarks now to no more than 5 minutes.

And I believe—I think there is a clock. Do you all have—is there

a clock that you all see in front of you? No. Well, I have one, so

when you hear this, that means your 5 minutes is done, and there

is a clock in these lights above that clock that will tick down as

well. So we apologize you don’t have a clock to see, but I will try

to signal you in there. If you can wrap up at that point, that would

be terrific.

We will start with you, Mr. Billings. Welcome.

STATEMENTS OF HON. LEWIS K. BILLINGS, MAYOR, PROVO

CITY, UTAH; HON. KENNETH FELLMAN, MAYOR, ARVADA,

COLORADO, ON BEHALF OF NATIONAL ASSOCIATION OF

TELECOMMUNICATIONS OFFICERS AND ADVISORS BOARD

OF DIRECTORS; DIANE MUNNS, COMMISSIONER, IOWA

STATE UTILITIES BOARD, ON BEHALF OF NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS;

CHARLES M. DAVIDSON, COMMISSIONER, FLORIDA PUBLIC

SERVICE COMMISSION; JOHN R. PERKINS, IOWA CONSUMER

ADVOCATE, PRESIDENT, NATIONAL ASSOCIATION OF STATE

UTILITY CONSUMER ADVOCATES; DAVID C. QUAM, DIRECTOR, FEDERAL RELATIONS, NATIONAL GOVERNORS ASSOCIATION; AND KAREN PELTZ STRAUSS, KPS CONSULTING,

ON BEHALF OF ALLIANCE FOR PUBLIC TECHNOLOGY

Mr. BILLINGS. Thank you, Chairman Upton, members——

Mr. UPTON. Use that mic for everyone, sir.

Mr. BILLINGS. Is that better?

Mr. UPTON. That is much better. Thank you.

5

Mr. BILLINGS. Thank you, Chairman Upton, members of the subcommittee. As has been said, I am Lewis Billings. I am the Mayor

of Provo, Utah. Thank you for the opportunity to appear before you

today on behalf of the American Public Power Association, APPA,

to discuss the important role public power systems are playing in

the deployment of affordable broadband services.

APPA is the national service organization representing the interest of the Nation’s more than 2,000 State and community-owned

electric utilities that serve over 43 million Americans. The vast majority of these utilities serve communities with populations of

10,000 people or less. Provo is one of APPA’s larger members with

approximately 33,000 metered customers, and a population of

113,000.

Many of these public power systems were established largely due

to the failure of private utilities to provide electricity to smaller

communities, which were viewed as unprofitable. In these cases,

communities formed public power systems to do for themselves

what they viewed to be of vital importance to their quality of life

and economic prosperity. Today, many public power systems are

meeting the new demands of their communities by providing

broadband services where such service is unavailable, inadequate,

or too expensive. Over 600 public power systems now provide some

kind of advanced communication service, whether for internal or

external purposes. This is a 10fold increase since Congress enacted

the Telecommunications Act of 1996, and the number of public

power systems providing or planning to provide services continues

to increase. Using technologies such as fiber to the subscriber, hybrid fiber coaxial broadband over power lines, and wireless, community-owned electric utilities provide a wide variety of services to

their residents, either directly or in partnership with private sector

providers.

The types of services APPA members provide fall into two categories. The first is internal service, which is usually a municipal

data network that connects municipal governmental entities to

each other. As of the end of 2004, 247 public power systems offered

municipal data networking.

The second category is external service that is offered to individuals or entities outside of the utility and municipal government.

External services include fiber lacing, high speed Internet access,

broadband resell, cable television, local and long distance telephoning, and VoIP. As of the end of 2004, 102 systems were providing cable television service, 167 were lacing fiber, 128 were

Internet service providers, 42 provided long distance telephone, and

52 provided local phone service. A handful of systems are either

providing or testing voice-over Internet protocol service. In addition, public power has been a leader in BPL, with Manassas, Virginia, being the first city in the Nation to provide broadband over

the power line service. Based on the success of Manassas’ project,

other APPA members are now testing that technology, including

Hagerstown, Maryland; Princeton, Illinois; and Rochester, Minnesota.

Many communities have decided to provide residents and businesses with critical broadband infrastructure because they recognize the growing importance of broadband for commerce,

6

healthcare, education, and improved quality of life. Looking to

early pioneers of municipal broadband that have been models to

other communities, they have seen the many benefits of providing

access to an essential 21st century service. Some of the key benefits

of municipally provided broadband service include lower prices, increased competitiveness in the communications marketplace, responsiveness to local needs, economic development, and universal

access.

Local governments are not the only entities that recognize the

benefits of municipal broadband systems. A large number of organizations representing private industry, educational interests, and

consumers support the availability of municipalities to provide

broadband services. Included with my testimony are the statements of support from such organizations as the High Tech

Broadband Coalition, Consumer Federation of America, the Free

Press, Educause, and New America Foundation, as well as Intel.

The United Tele Council and Fiber to the Home Council also plan

to express their support by sending a letter to the subcommittee for

inclusion in the record.

The story of Provo’s entry into the communications marketplace

is similar to those of other municipalities across the country, which

my written testimony discusses in more depth. Eight years ago, we

undertook a careful study to determine how we could use technology to benefit our residents. After our thorough analysis, we decided we need to reconstruct our traffic control signal systems,

make major upgrades to our utility monitoring and control systems,

and bring about broadband interconnectivity between all city

owned and operated facilities. As it turned out, all of these initiatives would be dependent upon our ability to obtain high speed

data interconnectivity at various locations throughout our city. As

we launched this—is my time up?

Thank you. I will be happy to respond to questions.

[The prepared statement of Lewis K. Billings follows:]

PREPARED STATEMENT OF HON. LEWIS K. BILLINGS, MAYOR, PROVO, UTAH, ON

BEHALF OF THE AMERICAN PUBLIC POWER ASSOCIATION

Chairman Upton, Ranking Member Markey, and members of the subcommittee,

my name is Lewis Billings, and I am the Mayor of Provo, Utah. Thank you for the

opportunity to appear before you today on behalf of the American Public Power Association (APPA) to discuss the important role public power systems are playing in

the deployment of affordable broadband services.

APPA is the national service organization representing the interests of the nation’s more than 2,000 community-owned electric utilities that serve over 43 million

Americans. The utilities include state public power agencies, municipal electric utilities, and special utility districts that provide electricity and other services to some

of the nation’s largest cities such as Los Angeles, Seattle, San Antonio, and Jacksonville, as well as some of its smallest towns. The vast majority of these utilities serve

small and medium-sized communities, in 49 states, all but Hawaii. In fact, 75 percent of publicly-owned electric utilities are located in communities with populations

of 10,000 people or less. Provo is considerably larger than the average public power

community, with approximately 33,000 metered customers and a population of

105,166.

Many of these public power systems were established largely due to the failure

of private utilities to provide electricity to smaller communities, which were viewed

as unprofitable. In these cases, communities formed public power systems to do for

themselves what they viewed to be of vital importance to their quality of life and

economic prosperity. Today, public power systems are meeting the new demands of

their communities by providing broadband services where such service is unavailable, is inadequate, or too expensive.

7

Over 600 public power systems now provide some kind of advanced communications service, whether for internal or external purposes. This is a ten-fold increase

since Congress enacted the Telecommunications Act of 1996, and the number of

public power systems providing or planning to provide services continues to increase. The services delivered by public power systems include high-speed Internet

access, voice-over-Internet protocol (VoIP), cable television, and local and long distance telephony.

As this committee begins to formulate policies that would best foster a thriving,

competitive communications marketplace, where affordable broadband service is

available to all Americans as rapidly as possible, it should recognize the important

role publicly owned electric utilities can play in achieving President Bush’s goal of

universal broadband deployment by 2007. Public power systems are providing a

wide array of advanced communications services in underserved areas using a wide

variety of platforms—fiber-to-the-subscriber, broadband over power lines, hybrid

fiber-coaxial, and wireless. They are also fostering a competitive marketplace where

consumers are benefiting from the availability of advanced communications services

that are the lifeblood of economic development and can support rich educational and

employment opportunities, advanced health care, regional competitiveness, public

safety, homeland security, and other benefits that contribute to a high quality of

life.

My testimony will provide an overview of why public power systems are providing

advanced services over broadband networks, how they are providing those services,

and the types of services being provided. It will also provide an overview of the campaigns waged against public power systems by the opponents of municipal

broadband and the legal barriers to entry APPA’s members face at the state level.

In addition, my testimony will discuss the policy justifications for allowing municipalities to meet the needs of their communities by providing affordable broadband

services and refute the arguments made by the opponents of municipal broadband.

HISTORY IS REPEATING ITSELF: THE PARALLELS BETWEEN THE ELECTRICITY

MARKETPLACE A CENTURY AGO AND THE BROADBAND MARKETPLACE TODAY

Before I address the reasons why community-owned electric utilities are providing

broadband services, I think it is important to look briefly at the history of the electric utility industry and public power. There are many similarities between the

early days of electrification at the turn of the 19th century and broadband deployment today.

The electric utility industry is 125 years old. When electrification first began,

many argued that electricity was a luxury. While that notion was quickly rebuked

and it became widely recognized that electricity was a necessity for economic development, public health and safety, and quality of life, many smaller and rural communities were left behind. Private sector providers rushed to wire highly profitable

urban areas, but failed to provide service to communities that were not attractive

investments for private enterprise. Because of market failures such as lack of providers, poor service, and high prices, communities began creating their own electric

utilities at a frantic pace.

The community leaders who proposed public power did not regard this as an ideological choice between public versus private, but a pragmatic choice between providing this new utility or watching their communities fall by the wayside. Private

providers saw things somewhat differently. Alarmed by the growth of municipal

electric utilities, they conducted campaigns to erect barriers to entry. Some of their

tactics included: (1) advocating a ‘‘natural monopoly’’ theory and calling for stateregulated monopolies that would preclude direct competition between public and private utilities; (2) creating political opposition at the local level; and (3) engaging in

anti-competitive practices such as denial of transmission access and predatory pricing. While private providers had some limited success in these efforts, public power

survived and continues to thrive today.

The similarities between the electricity marketplace a century ago and the

broadband marketplace today are striking. Broadband access has many of the same

fundamental dynamics and characteristics as electricity at the end of the 19th century. First, broadband is essential for economic development. Businesses must have

affordable access to it to compete both regionally and globally in the 21st century.

They will locate and expand where access is available and avoid cities and towns

where it is not available. Second, broadband supports rich educational and employment opportunities, advanced health care, and other benefits that contribute to a

high quality of life. Third, broadband has the same market failures today as electricity had—a lack of providers in some areas, or poor service and high cost in other

8

areas. Public power systems began stepping in to address these market failures at

the request of their towns and cities.

WHY PUBLIC POWER SYSTEMS ARE PROVIDING ESSENTIAL BROADBAND SERVICES

It is a natural progression for communities that own their own electric utilities

to expand their services to include broadband. While public power communities are

not the only communities providing broadband service, they have resources that

make offering such service easier. Electric utilities use advanced communications

technologies for internal purposes, such as monitoring electric distribution networks,

automated meter reading, and internal wireline and wireless communications. It is

not very difficult for such utilities to expand their communications capabilities to

provide external, community-wide services when requested to do so by their residents.

Community demand for services is usually driven by the failure of the market to

provide specific services at reasonable prices that the community needs to grow and

prosper. For many APPA members, the reason the utility even explored entering the

communications marketplace was that businesses and residents came to them asking for service. In Scottsburg, Indiana, for example, the municipal electric utility deployed a wireless broadband network in order to prevent a Chrysler repair shop

from leaving the town due to a lack of affordable broadband. Before pursuing this

course of action, the local government first asked Verizon to provide the service.

Verizon refused because the town was too small for the company to justify the investment. Had the municipally-owned utility not provided the service, at least 60

jobs would have been lost.

Eight years ago in Provo, the city government undertook a careful study to determine how it could use technology to benefit its residents. Local officials decided to

reconstruct Provo’s traffic control systems, significantly upgrade its electric utility

monitoring and control systems, and bring about broadband interconnectivity between all city-owned and operated facilities. As it turned out, all of these initiatives

depended upon Provo’s ability to obtain broadband at various locations throughout

the city.

The city approached five private sector companies that held franchise rights to

provide fiber optic data connectivity. As part of their franchise agreements, all of

the companies agreed to provide such service to all city owned facilities. None of

them ever did. Ultimately Provo determined the best option would be to build its

own city-wide fiber optic backbone. Soon after it was completed, local schools, small

businesses, and others in our community asked to be connected. After careful study

and analysis, the Provo City government decided to provide true high speed data

access to the community at large. Our motivation for providing broadband was very

similar to the motivations of other public power broadband communities.

Economic development is a key reason for public power entry into the communications marketplace. The availability of affordable broadband service is critical to retaining existing businesses as well as attracting new businesses in today’s highly

competitive global marketplace. In many public power communities, business leaders and locally elected officials have approached the private sector about providing

essential broadband services at affordable rates. In many cases, the private sector

has responded that it did not have immediate plans to provide broadband service

or upgrade existing services to meet the bandwidth needs of businesses and residents.

Smaller communities have two choices—wait until an incumbent provider decides

to provide service, if it does so at all, or build the network themselves. Many APPA

members have decided to deploy broadband networks because they understand that

access to advanced services helps retain and attract new businesses, creates new

jobs, increases productivity, allows for telemedicine and telecommuting, and improves the quality of life for residents. These communities have recognized that if

they waited for the private sector to provide affordable broadband service, they

would fall behind and not be able to compete in today’s information age.

Public power systems throughout the United States have seen direct economic

benefits from deploying broadband networks. They have attracted new businesses

as well as retained existing businesses because of their broadband networks. In

Cedar Falls, Iowa, the Mudd Group, a marketing, advertising, and public relations

firm specializing in the automotive industry would have left the city if affordable

broadband services were not available. Because the municipal electric utility constructed a fiber-to-the-business network, Mudd expanded its business and soon

plans to break ground on a studio to produce digital media. TEAM Technologies, a

web hosting and data management company, moved to Cedar Falls in 1996 because

of the city’s communications infrastructure. In 2004 TEAM finished construction of

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1See Doris Kelly, The Economic and Community Benefits of Cedar Falls, Iowa’s Municipal

Telecommunications Network, Black and Veatch, July 6, 2004. 2George S. Ford and Thomas M. Koutsky, Broadband and Economic Development: A Municipal Case Study from Florida, http://www.aestudies.com/library/econdev.pdf.

a multi-million dollar data center that provides highly reliable and secure data services, including bandwidth and back up storage service for corporate clients.

A 2004 report entitled The Economic and Community Benefits of Cedar Falls,

Iowa’s Municipal Telecommunications Network by Doris Kelly of Black and Veatch,

which analyzed the economic growth of Cedar Falls and the neighboring city of Waterloo, attributed Cedar Falls’ higher tax base and job growth to the presence of a

municipal broadband network.1 Waterloo and Cedar Falls are very similar communities. What distinguishes them from each other is the presence of a municipal

broadband network. Similarly, a recently published study involving Lake County,

Florida, showed that public communications projects can have a very significant

positive impact on the economic development of an area.2 Clearly, the availability

of affordable broadband service is an important factor in businesses’ decisions to locate to an area, and a driver of economic development.

TECHNOLOGIES USED BY PUBLIC POWER TO PROVIDE ESSENTIAL BROADBAND SERVICES

Public power systems that are providing broadband services are using a wide variety of technologies to do so. Publicly owned electric utilities such as Provo, Utah,

Bristol, Virginia, Kutztown, Pennsylvania, Jackson, Tennessee, Grant County Public

Utility District, Washington, and Dalton, Georgia have built fiber-to-the-subscriber

networks. These ultra-high-speed fiber systems provide users with voice, video, and

data services as well as give them the ability to utilize high bandwidth applications

such as real-time video conferencing, IP video, and rich multimedia activities such

as interactive games.

Other communities such as Wyandotte and Coldwater, Michigan, Glasgow, Kentucky, and Muscatine, Iowa provide broadband service over hybrid fiber-coaxial networks similar to those used by cable companies. This type of network can provide

residents with high-speed Internet access using a cable modem, as well as cable television and VoIP service.

More recently, APPA members have been using wireless technology to provide

broadband service. Scottsburg, Indiana, Owensboro, Kentucky, Coldwater, Michigan,

and Spencer, Iowa are just a few of the systems providing wireless broadband. Provo

has also embraced this technology as our businesses and residents see this as an

important and expected infrastructure in the community.

In addition, APPA members are also starting to provide broadband service using

broadband over power line (BPL) technology. Manassas, Virginia, is the first municipality in the country to provide its residents with BPL service. This technology allows electric utilities to use their power lines to provide high-speed Internet access

service comparable to DSL service, with equal download and upload speeds. This exciting technology not only allows public power systems to provide affordable Internet

access service, but also allows utilities to improve the monitoring of their electric

distribution networks, which increases electric reliability and helps detect outages

in real time without the need to hear from customers about power outages. Other

APPA members testing BPL include Hagerstown, Maryland, Princeton, Illinois, and

Rochester, Minnesota.

ADVANCED SERVICES PROVIDED BY PUBLIC POWER SYSTEMS

Community-owned electric utilities provide a wide variety of services to their residents either directly or in partnership with private-sector providers. The types of

services APPA members provide fall into one of two categories. The first is internal

service, which is usually a municipal data network that connects municipal governmental entities to one another. As of the end of 2004, 247 public power systems offered municipal data networking.

The second category is external service. These services are offered to individuals

or entities outside of the utility and municipal government. External services include fiber leasing, Internet access (both high-speed and dial-up), cable television,

broadband resale, local and long-distance telephony, and VoIP. As of the end of

2004, 102 systems were providing cable television service, 167 were leasing fiber,

128 were Internet service providers, 42 provided long-distance telephone, and 52

provided local-phone service. A handful of systems are either providing or testing

VoIP service.

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3See Connecting the Public: The Truth About Municipal Broadband, Media Access Project,

Consumer Federation of America, Free Press available at http://www.mediaaccess.org/

MunicipalBroadband—WhitePaper.pdf (citing http://www.iowatelecom.com/residential services/

article.asp?id=220&PID&GPID). 4See George S. Ford, ‘‘Does Municipal Supply of Communications Crowd Out Private Investment? An Empirical Study,’’ Applied Economic Studies (February 2005) at http://

www.aestudies.com/.

THE MANY BENEFITS OF PUBLIC POWER BROADBAND

Many communities have decided to provide residents and businesses with critical

broadband infrastructure because they recognize the growing importance of

broadband for commerce, health care, education, and improved quality of life. Looking to the early pioneers of municipal broadband that have been models to other

communities, they have seen the many benefits of providing access to an essential

21st century service. Some of the key benefits of municipally provided broadband

service include lower prices, increased competitiveness in the communications marketplace, responsiveness to local needs, economic development, and universal access.

In many cities and towns across America, broadband service is too expensive for

businesses and residents. In Iowa for example, the Iowa Utility Board has reported

that many communities are charged up to $169 a month for 1 mega-bits-per-second

DSL service.3 However, in public power communities that are providing broadband

service, consumers are paying lower rates for such service. In Manassas, Virginia,

residents can get BPL service for $28.95 a month. In response to the presence of

a third provider of broadband service (the City of Manassas in partnership with

COMTek, a telecommunications and information systems technology company) both

Comcast and Verizon lowered their prices in Manassas. Consequently, even those

residents who have not switched to Manassas’ BPL service have received a direct

economic benefit from the introduction of a third provider in the form of lower prices

from the incumbent providers.

The presence of municipal broadband providers has also resulted in a more competitive communications marketplace. Many public power broadband networks provide open access to other private sector providers. Competitive local exchange carriers and other competitive communications companies use municipal networks to

deliver services to businesses and residents. In fact, the presence of a municipal provider can actually increase the number of competitive providers in a marketplace.

An economic analysis by George Ford of Applied Economic Studies found that in

Florida, localities that owned their own broadband network had more competitive

local exchange carriers in the marketplace than localities that did not have municipal broadband networks.4 Rather than crowding out investment, as asserted by the

opponents of municipal broadband, it appears that the presence of such a system

actually increases the number of communications providers in the market.

In addition, municipal broadband providers are highly responsive to local needs.

Residents can have a direct say in the types of services provided over broadband

networks. Utility managers and locally elected officials are available to the public

at open meetings to discuss their concerns and seek input on how to improve or expand service. Also, customer service is locally available to help individuals with setting up their service or fixing problems.

Universal access is another benefit of municipal broadband. Public power systems

providing broadband services ensure that all residents can receive such services and

at an affordable rate. Low-income neighborhoods are not passed by. Schools and

hospitals are provided with significant bandwidth to enable rich multimedia applications that improve education and health care. For example, in Leesburg, Florida,

public hospitals can send medical images such as MRIs and x-rays to doctors’ offices

in seconds over the city’s optical network.

Economic development is yet another benefit of municipal broadband. As stated

earlier, local governments recognize the importance of broadband for commerce, education, health care, and quality of life. The availability of affordable broadband

helps retain and attract businesses, leading to more jobs and stimulation of the local

economy. In Kutztown, Pennsylvania, Saucony Book Shop moved its business from

Allentown, Pennsylvania, because of the borough’s fiber-to-the-subscriber network.

Paisley & Company bath shop also moved to Kutztown, opening a shop downtown

and advertising its products online. In Provo, Riverwoods Medical Imaging Center

employs state-of-the-art software to deliver hundreds of digital images to doctors

quickly over the Internet. Without the bandwidth available over Provo’s fiber network, Riverwoods would not have been able to provide its digital imaging services.

Local governments are not the only entities that recognize the benefits of municipal broadband systems. A large number of organizations representing private industry, educational interests, and consumers support the ability of municipalities to

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5 In 2005, legislation has been introduced in Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Michigan, Nebraska, Ohio, Oregon, Tennessee, Texas, Virginia and West Virginia. In Virginia and West Virginia, pro-municipal broadband bills were amended to limit the ability of localities to provide service.

provide broadband services and have publicly expressed so. Included with this testimony are statements of support from such organizations as the High Tech

Broadband Coalition, Consumer Federation of America, Free Press, Educause, and

New America Foundation as well as Intel. The United Telecom Council and Fiber

to the Home Council also plan to express their support by sending a letter to the

subcommittee for inclusion in the record.

LEGAL BARRIERS TO ENTRY FACED BY MUNICIPAL PROVIDERS OF BROADBAND SERVICES

AT THE STATE LEVEL

Just as there was fierce opposition from private enterprise to publicly owned electric utilities 125 years ago, today there is fierce opposition to publicly owned

broadband networks from private enterprise. Opponents of municipal broadband

have used a variety of tactics to undermine, discredit, or block the deployment of

broadband by public power systems. Threatened by the prospect of a public provider

that is responsive to community needs and charges affordable rates, telephone and

cable companies, many of which have no plans to provide service themselves, have

aggressively pushed for legislation in state legislatures across the country that

would either prohibit municipalities from providing broadband services or significantly limit their ability to do so by erecting barriers to entry.

Currently 14 states have enacted laws that either prohibit municipalities from

providing telecommunications, cable, and/or broadband services or limit their ability

to do so through barriers to entry. This year alone, bills have been introduced in

14 states that would restrict the ability of municipalities to provide advanced services to their communities either directly or in partnership with other private sector

providers.5 In all instances, these measures have been pushed by incumbent telephone and cable companies seeking to eliminate potential competitors.

Early measures pushed by the opponents of municipal broadband advocated prohibiting municipalities from providing telecommunications and other services.

Texas, Missouri, and Nebraska enacted laws prohibiting municipalities from providing telecommunications services. Arkansas enacted legislation prohibiting local

governments from providing local exchange service and Nevada precludes municipalities with populations larger than 25,000 from providing retail telecommunications service.

Other states have not enacted outright bans, but have instead adopted laws that

create barriers to entry by significantly restricting the ability of municipal entities

to provide advanced communications services. These statutes impose burdensome

procedural and accounting requirements, such as referenda, the imputation of certain costs not actually incurred, and public disclosure of information to which private sector providers are not subject. States that have adopted such approaches include Florida, Minnesota, South Carolina, Tennessee, Virginia, Wisconsin, and

Utah. In addition, Utah and Washington have adopted wholesale-only models, which

prevent a municipal entity from directly providing service to the public.

The latest approach advocated by opponents of municipal broadband is probably

the one most familiar to members of this subcommittee—the right of first refusal—

which was adopted by Pennsylvania late last year. It requires local governments to

ask the permission of incumbent providers as a condition precedent to providing

broadband services to the community. If the incumbent telephone or cable company

indicates that it will provide the service within a certain time frame, the municipality is precluded from ever providing the service itself. This may appear reasonable at first glance, but as usual, the devil is in the details. The law makes data

speed the only criteria and thus makes no provision for price, quality of service, consumer choice, mobility, symmetry, or any other factor, however significant it might

be to the local community. In other words, nothing in the law provides a remedy

if the incumbent provider states it will provide the requested service in the statutory time period, yet does not build or upgrade a network that provides the capabilities and services the community wanted.

CAMPAIGNS WAGED BY OPPONENTS OF MUNICIPAL BROADBAND AGAINST PUBLIC POWER

AND OTHER MUNICIPAL PROVIDERS

In addition to pushing for anti-municipal broadband legislation at the state level,

incumbent telephone and cable companies have utilized a variety of tactics to undermine and discredit community-owned broadband networks. Working with corporateVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 20750.TXT HCOM1 PsN: HCOM1
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6See http://www.kcchronicle.com/SportsSection/310254315460507.php.

7See 2theadvocate.com Durel Defends LUS Plan (May 1, 2004) at http://www.2

theadvocate.com/cgi-bin/printme.pl 8See ‘‘The Case for Municipal Broadband in Florida: Why Barriers to Entry Stifle Economic

Development, Disadvantage School Children, and Worsen Health Care,’’ Florida Municipal Electric Association (citing FMEA and FCC ARMIS 43-03 (2003)).

funded think tanks, opponents have maligned municipal broadband projects, asserting they are destined to fail, are subsidized by taxpayers, and/or crowd out private

investment with little to no empirical basis for such assertions. In communities

where local governments have asked their citizens to vote to go forward with

projects, incumbent providers have spent significant amounts of money on anti-municipal broadband campaigns with the knowledge that municipal governments are

legally precluded from spending any funds to promote projects. For example, in the

tri-cities area of St. Charles, Batavia, and Geneva, Illinois, the Kane County Chronicle (IL) reported that Comcast and SBC spent over $300,000 on mailers, push-surveys, full-page newspaper ads, and local radio spots full of misinformation on municipal broadband projects.6

Representatives of incumbent companies have also employed scare tactics to dissuade local citizenry from supporting community-owned broadband projects. At a

Lafayette, Louisiana, city-parish council meeting, a representative of Cox Communications suggested that if Lafayette Utilities Systems (LUS), the city’s municipal

electric utility, went forward with its fiber-to-the-premises project, it could invade

the privacy of its subscribers by ‘‘allow[ing] LUS to monitor people’s private phone,

Internet or television viewing.’’ 7

ARGUMENTS MADE AGAINST MUNICIPAL BROADBAND

As was briefly discussed above, opponents of municipal broadband have asserted

a variety of arguments for why local governments should not provide broadband

service. Many of these arguments aver that municipalities have an unfair advantage

because of their position as both competitive providers and regulators of services

and that public entry is contrary to ‘‘level playing field’’ principles. Opponents also

claim that municipal communications systems are failures and that municipal governments are too incompetent to operate such ‘‘complicated’’ technologies. A closer

look at these arguments reveals these claims are false.

One common argument made by opponents of municipal broadband is that localities providing such service are competing against the private sector companies they

regulate. This assertion is quite misleading. Municipalities do not, and cannot, favor

their own municipal service entities. Municipalities do not regulate telecommunications service providers or Internet access providers. Such regulation occurs at the

federal and state levels, and even there, it is disappearing rapidly. Municipalities

do issue franchises to cable operators, but cable franchising is governed by detailed

federal standards, and when municipalities provide cable services themselves, they

typically assume regulatory burdens that are as extensive, or more extensive, than

the private sector’s.

Municipalities also manage public rights of way and other public facilities. But

federal and most state laws require municipalities to act in a nondiscriminatory,

competitively-neutral manner. In short, the premise underlying this myth—that municipalities have power to regulate in favor their own services—is simply false.

A second common argument made by the opponents of municipal broadband is

that localities have an unfair advantage against private sector communications providers because they do not pay taxes. It is true that public power systems are treated the same way as other governmental and non-profit entities under federal and

state tax law—they do not pay income taxes because they do not earn profits. At

the local level, public power utilities are routinely required to make payments in

lieu of taxes to the local government that are often higher in amount than what

investor owned electric utilities pay in taxes. Evidence in Florida and other states

indicates that the same is likely true of the payments made to local governments

by public power broadband systems and private sector communications providers.

Furthermore, public power utilities do not have access to the wide variety of tax

benefits, such as accelerated depreciation and investment tax credits, available to

the private sector. In Florida, for example, Bell South paid an effective state/local

tax rate of 3.4% and Verizon paid 3.6%. Florida’s municipal electric utilities paid

an effective rate of 14.6%.8 It is difficult to see how private providers can complain

about the tax exempt status of public power systems that pay more to state and

local governments than the private providers do.

A third common argument asserted against municipal broadband is that localities

have access to low-cost financing. The use of tax-exempt financing is a perfectly leVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 20750.TXT HCOM1 PsN: HCOM1
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gitimate practice for pubic improvement projects. However, in today’s market, taxexempt financing is not always available and comes with many onerous burdens.

While there is some advantage to tax-exempt financing, it may not be terribly significant because incumbent cable and telephone companies have access to the best

commercial rates.

The opponents of public power broadband also argue that localities cross-subsidize

communications services at the expense of electric rate payers. State and local enterprise laws prohibit municipal electric utilities from cross-subsidizing communications and other services with electric revenues. Such an argument is also disingenuous when the private sector is free to engage in cross-subsidization and routinely

does so. Predatory pricing by incumbents in communities with municipal broadband

networks is regional cross-subsidization. They are subsidizing service to the residents of those communities where competition exists at the expense of customers

in localities that do not have community-owned broadband networks.

Yet another claim made against municipal broadband projects is that most are financial failures. Think tanks funded by incumbent telephone and cable companies

have released papers claiming that various municipal broadband systems have

failed. These ‘‘studies’’ are simply incorrect. Using flawed analyses, the authors of

these ‘‘studies’’ apply performance criteria applicable to the private sector to municipal projects even though municipal projects have fundamentally different objectives. Public power systems are not trying to maximize profits. Instead, local governments set rates at the lowest level possible that will allow the utility to recover its

costs and save their customers money. Some reports have also analyzed projects not

operating long enough to generate meaningful data. Opponents routinely cite Cedar

Falls, Iowa as a failure in spite of the empirical evidence to the contrary. Copies

of numerous studies providing point-by-point rebuttals to industry claims of municipal ‘‘failures’’ are available at http://www.baller.com/barriers.html.

Closely related to the failure argument is the claim that broadband networks are

too complex a business for public power utilities. To assert that 100-year old entities

with a long history of running highly complex electric systems cannot operate

broadband networks is absurd. Public power systems that choose to provide

broadband service are well prepared to provide such service. Many have used communications networks to provide internal services and monitor their electric distribution systems. In addition, several APPA members have been providing cable

television service for over 20 years. Frankfort Plant Board in Kentucky has been

providing cable service since 1954. Muscatine, Iowa, was one of the first cable TV

operators in the country to deploy video on demand service in 2003. Frankfort Plant

Board and Coldwater, Michigan, both deployed VoIP service in the summer of 2003,

prior to when many cable MSOs began offering service. Assertions of municipal incompetence or lack of ability to manage broadband networks are clearly without

merit.

CONCLUSION

Public power systems throughout the country are meeting their communities’

needs by providing access to affordable broadband services. Recognizing the importance of broadband for commerce, health care, education, and improved quality of

life, underserved communities are constructing their own networks to compete and

thrive in today’s information age. Many benefits accrue from community-owned communications systems including lower prices for consumers, increased competitiveness in the marketplace, responsiveness to local needs, universal access, and economic development. In spite of the obvious benefits of municipal broadband, incumbent telephone and cable companies have opposed such projects, pushing for legislation at the state level to prevent municipalities from providing broadband. Rather

than work with local governments to provide service or acknowledge that municipalities that choose to provide broadband have legitimate reasons to do so, incumbent private providers assert disingenuous claims and unsubstantiated arguments.

As this subcommittee begins to formulate policy on how best to promote a competitive communications marketplace where customers have access to a wide variety of

Internet protocol-enabled services, APPA hopes the committee will see through the

baseless assertions of incumbent providers and recognize the important role that

public power systems can play in providing such services to underserved communities.

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Mr. UPTON. Man, if everyone was that responsive, that would be

terrific. Thank you. You went a little bit long, but it was good.

Thank you. Again, your full statement is part of the record.

Mr. Fellman.

STATEMENT OF KENNETH FELLMAN

Mr. FELLMAN. Thank you, Chairman Upton, Ranking Member

Markey, members of the subcommittee. Thank you for the opportunity to testify this afternoon.

I am the mayor of Arvada, Colorado, a city of 104,000 people located just outside of Denver, and I appear today as a representative of the Nation’s local elected leaders and their advisors. Because many local elected officials serve with little or no compensation, I have another job as well. In my professional capacity, I am

an attorney and I work with local governments on a wide variety

of communications and other issues.

I am also here today, like you, as an elected official who looks

at new technology with a great deal of excitement, and one whose

constituents and businesses want more choices at lower prices. And

like all of you, I am seeking the best balance for our citizens, our

economy, and our local communities.

Today, on behalf of local governments, I ask this committee for

three things.

First, recognize the inherent police powers of local government,

and its right to manage and charge for the use of public rights of

way.

Second, please take a deliberative approach as you consider the

appropriate scheme for addressing IP services, and ensure that any

new regulatory regime recognizes the core social obligations of our

service providers.

And third, appreciate the unique neighborhood-by-neighborhood

expertise that local government has to oversee these social obligations, which include public safety, broadband deployment, and preventing economic red-lining.

Additionally, because I know this committee has heard some negative characterizations of the franchising process, I draw the committee’s attention to the detailed written testimony which we believe demonstrates a more accurate representation.

We support a technology neutral approach that promotes

broadband deployment and competitive service offerings. But Internet innovations are meaningless if the networks used to deliver

them are not widely available to our citizens. As technology improves, most of the infrastructure for these new services resides in

the public rights of way. Local officials must ensure that the infrastructure does not interfere with other infrastructure, is safe, and

we must preserve fair opportunities for all competitors who use the

rights of way. As fiduciaries, we must make sure that the public

is compensated when private actors use public land.

To exercise our core police powers, local government must manage the right of way, and we thank Chairman Barton for his historic work in support of the existing Section 253, which preserves

local authority and control over the public rights of way.

We believe that Federalization of all IP services would not serve

the public interest, and would violate the principle of technology

21

neutrality. It would create disparate treatment of entities, solely on

the nature of the services provided. Functionally equivalent services that compete with one another in the eyes of consumers should

face the same government obligations. Local governments want to

ensure that we can continue to require that social obligations of

providers be met, and that consumers be protected.

There are several important obligations of today’s video providers

that are enforced at the local level. These include access channels,

institutional networks, and prohibitions on economic redlining.

Many Members of Congress are frequent guests or hosts on cable

access channels. Congressman Markey is, Congresswoman Myrick

is, my own Congressman, Bob Oprey, has his show appearing on

access channels in Colorado’s seventh district. Access programming

serves a vital role in our communities. Institutional networks provide redundancy in terms of emergencies. For example, in New

York City’s network remained operational during the events of September 11, 2001. And as this committee has noted, prohibitions on

economic redlining are critical to ensure all citizens will benefit

from competition.

Finally, I would like to briefly explain the current franchising

process, which unfortunately, is misunderstood by many. Cable

franchising is essentially a light touch national regulatory framework with local implementation. The Cable Act authorizes local

governments to negotiate for a relatively limited range of obligations imposed upon cable operators, and virtually none of those obligations are mandatory. The framework for economic regulation of

video providers utilizes that light touch economic regulation that

the telephone companies seek. And while the current economic regulation is limited, it still plays an important consumer protection

role. Recently, it disclosed a $5 million overcharge by one cable operator.

My written testimony covers franchising in more detail.

In conclusion, we believe that any new national communications

policy should preserve local government’s authority to ensure public health, safety, and welfare, allow us to support important policy

goals, enable us to address our communities’ communications

needs. What this means is that we are asking you to preserve our

local control and management of the public rights of way, and the

ability to impose and collect taxes and fees necessary to fund essential services. Please take a deliberate approach, even as you seek

to update economic rules, and do not eliminate the core social obligations of video programmers, regardless of the technologies they

use. We urge you to appreciate and preserve the neighborhood-byneighborhood expertise that local government brings to overseeing

these social obligations, like public safety, broadband deployment,

and the prohibition of economic redlining.

And I thank you, and look forward to answering your questions.

[The prepared statement of Kenneth Fellman follows:]

PREPARED STATEMENT OF HON. KENNETH FELLMAN, MAYOR, ARVADA, COLORADO ON

BEHALF OF THE NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND

ADVISORS, THE NATIONAL LEAGUE OF CITIES, THE UNITED STATES CONFERENCE OF

MAYORS, AND THE NATIONAL ASSOCIATION OF COUNTIES

Chairman Upton, Ranking Member Markey, and members of the subcommittee.

22

1Mayor Fellman is a member of the NATOA Board, and Chair of its Convergence Committee;

Chair of the Information Technology and Communications Steering and Advocacy Committee of

the National League of Cities and as such represents NLC at the NGA-led tax negotiations; Vice

Chair of the Communications Task Force and a member of the Communications and Transportation Standing Committee of the U.S. Conference of Mayors; Local Elected Official Member of

the Department of Homeland Security’s SAFECOM Executive Committee; Former Chair of Local

State Government Advisory Committee to the FCC; and a practicing attorney representing local

governments.

Thank you for the opportunity to testify this afternoon. I am the Mayor of Arvada

Colorado, a municipality incorporated in 1904, and the site of Colorado’s first documented gold strike. We have a population of approximately 104,000, and are located

on the northwest side of Denver. I appear today as a representative of local elected

leaders and their technical advisors. I play a key role in several national organizations representing local government interests and speak today on behalf of National

Association of Telecommunications Officers and Advisors (‘‘NATOA’’), the National

League of Cities (‘‘NLC’’), the United States Conference of Mayors (‘‘USCM’’) and the

National Association of Counties (‘‘NACo’’).1

I have the great pleasure today of being authorized to speak here on behalf of

all of these prestigious organizations that represent thousands of local elected officials and their advisors throughout the country. I am also here today, like you, as

an elected official who looks at new technology with a great deal of excitement. Like

you, every day I hear from my constituents who want more choices for communications services with a full range of competitive prices. Like you, I hear from small,

medium and large businesses that want to receive communications products and

services to enable them to remain competitive or to offer more products and services

to their customers. Like you, I hear from my first responders that they lack some

essential communications tools to protect public safety. Like you, I hear the concerns of citizens who want technology to improve their interaction with their elected

officials and their government. Like many businesses, local governments are significant and sophisticated users of telecommunications technology. And, like all of you,

I am seeking the best balance for our citizens, our economy, and our local communities.

Because many local elected officials serve with little or no compensation, I have

another job as well. In my professional capacity I am an attorney, and I work with

local governments nationally on a wide variety of communications and other issues.

Local governments embrace the technological innovation that this Committee has

been hearing about over the last several months. We want and welcome real communications competition in video, telephone and broadband services. And, I am here

to commit that we support a technology-neutral approach that promotes broadband

deployment and competitive service offerings. Local governments have been managing communications competition for many years now ( it is not new. What is exciting is the presence of a few well-funded and dominant players who appear to have

finally made a commitment to competition in the video arena. We look forward to

developing an even more successful relationship in bringing these competitive services home to America.

I also want to emphasize at the outset the close working relationship and shared

views among the national organizations representing local and state government.

The local organizations I represent today have been working together with the National Governors Association and National Association of Regulatory Utility Commissioners and are unified in our support of the principles of state and local authority, public safety, universal access to telecommunications, use of public property and

rights-of-way, consumer protection, competition and taxation. State and local governments’ interests are closely aligned on the topics that NGA and NARUC will

cover today, particularly in the area of universal service, access to E911, public safety and CALEA. And, as you’ve heard (or will hear) from Mayor Billings today on

behalf of the public power community, we stand in support of the ability of local

governments to serve their constituents’ needs and interests by self-provisioning, especially at times when the traditional industry providers are unwilling or unable

to do so.

LOCAL GOVERNMENT ASKS THREE THINGS OF CONGRESS

Today, on behalf of local government, I ask this Committee for three things. First,

recognize the inherent police powers of local government including its right to manage and charge for the use of public right-of-way. Second, take a deliberative approach as you consider the appropriate scheme for addressing IP services which recognizes the core social obligations of service providers. And third, appreciate the

neighborhood-by-neighborhood expertise local government brings to overseeing these

23

social obligations, including public safety, broadband deployment, and prohibiting

economic redlining.

THE USE OF INTERNET PROTOCOL TO DELIVER SERVICES

Internet protocol was developed almost 40 years ago, at the time the original

Internet was being developed. Its use today to deliver data, telephone and video, is

something that has evolved and improved over time, and is now so prevalent as to

warrant congressional attention. The promise of competitive services being delivered

through the use of IP is exciting and challenging—it’s just not necessarily new. The

communications tools we use every day have all evolved under the careful eye of

federal, state and local governments, as should the communications tools of the future. These Internet innovations are meaningless if the networks used to deliver

them are not widely available to all of our citizens. Deployment of the infrastructure

used to deliver these services is of specific interest and concern to those of us who

manage the physical property where this infrastructure resides and will be installed. This is why local government has long promoted the efficient and effective

deployment of infrastructure within and through our communities.

LOCAL GOVERNMENT HELPS ENSURE BROADBAND DEPLOYMENT

We all share the concern of a lack of broadband access throughout America, in

urban and rural areas alike. Regardless of the locality, it is likely that communications technologies will be a driving force in the economic opportunities enjoyed by

the communities that have access to advanced services. I believe that the Cable Act

has provided significant benefits to consumers and communities alike, and I believe

that local government should be applauded for ensuring those benefits were provided in a timely, fair and efficient manner. Under the current regulatory regime,

cable enjoys the highest deployment rate of broadband in this nation, with over 105

million homes having access to cable modem service. The cable industry is now

reaping the economic benefits of an infrastructure that is capable of providing

broadband access to all of our citizens. It is local government’s oversight and diligence, through the franchise process, that has ensured that our constituents are not

deprived of these services. Local government is the only entity that can adequately

monitor and ensure rapid, safe and efficient deployment of these new technologies

when they are being installed on a neighborhood-by-neighborhood level in our local

rights-of-way.

MANAGEMENT OF THE PHYSICAL RIGHT-OF-WAY IS A CORE FUNCTION OF LOCAL

GOVERNMENT

Even as technologies change, certain things remain the same. A central fact remains’ most of the infrastructure being installed or improved for the provision of

these new services resides in the public right-of-way. Elected officials are the trustees of public property and must manage it for the benefit of all. We play a critical

role in promoting competition by ensuring that all competitors have fair access to

needed physical space and ensure they do not interfere with each other. In addition,

we impose important public safety controls to ensure that communications uses are

compatible with water, gas, and electric infrastructure also in the right-of-way.

Keeping track of each street and sidewalk and working to ensure that installation

of new facilities do not cause gas leaks, electrical outages, and water main breaks

are among the core police powers of local government. And while it seems obvious,

these facilities are located over, under or adjacent to property whose primary use

is the efficient and safe movement of traffic. It is local government that best manages these competing interests. In any reform of the current law, it is vital that our

property rights and interests in the management and control of the public rightsof-way are respected and preserved.

TO PROPERLY EXERCISE ITS FIDUCIARY OBLIGATIONS, GOVERNMENT MUST HAVE THE

RIGHT TO OBTAIN COMPENSATION FOR PUBLIC PROPERTY USED FOR PRIVATE GAIN

At the same time that we manage the public right-of-way, local government, acting as trustees on behalf of our constituents, must ensure the community is appropriately compensated for use of the public space. In the same way that we charge

rent when private companies use a public building to make a profit, and the federal

government auctions spectrum for the use of public airwaves or requires compensation when communications towers are located on federal lands, we ensure that the

public’s assets are not wasted by charging reasonable compensation for use of the

right-of-way. Local government has the right to require payment of just and reasonVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 20750.TXT HCOM1 PsN: HCOM1
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able compensation for the private use of this public property—and our ability to continue to charge rent as a landlord over our tenants must be protected and preserved.

SOCIAL OBLIGATIONS REMAIN CRITICAL REGARDLESS OF TECHNOLOGICAL INNOVATION

Communications companies are nothing if not innovative. When you think back

over the course of just the past 100 years, the changes in technology are mind-boggling. At the same time, the social obligations developed over the last 60 years have

endured. I strongly urge the Committee to engage in a deliberative process, and

take the time necessary to engage in dialogue and debate, to ensure that any legislative changes adopted this year will be as meaningful 20 years from now as two

years from now.

While last year some questioned the need for any regulation of Voice over Internet

Protocol services, this year the Committee heard the chilling story of a family who

could not use E911 to reach the police on their VoIP phone while a gunman prowled

their home. The Committee’s understanding of the need for regulations has evolved

based on experience with the technology and careful study and deliberation. The

same careful study and deliberation is needed with respect to video services. Local

government believes that federalization of all IP services would not serve the public

interest, and would violate the principle of technology neutrality. Such action would

create disparate treatment of entities premised solely upon the nature of the service

being provided, and create an entirely new form of regulatory arbitrage. Rather, we

believe that like services should be treated alike and certainly services that compete

with one another in the eyes of the consumer should face the same government obligations. Local governments want to ensure that we can continue to require that social obligations of providers be met, and that consumers are protected.

CONGRESS MUST TAKE THE TIME TO CONSIDER THE NEW SOCIAL OBLIGATIONS IN AN

IP WORLD

In the past, we have determined that those who use public property for private

commercial purposes have an obligation to the ‘‘public interest’’ in exchange for this

privilege. As a result, a sort of social contract has evolved with each such entity,

based on the particular service or technology being utilized. For voice, we recognize

that E911, universal service, law enforcement access through CALEA, are social obligations to be required of companies providing voice services. As consideration for

the otherwise free use of the public spectrum, broadcasters are obligated to serve

their communities’ interests and to provide critical safety of life information on demand. For direct broadcast satellite, there is payment for the use of the spectrum

and a public interest set-aside of 4% of capacity. For video, a public interest set

aside designates capacity for community channels, institutional networks and a requirement to pay rent for the use of the public’s property. Compliance with these

obligations is not appropriately left to the marketplace.

HISTORICAL AND CURRENT ROLE OF SOCIAL OBLIGATIONS

Thus, I welcome this opportunity to discuss with you the important social obligations inherent in current video regulation, and to explain why these core functions

must be preserved, no matter the technology used to provide them. These include

the allocation of capacity for the provision of public, education and government access channels, prohibitions on economic redlining, and a basic obligation that local

government evaluates and the provider meets the needs of the community, including

public safety needs.

PEG Channels

Historically and today, locally produced video programming performs an important civic function by providing essential local news and information. Under the existing law, local government can require that a certain amount of cable system capacity and financial support for that capacity be set aside for the local community’s

use. This capacity is most often used in the form of channels carried on the cable

system and are referred to as PEG for public, educational and governmental channels. Once the local franchise authority has established the required number of

channels and amount of financial support required to meet community needs, they

then determine the nature of the use, which may be mixed between any of the three

categories. Public channels are set aside for the public and are most often run by

a free-standing non-profit entity. Educational channels are typically reserved for

and are managed by various educational institutions. Government channels allow

citizens to view city and county council meetings, and watch a wide variety of programming about their local community that would otherwise never be offered on

commercial or public television. Whether it is video coverage of the governmental

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meetings, information about government services or special programs, school lunch

menus, homework assignments or classroom instruction, the video programming

used to disseminate this information allows all of us to better serve and interact

with our constituents. Government continues to make innovative uses of this programming capacity as new interactive technology allows even better information to

be available to our constituents.

But this is information that many of you know quite personally—for instance Congressman Markey has appeared many times as a featured guest on access programming on a regular basis throughout the State of Massachusetts. And many other

members, including Representative Dingell, represent communities whose PEG programming has won national acclaim. And my own Congressman Bob Beauprez has

his own show ‘‘Washington Report’’ distributed on many of the government access

channels throughout Colorado’s 7th Congressional District. Many of you and your

peers use this vital resource as a means to report back and to interact with your

constituents at home. Local and state officials also use this important medium, and

we want to ensure that it continues to be available now and in the future.

It may be possible that through deliberative processes such as this hearing, we

will identify new technological opportunities to assist us in our outreach to our citizens, but I suggest to the Committee today that these public interest obligations

continue to serve an important purpose and must be preserved, regardless of the

technology that allows us to make the programming available. I hope that you’ll join

with me in calling for the continuation of such opportunities in the new technologies

that are evolving today. Certainly I should hope that you would not follow the tantalizing concept of reducing obligations on providers without careful consideration.

Economic Redlining

One of the primary interests of local government is to ensure that services provided over the cable system are made available to all residential subscribers in a

reasonable period of time. These franchise obligations are minimal in light of the

significant economic benefits that inure to these businesses making private use of

public property. While there may be those who find this provision unreasonable—

we find it to be essential. Those who are least likely to be served, as a result of

their economic status, are those who we need most to protect. This deployment

helps to ensure that our citizens, young and old alike, are provided the best opportunities to enjoy the highest quality of life—regardless of income. The capacity that

broadband deployment offers to our communities is the ability of an urban teen to

become enriched by distance education opportunities that until recently couldn’t

possibly capture and maintain the interest of a teen (much less many adults). And,

that’s just the beginning—the possibilities are endless, as is the creativity of those

in local government on making the most they can with the least they have.

Public Safety & Community Needs

Local leaders often focus on the needs of their first responders when evaluating

community needs. The current law provides that local governments may require the

development of institutional networks as part of the grant of a franchise. This network is specifically for the purpose of serving non-residential areas such as government facilities including police, fire, schools, libraries and other government buildings. This infrastructure is typically designed to use state of art technology for data,

voice, video and other advanced communications services. It has proven effective not

only for day to day training and operations—but essential in emergencies, including

the events of September 11, 2001.

For example, the City of New York uses an INET for distance learning among city

educational institutions, for city-wide computer network connectivity, for criminal

justice applications (video arraignments), for employee training including first responder training, and for ensuring redundant intelligent communications capabilities for all of its police, fire and first responder needs. This network is constantly

being improved upon, but functioned in many important capacities during the losses

suffered on September 11, 2001. This network not only offers capacity for the city

all year round, but redundancy in times of an emergency.

Again, many Members of Congress live in communities that have required the deployment of these services, and are planning and using this infrastructure and the

services to protect and serve the needs of their citizens. For instance the communities of Palo Alto, California, Marquette, Michigan, Laredo, Texas and Fairfax

County, Virginia are all examples where the local government has determined that

use of an institutional network is in the best interests of their community.

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NEITHER FRANCHISING, NOR CURRENT REGULATION, IS A BARRIER TO COMPETITION

The concept of franchising is to manage and facilitate in an orderly and timely

fashion the use of property. For local governments, this is true regardless of whether we are franchising for the provision of gas or electric service, or whether we are

providing for multiple competing communications services—all of which use public

property. As the franchisor—we have a fiduciary responsibility that we take seriously, and for which we are held accountable.

I began my testimony commiserating with you about constituent demands for better services at competitive prices. As you are no doubt aware, our constituents demand real competition to increase their options and improve the quality of services.

As you know, a GAO study showed that in markets where there is a wire-line based

competitor to cable that cable rates were, on average, 15% lower.— Please understand that local governments are under plenty of pressure every day to get these

agreements in place and not just from the companies seeking to offer service. I know

this committee has heard some unflattering descriptions of the franchise process. I

would like to discuss with you the reality of that process.

Franchising is a National Framework with an Essential Local Component

Franchising is essentially a light touch national regulatory framework with local

implementation. The 1992 Cable Act authorizes local governments to negotiate for

a relatively limited range of obligations that are imposed upon cable operators. Virtually none of these obligations are mandatory. Each one is subject to decision-making at a local level. The current legal structure provides for something I hope we

would all agree is important in this nation—local decisions about local community

needs are made locally. While some communities will require significant capacity for

education, government and public channels or INET use, others will seek little or

none. The ideologies and the values of each local community guide their elected

leaders.

And, in many cases, even where the state has determined that a state-wide franchise process is appropriate, they require the local community and the provider to

work out the details, consistent with the state guidelines. This is because a one-size

fits all approach is not the most efficient or reasonable means of achieving deployment of communications services. Moreover, a one-size fits all approach can penalize

communities with differing needs. For example, no one would claim that the community of Ann Arbor, MI needs the exact same services as Detroit or Kalamazoo, or

Mackinaw City in the Upper Peninsula. Neither would impose on the other each

other’s desires—and yet, both should have the ability to ascertain their individual

needs and work with the providers accordingly. Further, in some states where home

rule has been adopted, the state doesn’t have the authority to address these issues,

as that authority resides at the local level.

Local Franchising is Comparatively Efficient, and Must Be Fair to Protect All Competitors

Franchising need not be a complex or time-consuming process. In some communities the operator brings a proposed agreement to the government based on either

the existing incumbent’s agreement or a request for proposals, and with little negotiation at all an agreement can be adopted. In other communities, where the elected

officials have reason to do so, a community needs assessment is conducted to ascertain exactly what an acceptable proposal should include. Once that determination

is made, it’s up to the operator to demonstrate that they can provide the services

needed over the course of the agreement.

Furthermore, while some of the new entrants have asserted that franchise negotiations have not proceeded as fast as they would like, it is important to recognize

that every negotiation has two parties at the table. Some new entrants have proposed franchise agreements that violate the current state or federal law and open

local franchise authorities to liability for unfair treatment of the incumbent cable

operator vis-a`-vis new providers. Some also seek waiver of police powers as a standard term of their agreement. Local government can no more waive its police powers

to a private entity than the federal government can waive the constitutional rights

its citizens.

As far as I know, everywhere that Verizon has applied for a franchise it insists

that the community use Verizon’s own model franchise, without regard to the terms

and conditions of the community’s incumbent franchise agreement. In other words,

Verizon is seeking unilaterally to impose its own very aggressive nationwide franchise on all local communities. While Verizon may have the right to attempt such

an approach, it can’t fairly complain about delays resulting from its own, self-interested negotiating strategy. Rather, if Verizon would simply work from the community’s existing franchises that actually reflect the community’s needs and interests,

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I believe they’d find it much faster and easier to obtain a franchise agreement. And

I can speak from personal experience that this is what Qwest is doing in Colorado,

and the franchise negotiating process has been both easy and timely. Unlike other

business contracts that are confidential or proprietary, local government franchise

agreements are readily available as public record documents, so a new provider

knows the terms of the incumbent’s agreement well before they approach a local

government about a competitive franchise.

Many states have level playing field statutes, and even more cable franchises contain these provisions as contractual obligations on the local government. So when

a new provider comes in and seeks a competitive cable franchise, there is not much

to negotiate about. If the new competitor is seriously committed to providing as high

a quality of service as the incumbent, the franchise negotiations will be neither complicated nor unreasonably time consuming. Indeed, I recently negotiated a competitive cable franchise for the City of Lone Tree, Colorado. Qwest Broadband sought

a franchise to provide competitive video programming through its fiber to the home

architecture. Because Lone Tree has an existing cable franchise with Comcast, and

the City cannot grant a competitive franchise that on the whole is more favorable

to the new entrant, we had a very short and relatively simple negotiation.

Moreover, local government has absolutely no desire to make new entrants change

their current network topologies to meet the cable infrastructure design. Local government’s most significant concern is that it treat all providers fairly, as required

by current franchising agreements and by federal law.

Franchising Provides for Reasonable Deployment Schedules

Nothing in franchising or current federal law requires a new video entrant to deploy to an entire community immediately. Local government has been negotiating

franchise agreements with new entrants for many years. In these cases, greenfield

developments may have one schedule while existing areas are built out over a period of time ranging from eighteen months to five years. These same standards

apply when an incumbent provider is seeking a renewal and needs to upgrade the

capacity of its system to provide new services.

By managing the deployment as we do, we protect the incumbent’s investment in

existing infrastructure, we protect the public from unnecessary disruption to private

business and to their safe use and enjoyment of the public right-of-way, and we ensure that new entrants are provided with unfettered access in a reasonable and

timely fashion, while ensuring that they comply with all safety requirements. This

system has worked well for cable, traditional phone and other providers for many

years, and is necessarily performed by the local government. Congressmen Barton

and Stupak successfully fought to maintain the federalist, decentralized partnership

that has served our country well for 200 years when they authored the provisions

of the Act which preserve to local government this authority. We trust that under

their continued leadership and guidance these important principles of federalism

will be maintained.

The Current Framework Safeguards Against Abuse and Protects Competition

The current framework ensures that all competitors face the same obligations and

receive the same benefits, ensuring a fair playing field. Federal safeguards protect

against abuse. Local government is generally prohibited from requiring a provider

to use any particular technology or infrastructure such as demanding fiber or coaxial cable. They can require that certain minimum technical standards be adhered

to and that systems are installed in a safe and efficient manner. Local government

ensures compliance with the National Electric Safety Code to protect against threat

of electrocution or other property damage. Local rules can also require that signal

quality be up to federal standards, and that systems are maintained to provide subscribers with state of the art transmissions. Similarly, it is local government that

inspects the physical plant and ensures compliance on all aspects of operations. We

work closely with our federal partners and cable operators to ensure that cable signal leaks are quickly repaired before there is disruption or interference with air

traffic safety or with other public safety uses of spectrum.

Current Law Provides Light Touch Economic Regulation for Cable Services

While there may be limited regulation of cable rates on the books today, telephone

companies should celebrate entering the cable business, which utilizes the light

touch economic regulation they seek. That regulation, which is employed in relatively few communities, is now purely a consumer protection tool to retard abuse

of overcharging on basic service and equipment. As limited as the current regime

is, a recent review of one company’s national FCC rate filing disclosed overcharges

in the amount of $5 million in equipment charges in one year to the one million

subscribers covered by the review. While the regulations may be minimal, their use

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in protecting subscribers should not be lightly tossed aside—and the role of the local

government in uncovering and prosecuting such protections should be applauded,

not undermined.

Finally, where cable operators are subject to effective competition, currently defined as 15% DBS penetration, they can use a very simple process to petition the

FCC to remove themselves from the extremely limited rate regulation currently in

place. While we do not think that the current standard contained in the law and

enforced by the FCC is adequate, nonetheless, Title VI does not impose anything

like the regulatory structure applied to telephone services.

CONCLUSION

Local government is enthusiastic about the benefits that Internet protocol may

offer our constituents. We strongly support competition, the rollout of new services,

and the economic growth that accompanies new technological developments. The

history of the Communications Act is in some ways, a success story. In a dynamically changing world of technology, the Act has restrained monopoly power, extended services, required socially responsible actions by providers and supported the

fundamental democratic and economic underpinnings of our democracy. Certainly

the importance of choice, competition and opportunity of our citizens demands a well

conceived and thoughtful deliberative process, and not a rush to cure an illness that

is yet unproven.

We also believe that any new national communications policy should preserve

local government’s authority to ensure public health, safety and welfare; allow local

governments to support important policy goals as described here; and enable local

governments to serve its community’s communications needs. What this means is

that we are here today asking you to preserve our police powers, our ability to control and manage of our rights-of-way, and our ability to impose and collect taxes

and fees necessary to fund our essential services. We ask that you continue to support our goals of enhanced economic development through the use of new technologies, competitive access to products and services and the assurances that all of

our citizens and businesses will be provided the opportunity to participate in this

technological revolution. We ask that you remember the important social obligations

that fall uniquely on the shoulders of local governments to provide for homeland security and emergency communications services to and for our citizens. To facilitate

our communications with our citizens we seek legislation that authorizes locally

adopted capacity requirements on new communications technologies. Finally, while

others will speak more specifically to this point, we support the ability of local government and the citizens they serve to have self determination of their communications needs and infrastructure. Where markets fail or providers refuse, local governments must have the ability to ensure that all of our citizens are served, even when

it means that we have to do it ourselves.

In our rush to embrace technological innovation, we, as elected leaders, are deeply

cognizant of our responsibility to ensure that the citizens of our communities are

protected and public resources are preserved. We engage in deliberative processes,

such as this hearing today, to be sure that we are accumulating verifiable data and

are making informed decisions. Local control and oversight has served us well in

the past and should not be tossed out simply as the ‘‘old way.’’ This year as the discussion of the delivery of services over the Internet includes not just voice but video

and other potential services, I strongly encourage this Committee to proceed carefully. The Committee should continue to continue its excellent work thus far of accumulating information and ensuring a strong record in support of any decisions to

change to the law.

Thank you. I look forward to answering any questions you may have.

Mr. UPTON. Thank you very much.

Ms. Munns.

STATEMENT OF DIANE MUNNS

Ms. MUNNS. Thank you. Mr. Chairman——

Mr. UPTON. I think you have to hit that button.

Ms. MUNNS. Technology. Mr. Chairman, Ranking Member Markey, and members of the subcommittee, thank you for the opportunity to testify today. My name is Diane Munns and I am the

President of the National Association of Regulatory Utility Commissioners. NARUC represents State public utility commissions in

29

all 50 States and U.S. territories, with oversight over telecommunications, electricity, gas, water, and other utilities.

Since the Telecommunications Act of 1996, the Federal and State

governments have been involved in a cooperative effort to bring

local competition to markets. There have been dramatic technological changes that have strained in the interstate distinctions on

which regulations have been based. The State commission tasks

have also changed from primarily economic regulators to facilitating wholesale markets and local competition.

With the changes in technology, we are being asked ‘‘What is the

function and relevancy of State commissions in today’s telecommunications market? Is there any role or need for State regulation? And won’t 50 different regulatory bodies with authority over

new services impede rather than enhance the delivery of services?’’

These are fair questions as we must continually ask whether government oversight or regulation is necessary, and second, what

level of government stands in the best position to deliver value?

We believe the States have core competencies that are necessary

in this new world. State commissions excel at delivering responsive

consumer protection, assessing market power, setting just and reasonable rates with markup power, and providing fact-based arbitration and adjudication. States are also laboratories of democracy for

encouraging the availability of new services and fashioning workable remedies for abuses and market failures.

State experiments are often the basis for Federal policy. While

competitive new technology, such as Voice-over Internet Protocol,

are hesitant to be classified as telecommunications service providers because of regulatory requirements, in order to do business

and compete against incumbent services, many seek the rights that

that classification confers: guarantees of non-discrimination, interconnection rights to the public switch network, rights to interconnect for e911 delivery, local number portability, access to pole

attachments, receipts of universal service funds. While the rights

are granted under a national framework, enforcement of the rights

requires a fact-intensive adjudicatory capability, and State commissions offer a timely, cost effective forum for resolution of these disputes. The State of Maryland handled 40 interconnection and intercarrier disputes last year alone.

Consumer issues is another area where State capabilities are relevant. No one disputes that State commissions or that level of government stands in the best position to answer complaints or inquiries about service. Our citizens call us, not Washington, for information. If services do not meet expectations, or when a new abuse

arises, we know first. The debate goes to the discretion that States

should have to fashion consumer protections outside a Federal

framework or outside laws of general applicability. Companies

rightfully argue that different requirements cause transaction costs

that impede competition. For example, different bill formats raise

prices and do not bring additional value to customers. They argue

for national standards with no discretion at the State level.

I would like to raise the other side of the issue and use the example of slamming and cramming. After passage of the 1996 Act, the

new, unprecedented practice of slamming and cramming began.

States were first aware as their customer hotlines became loaded

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with complaints. States began to experiment with remedies for

these abuses, which eventually resulted in a national approach.

This practice is under control today, but the answer to consumers

had been, we must seek a rule at the Federal level before we can

act, or act through general consumer protection rules, many more

people would have been harmed individually and it would have

taken much longer to control this abuse. Confidence in competitive

processes would also have been harmed. Just last week, my commission successfully addressed a novel cable modem hijacking complaint.

In addition, sometimes raising issues through State processes

spurs voluntary industry solutions where if hands were tied while

a lengthy Federal process ensued, incentives to find solutions

would be significantly reduced. Finally, some issues are local and

do not need national attention.

We need to have discussions on processes that can be used so

States can effectively protect consumers, while not creating a

patchwork of requirements that slow down competitive offerings

and offer no value to consumers.

We look forward to continuing this dialog, and are hopeful that

the benefits of these new technologies will bring our States and believe practical pragmatic regulation must be employed at each level

of government to achieve that end.

Thank you.

[The prepared statement of Diane Munns follows:]

PREPARED STATEMENT OF HON. DIANE MUNNS, COMMISSIONER, IOWA UTILITIES

BOARD AND PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS

Mr. Chairman, Ranking Member Markey and members of the Subcommittee,

thank you for the opportunity to testify today on behalf of the National Association

of Regulatory Utility Commissioners (NARUC). NARUC represents State public utility commissions in all 50 states and the US territories, with oversight over telecommunications, electricity, gas, water and other utilities.

Just like the members of this Subcommittee, NARUC’s members are continually

seeking the best solutions to the policy issues that impact our nation’s evolving telecommunications markets. While there is significant diversity of opinion and thought

among State commissioners, my testimony today is intended to present the consensus positions that have emerged from NARUC’s internal discussions and also

highlight the challenges we face together as Federal and State policymakers seeking

to protect consumers, facilitate competition, promote universal service and otherwise

encourage a reliable, dynamic, effective communications system for the 21st Century.

Legislative principles and federalism:

In response to congressional interest in reexamining the Telecom Act, NARUC

formed a Telecom Legislative Task Force in 2004 and approved a resolution at our

February 2005 meeting suggesting key features we believe any revision of the Act

should include:

• Promote innovative platforms, applications and services in a technology-neutral

manner;

• Consider the relative interests and abilities of the State and federal governments

when assigning regulatory functions.

• Preserve the States’ particular abilities to ensure their core public interests;

• Preserve customer access to the content of their choice without interference by the

service provider;

• Ensure timely resolution of policy issues important to consumers and the market;

• Protect the interests of low income, high cost areas, and customers with special

needs;

• Provide responsive and effective consumer protection; and

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• Focus regulation only on those markets where there is an identified market failure.

An area of particular concern has been the evolving nature of federalism. While

telephone customers have been making calls across state lines since at least 1884,

the role of State commissions has evolved over time to match the structure of the

market and the needs of consumers. For many decades, a primary State commission

task was to restrain the market power of a single national phone company (presumably with many centralized functions) by holding down local rates, preventing harmful cross-subsidies and requiring equitable build-out of facilities. More recently,

States played a central role in facilitating wholesale markets for incumbent phone

loops and other essential facilities for local competition, and developed sophisticated

consumer hotlines to provide a human voice and individual attention to frustrated

consumers.

As the communications market shifts again, NARUC has explored a pragmatic

analysis that looks to the core competencies of agencies at each level of government—state, local and federal. While some State oversight roles will undoubtedly

diminish where local competition grows, others will remain essential, especially as

large parts of the market, including VOIP, still seek access to the Public-Switched

Telephone Network (PSTN). In many cases, State jurisdiction need not rely on a

readily separable ‘‘intrastate’’ component of a service. For example, effective consumer protection depends largely on where the consumer is domiciled, regardless of

whether calls are placed to in-state or out-of-state destinations. Requests to interconnect depend on where the relevant facilities are located. Requests to receive universal service funds or to be designated as an Eligible Telecom Carrier (‘‘ETC’’) for

such funds depend on the geographic study area where service will be provided.

Ultimately, decisions about jurisdiction and oversight should be linked not to the

particular technology used, but to the salient features of a particular service, such

as whether it is competitive and how consumers and small businesses depend on

it. States commissions excel at delivering responsive consumer protection, assessing

market power, setting just and reasonable rates for carriers with market power, providing fact-based arbitration and adjudication. States are also the ‘‘laboratories of

democracy’’ for encouraging availability of new services and meeting policy challenges at the grassroots level. An effective, pragmatic approach to federalism, in the

IP world or otherwise, should recognize those strengths.

Consumer protection:

Even in an IP world, consumers will hesitate to depend solely on faraway federal

agencies for consumer protection when they encounter disputes or frustrations with

their service provider. State commissions operate sophisticated consumer hotlines

that handle tens of thousands of consumer complaints every year, providing a live

human voice on the other end of the line and individualized assistance each time

there is a problem. In many case, our representatives need only provide an explanation to address a consumer’s concerns, letting them know what ‘‘SLC’’ stands for

on their bill or explaining an E911 assessment’s purpose. Failing that, a State commission can mediate with the carrier or, if necessary, adjudicate a dispute.

Because we are on the proverbial front lines by handling so many complaints,

State commissions are often the first to hear about new abuses or particular business practices that distress consumers. Effective consumer protection requires the

authority and the flexibility to address those concerns as they arise. This was the

case with ‘‘slamming’’ and ‘‘cramming’’ on phone bills, which first became an issue

at the State level and eventually became the subject of federal rules. A recent internal survey of NARUC’s Consumer Affairs Committee revealed that State commissions in just 20 states handled over 233,000 complaints in 2004.

In some cases, VOIP services could actually raise new issues. For example if a

customer of an unaffiliated VOIP provider experiences a service outage, and the

VOIP provider and broadband provider are pointing fingers at each other, who will

sort it out? The FCC is ill-equipped to remedy individual service outages and the

customer is hardly in the position to solve it herself. State commissions have handled similar provisioning issues between CLECs and ILECs for years.

Emergency dialing—911 and E-911:

As more families replace their traditional phones with VOIP service to take advantage of the pricing advantages and features, it is particularly important to make

sure these services include reliable emergency dialing functionality that will route

calls to the nearest Public Safety Answering Point (PSAP), indicate the caller’s location and allow the 911 operator to call back if the call is disconnected. Such services

should also be subject to the fees that support the modern PSAP network, especially

32

as PSAPs undertake massive technology upgrades to accommodate IP and wireless

services.

Unfortunately, thanks to a series of legal challenges and the FCC’s ruling last

year in the Vonage petition, there is currently no requirement for VOIP services to

provide a 911 or E911 solution, and the right of VOIP services to interconnect to

PSAP trunk lines is unclear. NARUC is encouraged by the progress that VON Coalition members and other VOIP providers have shown in beginning to provide 911

functionality, and we are engaged with both the industry and the public safety community in clearing away obstacles to a ubiquitous E911 deployment.

Ultimately, the appropriate regulatory treatment and classification should allow

VOIP providers to avail themselves of the interconnection and arbitration procedures in Section 252 of the Telecom Act, with timely arbitration and reasonable

pricing of those network elements necessary to provide E911 service, such as access

to the selective router and appropriate databases.

The future of competition:

When Congress considered VOIP legislation in 2004, many suggested that competition oversight was unnecessary wherever Internet Protocol was used, averring

that to broadband providers, ‘‘a bit is a bit.’’ Unfortunately, the opposite proved true

earlier this year when Madison River Communications deliberately blocked ports for

customers of Vonage Holdings Corporation. The March 2, 2005 issue of Internet

Week quoted Vonage CEO Jeffrey Citron as saying that:

‘‘The advanced features of network analyzers already allow administrators to

look not only at what types of packets are traversing their networks, but into

the actual content of the packets.’’

Far from anonymizing competing providers, IP technologies may actually increase

the ability to discriminate against particular traffic, or favor a partner’s bits over

those of an unaffiliated provider. While the FCC acted quickly with an enforcement

action and a consent agreement with Madison River, such redress was only available because the company was offering a DSL service, and would not necessarily be

available for a cable modem provider. In fact, if DSL is ultimately classified as an

information service, such remedies will become even weaker.

Many of us are putting high hopes on all these new technologies and services to

bring fresh competition to telecommunications. At the same time, the industry is experiencing a breathtaking run of mergers, with firms like AT&T and MCI—once

bastions of local competition—now being absorbed by the Baby Bells they competed

against, and there is significant consolidation in the wireless and cable industries

as well. With so much restructuring, market power could increase in some geographic markets, even as it decreases in others. State commissions have extensive

expertise in assessing market power in a local basis, providing relief where appropriate but able to reimpose oversight in the event of ‘‘backsliding.’’

If there is one thing we know, it is that the communications landscape of ten

years from now will look vastly different than today’s. Broadband connections might

become commoditized as consumers seek their voice and other value-add services

from unaffiliated firms like Vonage, Pulver, Skype and Microsoft, or those same providers could find themselves squeezed out by facilities-owners’ ‘‘bundles’’ that include voice as a no-cost fringe benefit. Wireless broadband technologies might democratize the last mile and eliminate the traditional barriers to competition, or we

could be left with a powerful duopoly that new entrants are hard pressed to compete

against. And even as affluent early adopters flock to sophisticated new services,

many consumers will continue to prefer a simple, basic phone connection that is not

a part of any ‘‘bundled’’ package.

In all of this, it falls to policymakers not to forecast the next wave of innovation

but to look out for consumers and set fair rules of the road that foster competition

and allow the market to allocate resources efficiently. Our task is to be both optimistic and vigilant, letting innovation take its course, but demanding that our constituents are protected. While competitive VOIP companies are hesitant to be classified as ‘‘telecom service’’ providers, many are seeking the rights that Title II of the

Telecom Act confers on telecom services:

• Guarantees of non-discrimination;

• Interconnection rights to the PSTN;

• Rights to interconnect to PSTN trunk lines to Public Safety Answering Points

(PSAPs);

• Access to NANP telephone numbering resources;

• Local number portability;

• Access to pole attachments and rights-of-way; and

• Receipt of Universal Service Funds.

33

Many of these rights are adjudicated or otherwise facilitated by State commissions. In fact, if VOIP providers are unable to avail themselves of the State commission arbitration procedures of Section 252 of the Telecom Act, they will actually

have inferior rights to those of their traditional competitors.

Universal service:

Voice over IP services also benefit from our nation’s ubiquitous phone network

supported by State and Federal universal service programs over the past several

years. As a general matter, the only VOIP services that fetch a fee in the

markeplace are those that exchange traffic with the PSTN—the ones that don’t are

usually free. In other words, at least in today’s market, the majority of VOIP services are really offering a new way to call and be called by the traditional PSTN

phones that most of us still use. That is why NARUC supports a broad and equitable contribution base to state and federal universal service programs so all service

providers that rely on a ubiquitous telecom network—including VOIP providers—

help maintain the universality of the network, with a similar spectrum of services

at comparable rates in urban and rural areas.

State commissions help administer the federal USF, by designating Eligible Telecommunications Carriers (ETC) in each state, by regulating the cost recovery of

many rural carriers that depend heavily on universal service, and by offering policy

input through the Federal-State Joint Board on Universal Service. About 24 states

also run their own intrastate universal service funds, addressing about $2 billion

in high cost, low income and other needs that would otherwise be short-changed by

federal formulas, or that simply don’t require the interstate transfers that the federal USF was created to accommodate. Any universal service reform should either

preserve those State funds or find a way to make consumers in those 24 states

whole. By limiting the fees to customers domiciled in a particular state, a State fund

can localize both the burden and the benefits, as opposed to further burdening customers in Mississippi or Arkansas to meet needs in California or New York.

Intercarrier compensation:

VOIP services must also pay their fair share, just as all other carriers do, when

exchanging traffic with the PSTN. NARUC supports efforts to develop a rational,

technology-neutral intercarrier compensation system that includes all carriers, including VOIP providers, avoids regulatory arbitrage and allows carriers to recover

an appropriate portion of network costs. At the same time, State commissions

should retain a role in this process reflecting their unique insight as well as substantial discretion in developing retail rates for carriers of last resort. NARUC is

leading an intensive dialogue among the states and with the industry stakeholders

to seek a consensus solution.

Video over IP

Because ten State commissions have jurisdiction over cable franchising, NARUC

is in the process of examining the appropriate regulatory treatment of the IP video

offerings by SBC and Verizon. As a legal matter, the individual State commissions

will make determinations about whether those services must comply with Title VI

franchising requirements as appropriate. As a policy matter in the context of federal

legislation, NARUC members will go back to first principles, as we have with Voice

over IP, and examine how to encourage innovation while preserving core public interests.

Conclusion:

We look forward to the continuing dialogue with the members of this Subcommittee, with federal regulators and with all the stakeholders about the future

of telecom regulation. I am happy to answer any questions from membrs of the Subcommittee.

Mr. UPTON. Thank you. Mr. Davidson.

STATEMENT OF CHARLES M. DAVIDSON

Mr. DAVIDSON. Thank you, Chairman, Ranking Member Markey,

representatives. It is an honor to be here today, and I appreciate

the opportunity.

During these discussions, you often hear that the 1996 Act was

a failure and it needs to be reformed. I don’t think it should be

viewed as such. Congress should be proud of the 1996 Act and

stand behind what it did. Competition is here. It may be outside

34

the context of the ILEC versus CLEC competition anticipated, but

it is here.

But for the 1996 Act, we might not have seen DSL come off the

Bell’s shelves as quickly as it did. We might not have seen the tremendous investment in the cable infrastructure that we have seen.

We might not be the beneficiaries of probably the most robust, dynamic, competitive wireless network in the world.

The 1996 Act had a purpose and many positive effects, but the

world in 2005 is very different from the world even in 2000. Just

since 2000, the telecom sector, as you know, has lost some $2 trillion in market capitalization, and hundreds of thousands of jobs.

Other platforms are aggressively competing with wire line for market share. Estimates are that by 2006, cable captures 7 percent of

wire line customers, and 20 percent over the next decade. On the

flip side, traditional telecoms have a very real potential to compete

with cable and the delivery of video. All of this is great news for

consumers and all of this might not have occurred but for the Act.

Getting the model right going forward is critically important to

the economic and social advancement of the Nation. One, it is important to both—it is important to help the telecom sector recover,

and it is also important to encourage these new entrants to come

into the market and deliver their services and invest in these new

technologies for consumers. Regulatory reform means jobs. The

wireless industry generates more than $9 million a year in payrolls. We need to patent that formula, somehow. Getting the model

right means billions of dollars in new capital spending and new

choices for customers. Getting the policy right means a stronger

America.

In deregulating VoIP in Florida and in providing that broadband

shall not be subject to a patchwork of local government regulations,

Florida is hoping that Brighthouse Cable will compete with Verizon

in the voice segment, and that Verizon will compete with

Brighthouse in the video segment. This competition that we hope

for in this building out of networks is extremely capital intensive.

Cable has invested some $95 billion in the past decade to build out

its networks. Verizon is currently spending over $60 million in 1

year alone to build out fiber networks to bring video to customers

in Florida. Wireless has invested some $175 billion in its

networked, and reinvests, as CTI estimates, about $20 billion a

year for upgrades.

We need a new regulatory paradigm. The current model is focused on the wire line market, on the ILEC versus CLEC debate.

The rules distinguish between telecom and everything else. Existing rules that served a very valid purpose when the market was

just telecom and the providers were just the phone companies

doesn’t work in this new market.

In crafting sort of a new regime, the first question that often

arises is ‘‘What are the respective roles of State and Federal Government?’’ I respectfully submit that this is not the first question

to ask. Far more often than I hear the question of ‘‘How do we

maximize consumer welfare? How do we bring these new technologies to customers?’’ I hear the question ‘‘How do we make sure

States continue to have a role in regulating these issues?’’ States

35

will have a role. They should have a role. But our first concern

ought to be bringing these new technologies to customers.

Chairman Upton, despite Michigan beating Florida in the

broadband survey, and despite Michigan actually kicking the

Gators’ tail a few weeks ago in lacrosse, you represent——

Mr. UPTON. We won a big ballgame against Florida.

Mr. DAVIDSON. I am leaving that out.

But you represent me as a citizen of the United States. Representative Stearns represents me. Representative Markey, you

represent me. We are not just a loose coalition of States; we are

a Nation with sort of a shared interest in economic and social advancement. And just like with the airlines industry or the shipping

industry or the railroad industry, we truly need a national policy.

Some of the core ingredients that ought to be included in that

national policy, a clear and simple quid pro quo, an articulation of

what a social contract is to provide certainty to market participants, and a clear benchmark for regulators. A straightforward social pact might be, if you use North American numbering resources,

for example, you are going to be subject to certain obligations. It

doesn’t matter whether you are pure VoIP, cable telephony, wire

line, wireless. If you use a North American number, you are going

to have to meet certain social obligations. That keeps the model

platform agnostic, and everyone clearly knows, okay, if we go get

a number, we are going to have this universal service commit, we

are going to have an inter-carrier comp issue, we are going to have

to provide 911. There are certain things we do.

We also need a truly national set of rules to govern terms and

conditions of service. A patchwork of potentially 50 different State

rules in this emerging IP market will deter some entrants from entering the market, and it will also cost a lot of money for folks already in the market to comply with those rules. States have a lot

of good ideas. Let us nationalize those ideas and bring them forward at a Federal level.

And finally, one final point, if I may, tax reform. The sectors that

are driving the economy are being taxed at double-digit rates. Let

us put some of this money back in the hands of consumers. Let us

do something to create jobs and encourage investment and innovation.

Thank you, Chairman.

[The prepared statement of Charles M. Davidson follows:]

PREPARED STATEMENT OF CHARLES M. DAVIDSON, COMMISSIONER, FLORIDA PUBLIC

SERVICE COMMISSION

I. INTRODUCTION

Thank you, Mr. Chairman, for inviting me here to testify. I am a Commissioner

at the Florida Public Service Commission, the agency with regulatory jurisdiction

over Florida’s investor-owned telephone, electric, natural gas, and water utilities.

My comments here today are those of an individual Commissioner. I am also before

you as a consumer who has not had telephone service for over a year. I use a wireless phone, VoIP service over my cable modem, Blackberry data service and wireless

broadband when traveling—but I have no telephone.

I would like to thank the Committee for its ongoing efforts to ensure that consumers in Florida and across the country benefit from policies to promote the development and deployment of advanced communications technologies. I would also like

to thank the Florida delegation represented on this Committee for its consultation

36

with the Florida Commission on energy and communication issues important to the

State of Florida.

Under the leadership of Governor Bush and the Florida Legislature, Florida leads

the nation in policies focused on bringing new technologies to all Floridians. Florida

was the first state in the nation to provide that VoIP shall not be subject to regulation. Florida was the first state in the nation to provide that broadband, regardless

of the provider or platform, would not be subject to a patchwork of local government

regulations. As a result of forward looking policies, companies like Vonage as well

as cable companies are competing with established telecom providers for a share of

the voice market. On the video side, Verizon is gearing up to compete with cable

though its build out of a robust video over fiber network in central Florida. Competition is occurring in Florida, and it is occurring outside of ‘‘the regulated space.’’

II. THE 1996 ACT: INSIDE AND OUTSIDE THE REGULATED SPACE

A. The Traditional Telecom Sector

The U.S. Chamber of Commerce recently reported on the state of the wireline telephony sector. From March 2000 to July 2004, market capitalization in the telecom

sector plummeted from $1,135 billion to $375 billion (a 67% decline). The communications equipment-manufacturing sector experienced a 74% decline in market capitalization (from $1,282 billion to $338 billion) for the same period.1 Some 380,500

jobs were lost between March 2001 and May 2004 in telecom service, Internet service, and equipment manufacturing.2 The Yankee Group projects that U.S. landline

revenue will fall from $63.2 million in 2004 to $47.4 million in 2008.3

B. Innovation, Investment and Competition Outside the Box

Other sectors are flourishing under the regulatory policies established by Congress. The extent of innovation and investment ‘‘outside the box’’ is perhaps best

demonstrated by the success of the wireless industry. The industry has, for example:

invested more than $174 billion (1983 to 2004) in wireless networks and reinvested

some $20 billion annually for upgrades and expansions;4 directly employed 226,016

people as of December 2004 and generated more than $9 billion in annual payrolls; 5

and increased subscribership to over 182 million while reducing per minute prices.6

While occurring outside the ILEC vs. CLEC competition envisioned by the 1996

Act, competition is occurring. Research firm IDC predicts, for example, that by 2009,

some 27 million consumers will subscribe to VoIP.7

Cable is competing with traditional wireline telephony. Raymond James reported

that Wall Street ‘‘expects between 1.5 million and 2.5 million cable telephony net

adds by the public MSOs in 2005.8 Goldman Sachs estimates that telephone companies could lose 7% of residential lines to cable by 2006, and nearly 20% in the next

10 years.9 Another estimate is that more than half of all 110 million households in

the U.S. will have the option of getting phone service from their cable companies

by the end of 2006 and that by 2008, cable companies will be selling phone service

to 17.5 million subscribers.10

Wireless is also competing with wireline telephony. According to the FCC’s September 2004 report, the number of mobile wireless subscribers nationwide has

grown 5% since 2002, with subscribership at 54% of the U.S. population as of December 31, 2003.11 In contrast, local exchange companies saw a 6.1 million drop in

access lines nationwide in 2003.12 According to a 2004 study issued by In-Stat/MDR,

14.4% of U.S. consumers currently use a wireless telephone as their primary telephone. Of the remaining 85.6%, 26.4% of those would consider replacing their

wireline telephone with wireless service. In-Stat/MDR predicts that by 2008, nearly

a third of all U.S. wireless subscribers will no longer have a landline in their

homes.13

Wireless is also competing for a share of the enterprise market. In a recent InStat survey of more than 300 mid-size businesses and large enterprises, nearly 1⁄4th

of respondents stated that their firm had already deployed wireless VoIP. Approximately 1⁄3rd of the respondents indicated that their firm was planning or evaluating

the implementation of the technology within the next six to 12 months.14

Internet-enabled communications are also competing with traditional voice. A

2003 J.D. Power and Associates study found that among high-speed Internet users,

instant messaging displaced 20% of local calls, and email displaced 24% of such

calls. Among dial-up Internet users, the study concluded that instant messaging displaced 18% of local calls, and email displaced 23% of local calls.15

37

III. THE BENEFITS AND COSTS OF BROADBAND

A. The Importance of Broadband

Broadband is critically important to the economic well being of the country—and

of the states. Like with many states, Florida’s economic and social development—

including its skills and job training, education and health care services,16 and the

recruitment and retention of businesses—is increasingly linked to an advanced communications infrastructure.

In their seminal study, Crandall and Jackson conclude that ubiquitous adoption

of current generation technologies would generate some $63.6 billion in capital expenditures over the next 19 years.17 They further estimate a cumulative increase

in GDP of $179.7 billion and an additional 61,000 jobs created. The impact of more

advanced technologies, such as fiber to the home, would generate an additional net

$82.8 billion in capital spending ($4.34 billion per year) for a total of $146.4 billion

in new capital spending over 19 years, which would result in a total of 140,000 new

jobs. Broadband enabled activities have the potential to spur new rounds in capital

spending (on research, development, and deployment) and consumer spending (on

content, software and applications, and devices).

B. Bringing Broadband to Consumers Takes Capital

Realization of broadband’s full economic potential will require billions in additional up-front investments in technology, networks, and deployment. To upgrade

systems and make cable broadband service more widely available to homes passed

by its network, cable operators have invested almost $95 billion between 1996, when

cable pricing was deregulated, and 2004.18 ILECs are responding to FCC rulings

that new build would not have to be unbundled or shared with competitors by making significant investments in fiber. For example, Verizon states that is spending

an estimated $3 billion on fiber deployment in 2004 and 2005. In 2004 alone,

Verizon announced that it was spending $60 million to deliver fiber technology to

customers in Florida.19 Additionally, SBC has recently announced that it is accelerating its fiber deployment and plans to invest approximately $4 billion to $6 billion to deploy some 38,800 miles of fiber to reach 19 million homes by the end of

2007.20

Estimates by research firms on the potential for additional broadband investment

are abundant. For example, one such estimate by InStat concludes that a $3 billion

investment would be necessary to deploy a WiMAX-based network that reaches 98%

of U.S. homes.21

C. Florida’s Focus on Promoting Competition

Florida is promoting the deployment of new technologies in the state. In addition

to not regulating wireless carriers,22 Florida was the first state in the nation to deregulate VoIP.23 The Legislature also freed broadband and information services generally from a potential patchwork of local government regulation that could hinder

its deployment.24

Currently, the Florida Legislature is considering companion bills in the House

and Senate 25 to further promote advanced communications technologies in the

state. If ultimately enacted into law, the legislation would expressly:

• Encourage consistency with federal law.

• Exempt broadband services, regardless of the provider, platform or protocol, from

state commission jurisdiction.

• Ensure that emerging technologies like VoIP, while not subject to traditional regulation, are ‘‘subject to [Florida’s] generally applicable business regulation and

deceptive trade practices and consumer protection laws, as enforced by the appropriate state authority [or in court].’’

Floridians are the beneficiaries. For example, over 20 wireless competitors serve

over 10 million Florida subscribers,26 and 77% of Floridians have a choice of five

or more wireless carriers. Wireless carriers employed 13,893 Floridians in 2003.

VoIP providers, including Vonage, AT&T, and Bright House Networks are competing with traditional telecommunications providers. In terms of broadband access,

Florida had over 1.76 million high-speed lines in service to residences and small

businesses by December 2003—up from 254,000 lines just three years prior.27 In

2004, Verizon began deploying fiber to the premises (FTTP) technology. Verizon

plans to pass more than 100,000 Florida homes and small businesses, and is set to

launch its first television services on its new FTTP network this year.28

Florida’s approach provides a model worthy of consideration at the national level.

In exempting new technologies from old regulation, Florida has paved the road for

delivering new technologies to consumers. At the same time, providers of new techVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 20750.TXT HCOM1 PsN: HCOM1
38

nologies remain subject to the state’s aggressive, generally applicable consumer protection regime.

IV. A NEW, NATIONAL POLICY FRAMEWORK IS NEEDED

Policymakers should avoid casting the issue as one of states’ rights versus federal

preemption. State and federal policymakers are pursuing the same core goal—that

being to promote investment in the development and deployment of broadband infrastructure.

At a time when some states are focused on harnessing the benefits of competitive

new technologies for its consumers, other states are attempting to burden the new

technologies with old rules designed to forge competition in the monopolized

wireline telephony market. Fifty states with potentially fifty different regulatory

policies will not further that goal.29 A new, national policy is needed to both (a) help

the telecom sector recover 30 and (b) ensure that consumers reap the benefits of advanced technologies.

A. IP Challenges the Existing Regulatory Regime

Current telecommunications regulation has its genesis in the economic regulation

of monopoly providers of wireline telephony. Economic regulation acts as a proxy for

competition. The 1996 Act intended to spur competition by encouraging CLEC market entry. The regulatory approach is fundamentally grounded in a wireline paradigm, presupposes that the relevant market is local telephony, and is focused on the

terms/conditions of market access. Consumer choice is a function of the ILEC vs.

CLEC competition. The Act is not focused on other categories of competitors or technologies that may be competing with traditional telephony.

Further, under existing law, classification of a service as ‘‘telecommunications’’ or

‘‘information’’ is critical in that it determines the rights and obligations to which a

provider will be subjected. In the IP world, the line between ‘‘telecommunications

services’’ and ‘‘information services’’ is murky at best. VoIP represents the convergence of voice and information. Some would force IP-enabled voice services into the

‘‘telecommunications’’ service box or some similar definition under state law. In

doing so, they are seeking to preserve a regulatory model that is increasingly obsolete and that was not intended to encompass such technologies.

Uncertainty as to the regulatory treatment of IP-enabled technologies, and efforts

to pigeonhole new technologies into old regulatory constructs, will serve primarily

to delay the development and deployment of these technologies for consumers.

B. Rationales for a National Policy Framework

1. Intent of the 1996 Act

A national policy framework for IP-enabled services (and broadband generally) is

fundamentally consistent with (if not required by) the Telecommunications Act of

1996, which was designed ‘‘to provide for a pro-competitive, de-regulatory national

policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technology and services . . .’’).31

2. Interstate Nature of the Market

IP-enabled technologies and platforms exist and function without regard to state

boundaries and as part of a national (indeed, global) communications infrastructure.

Such technologies are ‘‘borderless’’ in nature. Unlike with the circuit-switched network, which developed within states and then between states, traffic over an IP network does not follow any prescribed geographic path. IP traffic cannot be readily

defined as within the jurisdiction of states.32 The interstate nature of IP-enabled

services and the need to avoid a patchwork of potentially fifty different state policies

argue strongly for regulation at the national level.

1. Costs for Consumers of a State-Centric Approach33

National regulation of IP-enabled services would provide greater regulatory certainty than would a patchwork of fifty potentially different state policies. An industry that faces potentially divergent or unknown regulatory regimes would have less

of an incentive to invest risk capital than would an industry facing a more uniform,

predictable national policy. With Congressional assurances of regulatory clarity,

VoIP providers would likely be more willing to expand services, even in states like

California that are considered riskier regulatory environments

A patchwork of various state regulations all aimed at the same service would likely

result in additional costs to the consumer. If 10 of the 50 states each have good (but

different) ideas for regulation and each of those 10 good approaches would cost on

average $2M for the providers to comply, the overall costs of service would increase.

This additional level of state regulation would have resulted in $20M in additional

39

regulatory costs that will, in a competitive market, be socialized amongst the customers of the services. The costs of state specific regulation by Florida, California

and New York would likely be borne by consumers in every jurisdiction represented

in Congress.

C. Core Components of a National Policy

1. No Economic Regulation

Economic regulation is a proxy for competition. It includes the regulation of prices

and of other terms and conditions of service that would otherwise be determined by

the market. While economic regulation of monopoly providers of a service is certainly warranted, such regulation is a certain disincentive to investment in competitive markets. Unlike the market for wireline telephony in 1996, the market for IPenabled services is competitive. Even in the face of regulatory uncertainty, IP-enabled technologies are spurring robust price and service competition from a host of

established firms and new entrants alike—and this competition is occurring across

platforms. Consumers have far more choices than existed 5 years ago.

2. Focus on Social Regulation

While IP-enabled technologies should not be subject to economic regulation, ‘‘social

regulation’’ is necessary to meet key societal objectives that may not be fully or

properly addressed by the market (e.g., 911/e911).

Uncertainty currently exists as to the scope of providers/technologies to which social regulation would apply. In considering the appropriate regulatory regime, Congress has the unique opportunity to articulate a clear quid pro quo for the regulation at issue. One technologically agnostic option might be for Congress to provide

that any provider seeking to use North American Numbering Plan resources is subject to some universe of generally applicable social regulations as articulated by

Congress (or the FCC by delegation). Tying social regulation to the use of a public

resource would (a) provide certainty to providers relying on public numbering resources to deliver services, (b) offer a safe harbor to entities that are not relying

on such resources, and, perhaps most importantly, (c) provide a clear benchmark for

use by state and federal policymakers.

3. Regulatory Parity and Technologically Agnostic Rules

Competition is not sustainable in the long run where substitutable products are

subject to asymmetrical regulation. In deciding where to invest, the market will

compare the anticipated return on capital invested in a more regulated sector to

capital invested in a less regulated sector. A rational investor seeking a maximum

return on its investment would, all else equal, choose the less regulated sector.

As such, the ultimate policy regime should not discriminate based on the underlying technology or platform used for the delivery of services: technological parity

should result in regulatory parity. From the vantage of the consumer, there is no

reason for regulating substitutable products differently. If, for example, Video over

IP and Video over FTTH are substitutes from a consumer vantage, a similar regulatory regime should apply. From the vantage of the market, regulatory symmetry

works to send accurate price signals, maintain a level playing field, and promote

competition based on the merits. The best way to ensure regulatory parity is for

Congress to set national policy with respect to competing technologies.

As Congress considers a rewrite of the 1996 Act, two avenues exist for achieving

regulatory parity: ‘‘regulating up’’ or ‘‘deregulating down.’’ The market for IP-enabled services is competitive, and consumers have more choices than at any point

in the past. As such, regulating similarly situated platforms down to the point of

regulatory symmetry would likely do more to encourage investment and bring new

choices to consumers than would regulating up.

4. Jurisdiction & Process: Cooperative Federalism

In assigning jurisdictional responsibilities, future legislation ought to reflect that

states and the federal government share certain interests and responsibilities. For

example, both levels of government share an interest in ensuring a ubiquitous, reliable and affordable 911/e911 emergency services network. One cannot credibly

argue, however, that the 50 states should have independent jurisdiction to set 911/

e911 standards. Similarly, the states and the federal government share interests in

protecting consumers against unscrupulous practices, in ensuring that networks

interconnect, and in curbing abuses of market power.

The issue is not one of states versus federal rights and should not be cast as that.

The issue is one of articulating a rational policy framework such that core public

policy objectives are met, providers are not deterred from investing in and deploying

40

new technologies to consumers, and consumers are protected against unscrupulous

practices.

Federal statutory reform should focus on the skill sets of state and federal governments before delineating regulatory duties. The nation—its consumers as well as

those investing in new technologies—would be best served by a set of national rules

that could be aggressively enforced by the states (or federal agencies as the case

may be). States have numerous ‘‘enforcement’’ vehicles already established. For example, states have substantial experience enforcing federal rules that provide for

interconnection and intercarrier compensation, rules that establish 911 obligations,

and rules that prohibit slamming or cramming. Going forward:

• Federal law could establish consistent requirements for platform interoperability

and interconnection, with state commissions serving as arbitrators of disputes.

• Federal rules could establish the parameters for the use of North American Numbering Plan resources, while vesting states with enforcement authority (e.g., denial of right to use numbers upon findings of misconduct).

• Comprehensive national truth-in-billing rules could be policed by state commissions (or other bodies deemed appropriate by a state, such as a state Attorney

General).

V. KEY POLICY AREAS

A. Consumer Protection

States and the federal government share a common goal of ensuring that consumers are protected against unscrupulous companies and fraudulent practices.

That shared goal could best be met by a national consumer protection regime with

the following elements: (a) national rules specifically relating to the terms and conditions of communications services; (b) joint state and federal enforcement of such

rules; (c) continued application of ‘‘generally applicable’’ state consumer protection,

fraud and deceptive business practice laws; and (d) recognition of industry self-policing.

National rules would prevent potentially conflicting (albeit well-meaning) state

regulations. For example, California, in a consumer ‘‘bill of rights’’ issued by the

state utility commission, dictated the font size to be used in the contracts of national

providers. Twenty states requiring twenty different font sizes would be costly for

consumers. Requiring that the contracts of national providers comply with a patchwork of state-specific terms and conditions would substantially increase transaction

costs (which, in a competitive market, will undoubtedly be paid by consumers). Further, having to comply with potentially 50 sets of state-specific rules may simply

deter some providers from even offering service in certain areas. In either case, the

consumer loses.

Joint state and federal enforcement of national rules would ensure that the consumers have institutions in their states to which they can turn for assistance. As

states have existing enforcement mechanisms (e.g., to address cramming and slamming), the enforcement of consumer rights claims should, to the extent practicable,

occur at the state level. Burdening a state consumer with a requirement to enforce

his or her claim in a federal forum would be unreasonable in most instances.

Notwithstanding national rules focused on the communications sector, states

should continue to have the right to continue to enforce their generally applicable

consumer protection, anti-fraud, and deceptive trade practices statutes.

Where possible, public policy should give weight to meaningful self-policing initiatives such as CTIA’s Voluntary Consumer Code. Wireless carriers have demonstrated a realization that proper billing practices and consumer satisfaction are

important objectives. The Code is designed to encourage greater wireless carrier

communication and disclosure to consumers on a voluntary basis.34 Such initiatives

should be encouraged and afforded a reasonable opportunity to address the particular issues at hand. If demonstrated to be effective, such efforts could serve as

the basis for national rules or to establish liability of non-conforming providers.

B. Public Safety

Public policy argues for a ubiquitous, reliable and affordable public safety communications network. While market forces will likely encourage competitors to provide

functional 911/e911 services over time, the issue should not be left solely to the market.

Congress (directly or via delegation to the FCC) should establish clear 911/e911

mandates for IP-enabled voice technologies. As was the case with the wireless industry, policymakers should afford a reasonable opportunity for providers of IP-enabled voice services to develop compliant systems to meet mandatory standards.35

Market forces (i.e., consumer demand for 911 service) and a pending government

41

mandate should motivate effective solutions. As voice traffic migrates from the

PSTN to new networks, all segments of the industry have an incentive to provide

911/e911 services sooner rather than later.

In the meantime, VoIP providers using public numbering resources should be required to fully inform consumers regarding the extent to which their service does

(or does not) offer 911 service that is functionally equivalent to that provided by traditional telephone providers. To avoid a patchwork of potentially conflicting state

regulations, which could chill the rollout of new services to consumers, Congress

could provide for uniform, national disclosure guidelines to which VoIP providers

using public numbering resources would have to comply in order to provide service.

Finally, all providers utilizing the 911 system (i.e., those routing calls to the 911

system) should bear their ‘‘fair share’’ of the costs of maintaining the system. Regulatory parity argues that those who use the system should, regardless of the platform used, support the system.

C. Taxation

In competitive markets, taxation increase prices, lowers demand, and reduces the

amount of funds otherwise available for capital investment. Despite being drivers

of the economy, the advanced communications services are generally taxed at rates

far above generally applicable business tax rates. As more traffic moves to IP networks, some may argue that existing tax regimes should apply. Where and when

possible, the disproportionate tax burden faced by various segments of the advanced

communications industry should be addressed.

Taxation of the wireless sector highlights the problem. ‘‘States are taxing wireless

customers at steep rates of up to 22%-an amount typically reserved for activities

such as gambling and alcohol consumption.’’ 36 Estimates are that a typical consumer faces a nearly 17% total tax on wireless service.37 In contrast, the average

tax rate for other goods and services is 6.93%. Between January 2003 and April

2004, the effective rate of taxation on wireless service increased nine times faster

than the rate on other taxable goods and services. According to a recent study, each

1% increase in the price of service reduces demand by an estimated 1.12 to 1.29%.38

In Florida and New York, high taxes arguably reduce customer demand by about

20%.

Reducing an excessive tax burden on the nation’s advanced communications platforms is essential if the nation is to maximize its economic development potential.

Economist Gregory Sidak estimates that reducing wireless taxes to the prevailing

general business tax rates would increase GDP by $53.6 billion to $65.6 billion over

ten years and that a one percent decrease in wireless prices would ‘‘increase U.S.

GDP by between $6.8 billion and $7.8 billion within two years of the tax reduction.’’ 39

Last year, Congress took the important step of banning Internet access taxes for

an additional four years. It is respectfully submitted that this temporary ban should

be made permanent.40 A permanent ban would ensure that Internet access remains

affordable for all Americans, regardless of the platform used to access the Internet

(dial-up, DSL, cable modem, Wi-Fi, etc.). Since 1998, the moratorium has contributed significantly to the development of the industry (and to economic development

generally). Ubiquitous access to the Internet contributes positively to educational

achievement, economic development and the delivery of governmental services by

Florida and other states. Taxing Internet access would represent a tremendous

transfer of wealth from the private sector to government. Such taxation would only

make it more difficult for consumers with lower incomes to afford the Internet.

D. Universal Service

Universal service has proved an important tool in helping bring telecommunications services to economically disadvantaged consumers, to consumers with special

needs, and to consumers in rural or high cost areas of the country. As consumers

increasingly turn to substitutes for a taxed service, not subjecting those substitutes

to USF obligations results in regulation picking market winners and losers. Some

competitors, but not others, would bear the brunt of funding the program. In reforming the USF program, Congress (or the FCC under the authority delegated to

it) should subject some ‘‘appropriate’’ universe of participants to non-discriminatory,

technology neutral USF funding obligations.

While reform of USF is a complicated issue involving numerous policy choices and

many stakeholders, it is respectfully suggested that any reform of USF recognize

certain core principles, including the following:

• USF obligations ought to reflect, to the extent possible, a clear social contract or

quid pro quo that exists without regard to technology or platform (e.g., any provider that utilizes North American numbering resources shall be responsible for

42

USF contributions regardless of the technology or platform used to provide service). 41

• The extension of USF obligations to new providers or platforms ought not constitute simply a new tax. Rather, such extension should reflect a reallocation

of planned costs amongst some group of similarly situated competitors.

• Providers that are required to share in the USF burden ought to, at some equitable level, be considered for USF distributions.

Reform of the USF should also strive to tackle distribution issues. For example,

wireless providers (serving 182 million) contributed almost 33% of the total universal service fund in 2004 (approximately $2 billion) but received only about 7%

(approximately $390 million) in distributions. In comparison, ILECs contributed

about 26% of the total USF last year, but received almost 81% of the fund. Long

distance providers contributed 37% of the total USF last year, and received about

2% of the fund. While parity in contributions and distributions across platforms may

not be attainable, the cost benefit relationship is worthy of consideration.

D. Content

As the use of new technologies and new types of IP-enabled devices increases, so

does the risk that that minors may be exposed to inappropriate content. Consider

the following:

Porn on mobile phones could grow into a $5-billion market by 2010.42

Playboy Enterprises announced today that the company is set to offer nude

and non-nude photo galleries that have been specifically formatted for viewing

on Sony’s PSP handheld.43

In the home, access to the Internet is under the supervision of the parents or

guardian, who can block access to content inappropriate for minors. Wireless technologies and portable devices make parental supervision substantially more difficult.

Parents may not realize that inappropriate content might be accessible on the devices or may have no idea how to block access to age inappropriate content on a

child’s device (even assuming that blocking is possible). Exacerbating the issue is

the fact that younger consumers tend to be the early adopters of new technologies.

How many members of Congress own Sony’s new PSP?

As this Committee is aware, efforts to regulate Internet content face a host of

complex technical and constitutional challenges. Protecting the nation’s youth from

age inappropriate content, however, requires that policymakers and industry work

collectively toward solutions notwithstanding those hurdles.

Aggressive industry self-regulation may preempt the need for legislation in certain instances. For example, the Cellular Telecommunications Industry Association

(‘‘CTIA’’) is leading an effort designed to restrict the access of minors to age inappropriate content.44 The guidelines include the following provisions: (a) development of

a voluntary industry-wide consumer content classification system; (b) requirements

that users register and provide proof of age for accessing certain content 45 and requirements of subscriber consent to receipt of certain unsolicited commercial content; (c) controls to restrict access to content based on content classifications and

a process to update the classification system in consultation with responsible stakeholders as appropriate; and (d) obligations to ensure compliance with applicable

laws regarding the protection of minors and cooperation with appropriate law enforcement agencies.

VII. CONCLUSION

The communications world of today is characterized by a host of new technologies

and services that are empowering consumers, that are strengthening the nation’s

education and health care systems, and that are enabling government to be more

responsive to the citizenry. The advanced communications sectors are driving, in

large part, the country’s economic growth.

Advocates for a national policy argue that the full potential for broadband to serve

as the engine for the nation’s economic and social advancement is not yet being met.

My policy views are based on a fundamental belief in markets and a fundamental

belief that the beneficiaries of a robust broadband market are the consumers.

Those entrusted with making public policy decisions must aggressively pursue

policies to ensure that we—as a nation—expeditiously provide consumers with more

choices of innovative technologies at the most efficient prices.

Endnotes

1 ‘‘Sending the Right Signals: Promoting Competition Through Commerce. October 6, 2004.

2 In fact, 29% of jobs lost during this period were in telecommunications. ‘‘Sending the Right

Signals: Promoting Competition Through Telecommunications Reform.’’ U.S. Chamber of Commerce. October 6, 2004.

43

3http://www.yankeegroup.com/public/products/decisionlnote.jsp?ID=12911 4 ‘‘CTIA’s Semi-Annual Wireless Industry Survey Results.’’ CTIA. 2005. This investment includes a 7.8% increase in cell sites in service from year-end 2003 to year-end 2004. 5 ‘‘CTIA’s Semi-Annual Wireless Industry Survey Results.’’ CTIA. 2005. This number does not

include related jobs, such as independent third-party retailers, construction, manufacturing, or

research and development jobs with other companies. According to the Bureau of Labor Statistics data, the wireless industry (cellular and other wireless carriers) employed more than 13,893

people in the state of Florida during 2003. 6 ‘‘Innovation: The Keystone of the Commercial Mobile Wireless Experience.’’ Cellular Telecommunications & Internet Association (CTIA) Presentation to FCC. April 2004. http://

files.ctia.org/pdf/CMRSINNOVATIONmar04.pdf 7http://www.internetnews.com/stats/article.php/3495076

8 Raymond James Equity Research: Wireline: Industry Brief: Cable’s Impact Factored Into Estimates, December 14, 2004, Frank G. Louthan IV, Raymond James. 9 Brown, Ken. ‘‘Cablevision to Offer Internet Phone-Call Bundle.’’ The Wall Street Journal.

June 21, 2004. 10Grant, Peter. ‘‘Here Comes Cable...and it Wants A Big Piece Of The Residential Phone Market.’’ The Wall Street Journal. September 13, 2004. p. R6. 11FCC Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Radio Services, Ninth Report. FCC 04-216. Released September 28, 2004. 12FCC Report on Local Telephone Competition: Status as of December 31, 2003. Released

June 2004. 13Skedd, Kirsten. ‘‘Landline Displacement to Increase as More Wireless Subscribers Cut the

Cord.’’ InStat/MDR Press Room. February 25, 2004. <http://www.instat.com/press.asp?

Sku=IN0401644MCM&ID=895>. Accessed May 3, 2004. 14http://www.tr.com/online/tr/2005/tr031505/tr031505-17.htm#TopOfPage 15 J.D. Power & Associates. ‘‘2003 Residential Internet Service Provider Study (August 2003).’’ 16 Broadband technologies make distance irrelevant for many rural patients by providing access to out-of-area physicians and health care resources. High-speed networks allow health care

professionals to deliver medical care more efficiently. 17 R.W. Crandall and C. L. Jackson, et al, The Effect of Ubiquitous Broadband Absorption on

Investment, Jobs, and the U.S. Economy, Criterion Economics New Millennium Research Council (2003). Based on $0.97B per year on residential DSL and $2.38B per year on residential cable

broadband for a total of some $3.35B per year. 18http://www.ncta.com/Docs/PageContent.cfm?pageID=37 19http://www22.verizon.com/about/community/fl/news/alanlopinion.html 20http://www.sbc.com/gen/press-room?pid=4800&cdvn=news&newsarticleid=21427 21http://www.instat.com/press.asp?ID=1221&sku=IN0401183WN 22Section 364.01(1), Florida Statutes, grants the Florida Public Service Commission jurisdiction over ‘‘telecommunications companies,’’ and Section 364.02(13)(c), F.S., excludes CMRS providers from the definition of a ‘‘telecommunications company.’’ 23Florida law provides that VoIP is ‘‘free of unnecessary regulation, regardless of the provider’’

and exempt from the definition of ‘‘service’’ for purposes of state commission regulation Sections

364.01(3) and 364.02(12), Florida Statutes. In filings with the FCC, the Florida Public Service

Commission distinguished between traditional economic regulation and social policy regulation

is discussing necessary versus unnecessary regulation. 24Section 364.0361, Florida Statutes. 25Florida Legislature, 2005 Session, SB 2068 and HB 1649, as of April 25, 2005. 26FCC Report on Local Competition:— Status as of December 31, 2003. Released June 2004. 27FCC report on ‘‘High-Speed Services for Internet Access: Status as of December 31, 2003.’’

Table 7. 28 Verizon corporate news releases, July 19, 2004 and April 20, 2005. http://news

center.verizon.com/ 29The reasoning Justice Scalia, a states rights advocate, on the local competition issue supports having a national policy to govern IP-enabled services and broadband generally. As Justice

Scalia has stated, ‘‘[T]he question . . . is not whether the Federal Government has taken the regulation of local competition away from the states. With regard to the matters addressed by the

1996 Act, it unquestionably has. The question is whether the state commissions’ participation

in the administration of the new federal regime is to be guided by federal agency regulations.

If there is any presumption applicable to this question, it should arise from the fact that a federal program administered by 50 independent state agencies is surpassing strange.’’ 30The U.S. Chamber of Commerce estimates that reforming telecom laws would add 212,000

jobs over a five-year period and lead to $58 billion in new investment. 31See H.R. Conf. Rep. No. 104-458, at 1, reprinted in 1996 U.S.C.C.A.N. 10 (emphasis added). 32 An IP voice ‘‘call’’ between individuals in the same might carom between servers or gateways in different states. Determining the topography of such traffic—ahead of time—is often

not possible. 33States can and should work to remove unnecessary barriers to broadband deployment. In

particular, states can work with local governments on rights-of-way access and permitting

issues. To address the supply side, states can also create financial and non-financial incentives

for build-out of the broadband network. To address the demand side, states can offer e-learning

applications and other e-government initiatives to promote the value of using broadband technology to carry out day-to-day functions. 34 According to the CTIA website, 33 carriers, including all of the national carriers, have

adopted the Code For the complete list of the 33 wireless carriers that have adopted the CTIA

Consumer Code, please see: http://www.ctia.org/wireless—consumers/consumerlcode/index.cfm.

44

35 A similar approach was adopted for wireless 911 services. Initially, the ability to pinpoint

the location of a caller was not imposed. The industry was given a reasonable opportunity to

develop a solution. 36http://www.yankeegroup.com/custom/research/decision l note.jsp?ID=12704&PID=6DD2924

EE68446BB 37This total represents a 6.05% federal tax and a 10.74% state/local tax. 38http://www.pacificresearch.org/events/2003/wireless/SidakFactsheet.pdf 39http://www.pacificresearch.org/events/2003/wireless/SidakFactsheet.pdf 40 A permanent ban Internet access taxes does not have to preempt state and local taxation

of online commerce; impact state and local taxation of traditional telecommunications services

or long-distance service that are not solely used to provide Internet access; impact state sovereignty over taxation, except to the extent that taxing interstate service of Internet access is

prohibited; affect the State Streamlined Sales Tax Project; impact a state or local government’s

ability to collect any corporate, property, or income taxes; or prevent taxation of products or

services that are otherwise taxable just because they are bundled together with Internet access

services. 41Defining the ‘‘proper pool’’ might consider factors such as: the share of the voice market held

by the provider (so as to exclude providers with but a negligible share of the market); whether

the VoIP is a computer-to-computer application (such as Skype); or whether the VoIP does not

‘‘touch’’ the PSTN at either end 42http://www.redherring.com/Article.aspx?a=11541&hed=Mobile+porn%3A+Moving+fast 43http://news.gaminghorizon.com/media2/1114012080.741.html 44http://www.wirelessweek.com/article/CA506391?spacedesc=Departments&stt=001 45 Compare http://www.theregister.co.uk/2005/02/14/orangeladultlfilter/ (Wireless company

Orange UK has started blocking the delivery of adult content to users not registered as over

18).

Mr. UPTON. Mr. Perkins.

STATEMENT OF JOHN R. PERKINS

Mr. PERKINS. Thank you, Chairman Upton, Ranking Member

Markey. My name is John Perkins. I am the consumer advocate

from the State of Iowa. I am also currently the President of the National Association of State Utility Consumer Advocates.

The NASUCA is an organization comprised of 42 States whose

consumer advocates are generally—and the District of Columbia—

whose consumer advocates are generally charged with representing

their individual residents in their States before their public utilities commissions. As such, we also usually have the authority to

appear in State and Federal courts, to appear before Federal agencies, such as the FCC and FERC, and also to appear before legislative bodies, such as Congress and our State legislatures.

As you look at this new legislation involving new technologies, I

think there are a couple of issues—a couple of points I would like

to make for you to keep in mind. And maybe they don’t need to be

said, but as a consumer advocate, I guess we feel we need to keep

making those points as often as possible. The first is that the overarching—the overriding principle behind all telecom legislation historically and into the future is that the public interest has to be

the overarching principle that we reach for. We have to make sure

that telecommunications are made as widely as accessible, as accessible as possible at the most reasonable cost that we can. That

should govern any legislation, whether it is Federal legislation or

State legislation, and it is as applicable to the old POTS network

as it is to our new Internet telecommunications that we are looking

at.

I think the other issue that I would like the subcommittees—and

this is not just this subcommittee, but the subcommittees that are

also looking at the competition issues, the merger issues, universal

service funding, those issues, should keep in mind that IP doesn’t

necessarily mean it is on the Internet. Just because it is called

Internet Protocol doesn’t mean that it is—somehow should become

45

an information service, and deregulated or unregulated. A lot of the

new switching that the LECs are using, so-called IP switching, the

so-called soft switching, those are Internet protocols, but they still

use the public switch telephone network. My telephone call using

my wire line Quest telephone may go through an IP-enabled

switch, but it doesn’t make it an Internet-based telephone. So as

this committee looks at definitions of IP, I hope it keeps in mind

that just because IP is attached to a phrase, that it is not defined

so broadly that the LECs are going to be able to come in later and

say ‘‘We have IP switching. We are an information service. You

can’t regulate us.’’ I think that is an important issue.

I think another point that should be made is if we follow the

media and advertisements, it would appear that every American

has a computer, and probably most of us have a broadband connection to that computer, and that is just not true. The latest figures

that I have seen show that 30 million Americans have a broadband

connection, but 170 million Americans have wire line access. That

is not a very big percentage of people that have a broadband connection. And when the LECs start saying well, broadband bypasses

70 to 80 percent of the American homes. That is a fine statistic,

but it is really meaningless, because the simple fact of the matter

is, broadband connections are still expensive, and many Americans

can not afford a broadband connection. So to say that a cable runs

right outside their home doesn’t mean a thing. They are still not

going to buy a computer. They are still not going to get a

broadband access because it is too expensive.

I think that the last thing was one that was touched on by Chairman Munns, and that is the issue of preempting States’ rights. I

think the States have a very legitimate interest in consumer protection issues and safety issues, and the Internet is really no different than an interstate highway. We have—States have the ability to regulate the speed and size of traffic on its interstate highways. They need that same ability. These new technologies are

going to be a trap for the unwary by the unscrupulous, and State

consumer protection statutes are uniquely designed to protect their

citizens from any type of action in that regard.

We have attached a VoIP resolution that our association did a

year and a half ago, and I think that the points in that resolution

are still applicable today.

Thank you, Chairman.

[The prepared statement of John R. Perkins follows:]

PREPARED STATEMENT OF JOHN R. PERKINS, CONSUMER ADVOCATE OF IOWA, AND

PRESIDENT, NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES

Chairman Upton and members of the House Subcommittee on Telecommunications and the Internet: Thank you for the opportunity to speak to you today on

the important issues surrounding how IP-enabled services are changing how we

communicate.

My name is John R. Perkins. I am the Consumer Advocate for the state of Iowa

and am currently serving as the president of the National Association of State Utility Consumer Advocates. NASUCA is an association whose members are, for the

most part, the statutorily authorized state officials who are responsible for representing their citizens in utility matters before their state public utility commissions, as well as before state and federal courts, federal agencies and Congress.

They operate independently from their state PUCs. NASUCA currently has members from 42 states and the District of Columbia.

46

1 Verizon’s recent announcement it will provide stand-alone DSL in some limited circumstances is so constricted as to be an essentially worthless concession. 2 Another problem is that VoIP providers are having problems gaining access to incumbent

carriers’ E911 trunk lines. Vonage recently struck a deal with Qwest for access, but has complained that BellSouth, Verizon and SBC—who allow their own VoIP service to access their

E911 trunks—are balking at providing access.

The rapidly changing face of telecommunications has made it necessary to reexamine some of the precepts behind the Telecommunications Act of 1996, passed less

than a decade ago by Congress. Wireless and the Internet have provided diverse

new ways to communicate with one another, making instantaneous contact over

great distances no longer the exclusive province of the public switched telephone

network it was just several decades ago. The technology is mind-boggling to the average consumer over the age of eighteen. While pre-teens to college students want

the most advanced abilities to communicate with each other from their telephones,

including sending pictures and text messages, many of the rest of us just want to

be able to pick up a telephone, hear a dial tone, have a call completed to the number

we dial and be able to hear the voice on the other end—all at a reasonable price.

We don’t care through what magic that is accomplished. The challenge for Congress

is to devise legislation that balances that need, with the need to make sure those

magicians who continue to dazzle us with their seemingly daily new methods of

communications, have the proper incentives to continue that progress. As always,

there is a natural tension between the two—and some of that can and should be

handled by the market place between competitors.

However, there are some issues that are too important to be left to the competitors and entrepreneurs to work out and should continue to be regulated by government, both state and federal.

For example, while most people now agree the Internet is truly an interstate phenomenon and individual states should not be in the business of regulating the rates

charged for Internet service, there are important consumer protection and safety

issues in which states have a legitimate interest. States should be allowed to apply

their individual state consumer protection laws to insure their residents are not the

victims of those providers who, in their competitive zeal, may take unfair advantage

of those consumers who are unfamiliar with this new technology.

Another broad consideration we feel Congress should keep in mind is that many

local exchange carriers, such as the four regional Bell operating companies, will

soon be using IP to carry calls by replacing their state of the art circuit switches

from 10 years ago with new IP soft switches. The reason is simple: the new IP soft

switches are more efficient. But the customers may never realize as they use their

old telephones and old services that the digital magicians have a more efficient way

to provide the same old POTS. These customers should also not be subjected to lesser consumer protections just because their local exchange carrier—who they have

dealt with for years ‘‘is changing its technologies in ways the customer will likely

never notice.

When defining what is an IP for telephony, Congress should take care not to define it in such a way that ILECs can claim their use of IP on their old networks

now would avoid all state regulation. If it walks like a duck...

Another consideration we feel it would be appropriate for this subcommittee to examine overlaps with those Congressional subcommittees reviewing competition in

the telecommunications industry as well as those examining the recently announced

mergers between SBC and AT&T and between Verizon or Qwest and MCI. Fully

one-third of the broadband connections (in the form of DSL) are supplied by incumbent local exchange providers, such as the four RBOCs. Of the four, only Qwest has

announced it will voluntarily allow its subscribers to purchase its broadband without the necessity of also purchasing its local exchange service. The other three

RBOCs require their customers to purchase their local exchange service in order to

obtain their broadband connection.1 Such a tying arrangement stifles competition for

Internet telephony. Customers should be free to use their own equipment, and access software and services freely on their broadband, the so called ‘‘net freedoms’’

concept espoused by former FCC Chairman Michael Powell.

E911 capability is essential for Internet telephone providers. As vividly brought

home by the recent tragic event in Houston, Texas, many people who purchase an

Internet telephone product don’t realize their local law enforcement agencies no

longer have the ability to determine their address when they call 911 on an Internet

based telephone, such as voice over IP (VoIP). The providers must be forced to rapidly develop the capability for VoIP to allow E911 service. The technology is available, but not all companies are using it.2 In fact, earlier this month Canada required

Internet telephone carriers to immediately provide basic E911 service. Two large

47

providers—Primus Telecommunications Canada, Inc. and Vonage Canada— said

they supported the government’s position. CALEA and TTY face the same access

issues as E911.

Finally, despite news articles that would lead one to believe everyone in the

United States has a computer with a broadband connection, the simple fact is only

30 million Americans have broadband. Compared to the 170 million access lines of

the traditional telephone companies, the number of people who have the ability to

use Internet telephony is still quite small. As you and other Congressional committees examine the entire gamut of issues related to telecommunications, it is essential not to forget the vast of majority of Americans, especially those in rural areas,

who still rely on POTS to communicate. In our rush to embrace these new technologies, we should keep them in mind.

Companion issues relate to the Universal Service Fund and access charge payments. Currently, Congress is studying the USF funding base and how to best handle the continued availability of telephone access in high-cost areas. As calls are

routed over the Internet to one degree or another, providers are refusing to pay into

the fund, even though their customer may use part of the PSTN to complete a call.

The same issues arise with access charges. Congress should look carefully at these

issues when considering any legislation on Internet telephony.

NASUCA passed a resolution on November 16, 2003 at its Annual Meeting dealing with VoIP service, a copy of which is attached to my testimony.

Again, thank you for the opportunity to appear before you to give our perspective

on this sea-change in telecommunications. I would be happy to address any questions of the committee members.

RESOLUTION ON VOICE OVER INTERNET PROTOCOL SERVICE

WHEREAS, the widespread availability of affordable, reliable, high quality voice

telecommunications service is essential to the public health, safety and welfare and

is required by federal law;

WHEREAS, 47 U.S.C. 153 (48) defines telecommunications as ‘‘the transmission,

between or among points specified by the user, of information of the user’s choosing,

without change in the form or content of the information as sent and received’’;

WHEREAS, 47 U.S.C. 153 (51) defines a telecommunications service as ‘‘the offering of telecommunications for a fee directly to the public, or to such classes of users

as to be effectively available directly to the public, regardless of the facilities used’’;

WHEREAS, incumbent local exchange companies, competitive local exchange carriers and interexchange carriers are modifying their networks so that they may provision telecommunications services utilizing voice over Internet protocol (VoIP) technology;

WHEREAS, VoIP services may be offered to the public as either a voice telecommunications service or a substitute for voice telecommunications service;

WHEREAS, VoIP providers have argued that they provide only information services and do not provide telecommunications services;

WHEREAS, carriers are increasingly migrating their traffic to a packet-switched

basis like that used for VoIP;

WHEREAS, the migration of service to VoIP and VoIP-like services raises concerns about universal service and universal service support;

WHEREAS, VoIP and VoIP-like services raise concerns about access to E9-1-1

emergency services and financial support for E9-1-1 emergency services;

WHEREAS, regulation of VoIP and VoIP-like services may be better accomplished

under Title II of the Communications Act;

WHEREAS, both state and federal regulators are responsible for ensuring the

continued widespread availability of reliable, affordable and high quality telecommunications services, and for ensuring continued access to E9-1-1 emergency

services for customers of such telecommunications services;

THEREFORE BE IT RESOLVED, that the Federal Communications Commission

(FCC) should not define VoIP services to be exempt from regulation, universal service support obligations or E9-1-1 access so that states are preempted from properly

exercising their authority to ensure the continued provision of reliable, affordable,

high quality voice telecommunications services, including access to E9-1-1 emergency services;

BE IT FURTHER RESOLVED, that the Telecommunications Committee of

NASUCA, with the approval of the Executive Committee of NASUCA, is authorized

to take all steps consistent with this Resolution in order to secure its implementation.

Approved by NASUCA:

Place: Atlanta, Georgia

48

Date: November 16, 2003

Mr. UPTON. For not looking at the clock, you did exactly perfect,

so——

Mr. PERKINS. I have got my watch right here.

Mr. UPTON. Oh, is it? All right. Mr. Quam.

STATEMENT OF DAVID C. QUAM

Mr. QUAM. Mr. Chairman, members of the committee, thank you

very much for the opportunity to testify.

This is a topic of great interest to Governors, both IP-enabled

services and really the future of communications. But as we look

at it, sometimes it helps to step back. And one way I can view communications and where we stand is to actually look at what has

happened to coffee. Back in 1984, coffee was just that. It was coffee. Today’s consumers must pick size, tall, grande, bente, roast,

light or dark, caffeine or no caffeine, drip, latte, espresso,

Americano, frappachino, milk or soy, fat or no fat, foam or no foam.

Communications service today is much the same. Before 1984, a

phone was a phone. Today, it is analog or digital, landline, wireless, or VoIP, text messaging, paging, e-mail, worldwide web, call

waiting, caller ID, dial-up or broadband, cable, DSL, or Y-fi, IP

video, satellite, cable, or broadcast. And who knows what is to

come. That is the challenge that is before Governors. It is before

Congress. It is before local elected officials. How are we going to

set up a regulatory scheme that fits that world of consumer choice?

The bottom line for NGA: full and robust competition requires a

light touch approach that ensures nondiscriminatory access to essential facilities, to acknowledging neutral policies, and consumer

protection safeguards to serve the public interest. This can only be

effectively accomplished by having the Federal Government partner

with and grant State and local governments the authority to promote competition and innovation, encourage economic development,

protect the public safety, and ensure consumer protections.

As Congress works to reform the Nation’s communications laws,

Governors encourage this committee to work with State and local

governments to create a regulatory framework that does several

things.

First, one that would employ a balanced federalism approach

that grants States, territories, and localities the authority to protect the interest of their constituencies.

Second, would create a level playing field for all industry participants in any given service area, regardless of the nature of the

technology used to provide that service.

Third, it would be sufficiently flexible and technology neutral to

respond to any new developments in the industry. It would also

continue to emphasize reliability standards on all communications

systems, ensure that States, territories, and localities retain the

authority to manage public rights of way consistent with State

laws and policies, support States’ abilities to provide for all their

citizens with access to communications services, and it would not

preempt the sovereignty to determine their own tax policies.

As I have stated before and it has been stated repeatedly by this

distinguished panel, any rewrite of the communications laws

should recognize and retain an active role for State and local govVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 20750.TXT HCOM1 PsN: HCOM1
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ernments in communications policy. In particular, Congress should

preserve State and local authority in the following key areas: public safety would be the first. State and local law enforcement and

public safety agencies rely heavily on communications services and

operators to protect the public interest. States must continue to

have the authority to collect these, and run a ubiquitous e911 system within their borders. In addition, national communications

policies should not hinder law enforcement efforts by creating technological safe havens to communicate or plot criminal activity. Consequently, Governors support Congressional efforts to extend necessary components of COLEA to all advanced communications.

Second, consumer protection. Consumers require a practical way

to resolve common complaints, service outages, and deceptive behavior. States have a long track record of serving that role. States

should retain the regulatory flexibility in enforcement authority to

effectively and creatively respond to consumer concerns.

With regard to access, the value of the network—and that is

what we are talking about, a communications network—is directly

related to the number of people who use it. Twenty-four States

have instituted their own State universal service funds to help ensure that all their citizens can access communications services.

Governors feel that any changes to Nation’s communications laws

should not hamper a State’s ability to continue its state universal

service fund or prevent States from developing new programs to

supplement any corresponding Federal plan.

And finally, with regards to competition. Governors welcome and

support competition. Communications networks are the next great

economic driver for States and for the Nation, but when a competitive market does not exist, States should still retain the authority

to manage communications infrastructure and competition in local

markets.

The 1996 Act ushered in a new era of cooperative federalism in

communications. This framework took into account the responsibilities of each level, based on their core competencies. Federal Government used its authority to develop national communications

goals. States were given regulatory flexibility and enforcement

powers to promote competition, manage public safety networks,

protect consumers, and help ensure access to communications services. Governors look forward to working with the Congress to

buildupon our Federal/State partnership and use our collective

strengths as a basis for any new regulatory structure.

Thank you, Mr. Chairman.

[The prepared statement of David C. Quam follows:]

PREPARED STATEMENT OF DAVID QUAM, DIRECTOR, FEDERAL RELATIONS, NATIONAL

GOVERNORS ASSOCIATION

Mr. Chairman and members of the committee, my name is David Quam, and I

am the Director of Federal Relations for the National Governors Association (NGA).

I appreciate the opportunity to appear before you today on behalf of NGA to discuss

the role of states in the future of communications policy.

OVERVIEW

The Internet has changed everything. While only a generation ago most people

had not even heard of the Internet, today they go online to conduct business transactions, purchase goods and services, trade stocks and bonds, and make phone calls.

The Internet has also spurred competition. Every week another company seems to

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announce a new service for consumers that breaks with the existing regulatory

framework of one delivery platform-one service. Telephone companies are rolling out

IP video services; cable companies are offering Voice-over-Internet-Protocol phone

services; and wireless providers allow a person to surf the World-Wide-Web while

picnicking on the National Mall. The beneficiaries of this revolution are consumers,

individuals, and businesses that rely on communications services to conduct business, purchase goods and services, send and receive information, and reach emergency services. The innovators are the companies and entrepreneurs who are constantly pushing to find new ways to communicate and to improve existing systems.

The regulators are the federal, state, and local government officials who must now

decide how to best work together to maximize the benefits for consumers, foster innovation and investment, promote competition, protect the public safety, and ensure

consumer protection in an IP-enabled world.

THE PUBLIC POLICY CHALLENGE

The remarkable revolution in communications technology since the 1996 Act could

have not been anticipated by lawmakers. Current federal and state communications

policies call for a distinct regulatory treatment for telephone, cable, satellite, wireless, and Internet services industries. Under this ‘‘vertical silo’’ approach, each segment is treated differently based on its core service. The 1996 Act, which focused

on promoting competition within these silos, did little to prepare for the development and maturation of new platforms and services that are not bounded by technology. It is these new innovations, including IP-enabled services, that are creating

advantages and disadvantages for both incumbents and new entrants, and challenging state and federal policymakers to rethink communications laws to better reflect the way services are delivered in a digital age.

Governors welcome this challenge and are committed to working with Congress,

industry and local governments to modernize the nation’s communications laws in

a way that supports continued growth of a competitive industry for the benefit of

consumers and the national economy. NGA has been working with other state and

local organizations to find common ground and align our interests and policies. Governors encourage Congress to work with state and local governments to create a regulatory framework that:

• employs a balanced federalism approach that grants states, territories, and localities the authority to protect the interests of their constituencies, particularly

as it relates to promoting local competition, encouraging economic development,

protecting public safety, and ensuring consumer protection;

• creates a level playing field for all industry participants in any given service area,

regardless of the nature of the technology used to provide that service;

• is sufficiently flexible and technology-neutral to respond to new developments in

the industry;

• continues to emphasize service reliability standards on all communications systems;

• ensures states, territories, and localities retain the authority to manage public

rights-of-way consistent with state laws and policies; and

• does not preempt the states’ sovereignty to determine their own tax policies.

While Governors look forward to modernizing our nation’s communications laws

in a way that promotes further economic development and innovation, any new regulatory structure must also give states, territories, and localities the ability to maintain state services and roles consumers have come to expect.

STATE ROLES IN COMMUNICATIONS POLICY MUST BE MAINTAINED

States play a major role in the nation’s communications system as regulators,

service providers, and consumers of communications services. State governments

have the responsibility to ensure the public interest is being served by all businesses in our states, including communications providers. Consumers expect states

to ensure certain public goods and social goals. These include maintaining the public

safety, consumer protection, universal service, and consumer choice. While Governors understand that these state roles may change as technology develops and

communication services converge, they still believe the states are best suited to perform these essential roles consumers have come to expect. States have more resources, as well as a better understanding of local markets and day to day issues

related to communications services, than the federal government, thereby making

them better suited to carry out and enforce these important public services. At the

same time, Governors recognize the benefits working together within a national

communications framework to accomplish common goals in protecting the public inVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 20750.TXT HCOM1 PsN: HCOM1
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terest. Specifically, Governors feel states must maintain their roles in the following

key areas.

Public Safety

State and local law enforcement and public safety agencies rely heavily on communications services and operators to protect the public interest. In particular, the

ability to receive E911 calls and direct emergency services to a caller’s location is

vital for first responders. States must continue to have the authority to collect fees

and run a ubiquitous E911 system within their borders.

Currently, states and localities have the sole responsibility for funding, managing,

and upgrading state wireline and wireless 911 services. States and localities collect

E911 fees on wireline and wireless phone services, which is the only source of funding for state E911 systems. Without the authority to collect E911 fees on new services, funding for E911 systems may be jeopardized as consumers shift to new technologies. This potential decrease in funds will place a strain on legacy E911 systems

and increase the cost burden on citizens who use wireline and wireless services.

Moreover, it is states that ensure all wireline and wireless phone companies have

access to phone trunks and customer databases, which is a critical part of maintaining a ubiquitous and functional E911 system. Even though some VoIP services are

working to voluntarily implement E911 services, they are finding it increasingly difficult to interconnect with incumbent phone companies’ trunks, making it virtually

impossible to implement a workable E911 service. The Telecommunications Act of

1996 gave states the regulatory authority to make certain that wireline and wireless

carriers have access to the necessary information and infrastructure to provide E911

service. States must continue to have this authority over VoIP providers, in order

to ensure Internet phone services can provide E911 services. Moreover, if VoIP providers develop their own E911 systems that do not properly connect with each state

E911 system, the nation could end up with a patchwork of E911 systems that do

not interconnect. To maintain a seamless and ubiquitous national E911 system,

states must have regulatory authority to collect E911 fees on Internet phone services and make certain all voice services can interconnect with the state’s E911 system.

In addition, state and local law enforcement agencies rely heavily on electronic

surveillance to investigate and prosecute criminals. National communications policy

should not unwittingly hinder law enforcement efforts by creating technological safe

havens to communicate and plot criminal activity. Consequently, Governors support

congressional efforts to extend necessary components of the Communications Assistance for Law Enforcement Act of 1994 (CALEA) to all advanced communications.

Consumer Protection

Before consumers fully accept, adopt, and substitute Internet-enabled services for

traditional phone and video services, they must feel confident and trust these new

services. This confidence and trust can only grow if consumers have a practical way

to resolve common complaints, service outages, and deceptive behavior. States have

a long track record for ensuring consumer protection and are more accessible to

businesses, consumers, and communications companies than are federal officials.

States have quickly responded to consumer complaints on traditional phone services

by developing innovative programs, like the ‘‘do not call list,’’ which became widely

popular and was eventually implemented on the federal level. States should retain

the regulatory flexibility and enforcement authority to effectively and creatively respond to consumer concerns.

Universal Service

In order for states and the nation to take full advantage of new Internet-enabled

services, affordable broadband access must be available in all ‘‘corners of a state.’’

Twenty-four states have instituted their own state universal service funds that now

total $1.9 billion. States collect state universal service funds fees on intrastate

phone services to help keep phone costs down in rural and urban areas, and make

broadband connections more affordable where competition does not exist. Governors

feel that any changes to the communications law should not hamper a state’s ability

to continue its state universal service fund or prevent states from developing new

state universal service programs to supplement the federal plan.

Competition

Governors welcome and support competition in local communications markets.

When a competitive market does not exist, states should retain the authority to ensure nondiscriminatory access to essential facilities, prevent incumbents from using

market power to stifle competition and innovation, and maintain safeguards when

market forces fail. Recently, the Federal Communications Commission overturned

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four states’ actions aimed at allowing consumers to purchase broadband Digital Subscriber Line (DSL) service from a telecommunications company without also requiring the consumer to purchase traditional voice service from the same provider.

Known as ‘‘naked DSL,’’ these state actions would have added to consumer choice.

After all, why would consumers who are required to buy traditional phone service

with their broadband access then purchase Internet phone service?

States have the resources and expertise to quickly respond to situations where access to local networks is used to stifle new technologies from taking root. Over the

past eight years, states have used their resources and expertise to monitor and ensure fair competitive behavior in local markets. Governors feel states should continue to have flexible regulatory authority to promote competition within local markets and protect nascent technologies form anti-competitive behavior.

CONCLUSION

The 1996 Act ushered in a new era of cooperative federalism in communications.

This framework took into account responsibilities based on competencies. The federal government was given the authority to develop national communications goals,

while states were given regulatory flexibility and enforcement powers to quickly respond to consumer complaints, manage public safety networks, protect consumers

when market forces fail, and help ensure universal and affordable access to communications. Governors look forward to working with Congress to build upon our federal-state partnership and use our collective strengths as a basis for a new regulatory structure.

Thank you for the opportunity to share NGA’s position on the state role in the

future of communications policy. I would be happy to respond to any questions you

may have.

Mr. UPTON. Thank you. Ms. Strauss.

STATEMENT OF KAREN PELTZ STRAUSS

Ms. PELTZ STRAUSS. Thank you. Good afternoon, Mr. Chairman,

Ranking Member Markey, and members of the subcommittee. My

name is Karen Peltz Strauss, and I am pleased to appear today before you to talk about disability issues on behalf of Communication

Services for the Deaf and the Alliance for Public Technology, on

whose board I serve. In addition, I am privileged to have this testimony endorsed by a number of disability organizations that represent millions of Americans of a vital interest in making sure that

the new regulatory structure adopted for Internet-enabled technologies will meet their communication needs. We thank you for

this opportunity to present our views.

The last time that this disability community came before your

committee was when you were considering the Telecommunications

Act of 1996. That Act put into place various requirements for access to telecommunications and television, culminating nearly 30

years worth of efforts to secure equal access. Through this and

other laws that your committee was instrumental in passing over

the past few decades, people with disabilities now have greater access than ever before to communication. These laws and new mainstream technology, such as paging and text messaging, have made

a dramatic difference in the lives of people with disabilities by

opening up new opportunities to employment, education, and commerce, and making it easier for these individuals to become productive members of our society.

As IP technology has changed the way our Nation communicates,

people with disabilities are again presented with remarkable opportunities to enhance their independence and productivity, but consumers will only be able to reap these benefits if these technologies

are made accessible through universal design. People with disabilities don’t want to be relegated to obsolete technologies or depend

53

on specialized devices that are hard to find. They want an equal

opportunity to benefit from the full range of functions and features

of mainstream products that the rest of our community enjoy.

I just refer to people with disabilities as ‘‘they’’, but really, I

should be saying ‘‘we’’. We, as a Nation, are living longer, and as

we do, building products and services to be accessible are taking

on an even greater significance. According to the U.S. census, 42

percent of people aged 65 to 74 report having some type of disability. This number jumps to 64 percent for people over 75. Many

of us are already finding out that advanced years brings reduced

vision and hearing. Unfortunately, history tells us that without

clear directives from Congress to provide access, the companies developing IP services are unlikely to make their products accessible.

This is because competitive market forces have not been responsive

to the needs of people with disabilities. Your response to these market failures has been a string of legislative acts, the Telecommunications for the Disabled Act, the Hearing and Compatibility Act,

the ADA, the Decoder Circuitry Act. You have seen the need to impose these disability safeguards, even where you have otherwise

sought to apply a light regulatory touch in order to foster competition and innovation.

Now, to highlight a few areas where specific legislative action is

needed. First, we ask that you extend the access provisions of the

1996 Act to IP technologies now, when it easy to do so, rather than

later, when retrofitting is expensive and burdensome. An accessibility mandate is needed to ensure that IP communications services

are inter-offerable, so that people using text and video have the

same ability to talk to each other as voice telephone users do. The

deaf community has already faced problems with instant messaging and video relay services not being inter-offerable. Video

relay allows people who are deaf to talk directly to hearing people

with interpreters over the Internet. In addition, companies that are

making IP technologies need to ensure that the interfaces used

with these products are accessible. Last week, this committee

watched demonstrations of innovative IP TV systems that would

allow viewers to scroll through various channels, use Internet services, and make the TV experience truly interactive. But think for

a minute how a blind person can know which channel is on, or how

to choose among menu options if onscreen menus are used. I will

tell you, they can’t, at least not now. But if a speech-enabled chip

and an output device are used to connect the TV to a PC, the blind

person could use a handheld device to control the menus with the

assistance of a screen reader. If a device requires one sense, such

as hearing, sight, or voice to control its operation, it should offer

the option of using other senses.

Second, universal service programs need to be reformed to address the needs of people with disabilities in the IP-enabled environment. Right now, only common carriers are required to fund

relay services. Contributions from IP service providers are also

needed to sustain the viability of these services. Conversely, as people with disabilities migrate from using the public switch network

to IP telecommunications, they should be able to use USF subsidies

that go directly to end users, for example through Lifeline and

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1 A brief description of each of these organizations is attached.

Link-up programs, to help defray the costs of broadband or high

priced specialized devices.

Third, Congress needs to take measures to expand access to television programming, first by extending closed captioning obligations to IP TV providers, and second, by restoring the FCC’s rules

on video description. And we wish to thank Congressman Markey

for introducing a bill to achieve just this.

Finally, we urge that State governments be permitted to retain

some authority over telecommunications relay programs, even

where these programs use IP services. Several local programs have

been directly responsive to the needs of their communities in ways

that can’t be matched by a Federal agency located across the country.

In conclusion, mandates are critically needed to preserve the extraordinary gains achieved by more than two decades of Congressional efforts to promote full telecom access as our Nation now migrates from legacy technologies to more versatile and innovative IP

technologies. All of the prior mandates were created with the understanding that the costs to society of not providing access in

terms of unemployment, dependence, and isolation would far exceed the cost of providing such access.

We look forward to working with your committee to carry the

legislative progress made in the past into the IP-enabled world of

the future.

Thank you.

[The prepared statement of Karen Peltz Strauss follows:]

PREPARED STATEMENT OF KAREN PELTZ STRAUSS, LEGAL ADVISOR, COMMUNICATION

SERVICE FOR THE DEAF, MEMBER, BOARD OF DIRECTORS, ALLIANCE FOR PUBLIC

TECHNOLOGY

Good afternoon, Mr. Chairman, Congressman Markey and members of the Subcommittee. My name is Karen Peltz Strauss, and I am pleased to appear today on

behalf of Communication Service for the Deaf, for whom I serve as legal advisor,

and the Alliance for Public Technology, for whom I serve on the Board of Directors.

In addition, I am privileged to have this testimony endorsed by a number of national organizations that advocate on behalf of people with disabilities, including the

American Association of People with Disabilities, the American Foundation for the

Blind, Association of Late-Deafened Adults, the Deaf and Hard of Hearing Consumer Action Network, the National Association of the Deaf, Self Help for Hard of

Hearing People, and Telecommunications for the Deaf, Inc.1 These organizations

represent millions of Americans with disabilities who have a vital interest in making sure that the new regulatory structure adopted for Internet-enabled services will

meet their communication needs. We thank you for this opportunity to present our

views.

Members of the Committee, the last time that the disability community came before you was during consideration of legislation that became the Telecommunications Act of 1996. Sections 251, 255, and 305 of that Act, requiring telecommunications products and services to be accessible by people with disabilities and creating mandates for television captioning, were the culmination of a nearly thirtyyear effort to secure equal access by people with disabilities to the telephone network and television programming. We call upon Congress now to carry these mandates forward with respect to IP-enabled services and the equipment used to access

those services.

As new Internet technologies change the way our nation communicates and receives information, people with disabilities may be presented with remarkable opportunities to enhance their independence and productivity... but only if legislative

safeguards are put into place to ensure that accessibility features are built into IP

services and products at the time that they are designed, and only if these mandates

55

follow the principles of universal design to which the 1996 Amendments adhered.

People with disabilities wish not to be relegated to obsolete technologies, nor become

dependent on adaptive or difficult-to-find ‘‘specialized’’ equipment not needed by the

general public. They want an equal opportunity to benefit from the full range of features and functions of mainstream IP products, as these new innovations rapidly become deployed throughout their communities.

Improvements in our nation’s communications technologies over the past ten

years already have made a dramatic difference in the lives of people with disabilities. New forms of telecommunications relay services, enhanced mandates for television captioning, and enhanced mainstream technologies, including paging, text

messaging and Internet services, have had a liberating effect on the lives of people

with disabilities and have opened up new opportunities in and access to employment, education, commerce, entertainment, and government. This Committee is to

be thanked for many of these opportunities. Through the various laws that you have

passed—legislation mandating hearing aid compatibility, nationwide relay services,

and as mentioned earlier, mandates for captioning and general telecommunications

access—individuals with disabilities now have greater access than ever to communication and video programming services.

But many of the gains already made will be lost if the needs of these individuals

are not again considered as our nation migrates to Internet-enabled technologies.

The disability community is excited about the marvelous and diverse innovations

now being developed. The ability to select from among many communication

modes—voice, text, or video—can enable users with disabilities who are able to perform some functions but not others, to choose the telecommunication mode best suited to their needs and circumstances. IP-enabled services also have the capacity to

enable individuals to use multiple conversational modes during a single conversation, and to even change modes mid-transmission, if the need arises. But just as

easily as new IP innovations can offer significant promise, so, too, can they result

in isolation and disenfranchisement if they are not designed to be accessible.

History tells us that without clear directives from Congress to provide accessibility, the companies developing these services are unlikely to meet the challenge

of doing so. Traditionally, competitive market forces alone have proven insufficient

to ensure the accessible design and manufacture of products and services. There are

a number of reasons for this. Although it is estimated that nearly 54 million Americans have one or more disabilities—collectively comprising a significant portion of

the American marketplace—when divided by disability, it is difficult for any one disability group to create enough pressure to influence market trends. In addition, people with disabilities on average earn lower incomes than the general public, translating to fewer spending dollars capable of impacting competition. Finally, people

with disabilities are often deterred from purchasing mainstream communications

products and services because they need, but cannot afford, expensive adaptive

equipment to make these work for them.

Pressures on company executives to bring profits to their businesses in the highly

competitive communications industry can be overwhelming. Diverting resources to

incorporate accessible design is risky for one company when access is not required

of that company’s competitors. As a consequence, even an internal advocate for disability access within a company may have a tough time selling access initiatives to

that company’s executives, in the absence of laws requiring accessibility.

The unfortunate truth is that without market pressures, the telecommunications

industry has typically failed to address the needs of people with disabilities, except

when specifically ordered to do so by Congress or the FCC. For example, in the

1970s and 1980s, when telephone manufacturers began introducing new phones that

were no longer accessible to people who used certain hearing aids, consumers needed legislative assistance to restore their lost access. Both the Telecommunications

for the Disabled Act of 1982 and the Hearing Aid Compatibility Act of 1988 were

needed to order the full restoration of hearing aid compatible phones. Similarly, it

took an Act of Congress—Title IV of the Americans with Disabilities Act of 1990—

to require all common carriers to provide telecommunications relay services, ending

nearly a century during which deaf, hard of hearing, and speech impaired people

scarcely had any access to the telephone network. That Congress understands the

need for disability safeguards even when it otherwise seeks to apply a ‘‘light regulatory touch’’ to foster competition and innovation, was also reflected by the 1996

Act’s various requirements for telecommunications and television captioning access.

Many of the above legislative mandates rested upon the well-established universal

service obligation set forth in the Communications Act of 1934: to ‘‘make available,

so far as possible to all the people of the United States . . . a rapid, efficient, Nationwide, and world-wide wire and radio communication service.’’ All were undertaken

with the recognition that the costs to society of not providing communications access

56

to modern innovations—in terms of unemployment, dependence, and isolation—

would far exceed the costs associated with providing such access.

The FCC, too, has needed to take affirmative steps to remedy the failure of market forces to bring about disability access. For example, when the explosive growth

of digital wireless telephone services in the 1990s threatened to eliminate TTY and

hearing aid users’ access to these services, the FCC mandated access solutions.

Similarly, multiple FCC reports on the deployment of high speed Internet access

have acknowledged that market forces are not enough to guarantee timely access

to broadband services for Americans with disabilities. For example, the second of

such reports identified persons with disabilities as a category of Americans ‘‘who are

particularly vulnerable to not having access to advanced services.’’

So what do people with disabilities want in the new regulatory scheme that will

govern the world of IP-enabled services? Congress must act to ensure that IP-enabled products and services offer the same wonderful benefits for people with disabilities that they offer to the general public. Most importantly, mandates are needed to ensure that IP-enabled technologies incorporate features that permit disability

access now, while these products and services are still being developed, rather than

later, when retrofitting them will become burdensome and expensive. If access features are considered and incorporated while a product is being designed, the associated costs become a mere fraction of the overall costs of producing that product for

the general public, and the resulting access is far more effective. By contrast, if a

product is designed without addressing access needs, it is not only more costly to

later revise the product to include that access, but typically the result is not as wellsuited to the population in question. For example, the initial failure to incorporate

access in digital wireless phones resulted in an eight year delay in making those

phones accessible to TTY users, and to this day, the digital wireless industry has

not been able to effectively retrofit these phones for hearing aid users.

Fortunately, the beauty of IP-enabled technologies is that they use software-based

solutions that make it easier to implement access features than had been possible

with many previous telecommunications technologies. If incorporated early enough,

software changes in mainstream products can be tailored to address a broad range

of disabilities. And once implemented, most, if not all accommodations are likely to

benefit large numbers of individuals without disabilities, the same way that closed

captions—originally intended for use by people with hearing loss—are now enjoyed

by members of the general public in bars, exercise facilities, and airports.

To achieve the goals of full accessibility by people with disabilities, we make the

following recommendations:

1. Extend the Accessibility Safeguards of Sections 255 and 251 of the Communications Act to IP-Enabled services.

It is critical to extend the accessibility safeguards of Sections 255 and Section 251

(requiring telecommunications carriers to install network features, functions or capabilities that comply with Section 255 guidelines) to communications taking place

over the Internet. The following are examples of the objectives that such accessibility mandates can achieve:

First, in order to ensure a seamless communications network that is equally accessible to all Americans, IP services must be interoperable and reliable, so that individuals using text or video have the same ability to talk to each other as do people

using voice. As providers begin to offer new and improved IP services, each is likely

to independently introduce an array of services designed to expand upon our nation’s communications networks. But in the effort to get a jump on the marketplace,

some companies may accidentally or intentionally ignore the need to make their

products and services interoperable with those of their competitors. The result can

be confusion and disorder for consumers, especially those with disabilities, who may

find they are able to contact some individuals over a service they have purchased,

but not other individuals using the same kind of service.

The deaf community has already seen this occur with respect to instant messaging and video relay services. With video relay service, people who are deaf and

hard of hearing can, for the first time in their lives, converse naturally in American

Sign Language with hearing people via connections made over the Internet and the

PSTN. But because not all video relay services are interoperable with one another,

people using this form of communication are not able to enjoy the same seamless

access that is available to Americans using voice telephone services. Interoperability

of networks and equipment that provide the same functions is not only important

for day-to-day affairs; in an emergency or national crisis, all Americans need to be

able to obtain assistance, regardless of the communication networks or devices that

they use.

57

Second, within the IP environment, there also needs to be a common protocol for

text that is easily combined with other media. At present, multiple industry standards exist for text transmissions over the Internet and for other kinds of text messaging, many of which are not compatible with each other. A single, reliable text

standard needs to be supported by all systems, so that text transmissions can get

through to their destinations to the same extent as voice transmissions, enabling

deaf and hard of hearing people to enjoy the same integrated system of communication that is available to voice users.

Third, IP-enabled services must have electronic interfaces that are accessible to

people with disabilities. In the 1990s, the increasing use of graphical user interfaces

almost took the power of computers and information networks out of the hands of

people who are blind or visually impaired, because these interfaces could not be

read by screen reader software. Similarly, as traditional telephone and television

technologies are replaced by IP-enabled technologies, many applications are becoming available only through graphical, touch screen, ‘‘soft-button’’ or ‘‘on-screen’’ interfaces that are not accessible to people who do not have the ability to see. Last week,

this Committee watched demonstrations of innovative IPTV systems that will allow

viewers to scroll through various channels, access personalized Internet services,

and make the TV experience truly interactive. The advantages of accessing multiple

functions—telephony, TV, Internet—through a single piece of equipment are enticing to people with disabilities, who may benefit from having a single connection for

data, video, and voice connections. But blind people need to know which channel is

on, ways to choose among menu options, how to turn on accessibility features, and

how to operate controls independently. The only means of accessing these various

features should not be through inaccessible on-screen menus. Similarly, blind people

may not be able to use IPTV technologies if the remote controls used to operate

these devices have ‘‘soft dynamic buttons’’ that change with each press of a button.

Touch-screens, too, can pose problems: first, an individual cannot feel where the buttons are, and second, he or she cannot identify what the buttons do because they

may change as the screens change.

Mandates are needed to require IP-enabled service providers to provide multiple—

or redundant—means of controlling applications on IP devices. If a device’s operations require one sense or physical ability—for example, hearing or touch—the user

should be able to use other senses or abilities to control the equipment, to prevent

creating new disability barriers.

2. Improve Enforcement of Accessibility Obligations.

Access obligations need not only be in place; they need to be properly enforced.

Informal FCC complaints have proven to be ineffective as a means of enforcing compliance with rights associated with Section 255, closed captioning, and other disability issues. Over the past decade, only two formal FCC accessibility complaints

have been filed, largely because of the burden and expense associated with filing

one of these complaints. Reform of the Communications Act should add a private

right of action allowing people with disabilities to enforce their rights to accessibility

under Section 255, as well as any new accessibility mandates. This right properly

exists for various sections of the Americans with Disabilities Act, the nation’s primary statute mandating an end to discrimination on the basis of disability.

3. Reform Universal Service Programs to Address the Needs of People with Disabilities in an IP-Enabled Environment.

At present, only common carriers providing telephone voice transmission services

are required to contribute to intra- and inter-state funds supporting telecommunications relay services. As we migrate away from traditional telephone services, contributions from IP-enabled services providers are sorely needed to both sustain the

viability of these services, and to distribute costs fairly among all subscribers of

communication services. Similarly, IP providers should have to contribute to other

universal service (USF) funds that are used to support the Lifeline and Link-Up

programs. Because the incidence of unemployment is so high among people with disabilities, it is more than likely that this population would also be affected by any

cutbacks in those programs.

Conversely, USF monies should also be available to support IP services and specialized communications devices that may be required by people with disabilities.

Some deaf individuals no longer purchase PSTN service, having already discarded

their TTYs for webcams and computers that enable video communications. People

with disabilities that rely exclusively on IP-enabled communication technologies

should be permitted to choose whether they want universal service subsidies that

go directly to end users—e.g., through the Lifeline or Link-up programs—to be used

58

as partial payment for their broadband service and equipment, rather than payment

for PSTN service.

4. Video Access: Extend Obligations That Currently Apply to Video Program Providers to IPTV Providers; Restore Video Description Rules.

The closed captioning mandates enacted in the 1996 Amendments have successfully brought television programming to millions of deaf and hard of hearing Americans. Just as the FCC extended these mandates to services and equipment needed

for digital television programming, mandates are critically needed to ensure the continued benefits of captioning as IPTV technologies take center stage.

In addition, as Congress goes about reforming the Communications Act, we request that it restore the FCC’s rules on video description. Video description is a

technology that inserts narrative verbal descriptions into the natural pauses of television programs to enhance television accessibility for blind and visually impaired

persons. Although, in July 2000, the FCC tried to use authority assigned to it in

the 1996 Telecommunications Act to promulgate rules on video description, that authority was deemed insufficient to support those rules by the U.S. Court of Appeals

for the D.C. Circuit in November of 2002. While a few television providers still voluntarily provide this form of programming access, these rules need to be restored

to provide blind and visually impaired Americans with greater access to television

programming.

5. States need to be able to retain some authority over telecommunications relay programs.

Under Section 225 of the Communications Act, states are able to receive certification from the FCC to operate their own relay programs. Several of these locally

operated programs have been directly responsive to the needs of their residents in

ways that cannot be matched by a federal agency located across the country. Considerable innovation and improvements in relay services, including video relay services

and speech-to-speech services for people with speech impairments, originated

through state relay programs in response to the needs of their populations. If the

jurisdiction for IP-related services generally becomes federal, states need to have the

option of retaining oversight over their own relay programs, even where these programs utilize IP-enabled services.

CONCLUSION

Only Congress can ensure that people with disabilities—including the rapidly

growing population of senior citizens whose advancing years often bring reduced vision and hearing—are not left behind as our nation migrates from legacy technologies to more versatile and innovative Internet-enabled methods of communication. For people with disabilities, communication access means the ability to compete on an equal basis for employment opportunities, benefit from educational programs, make sound financial and medical decisions, fulfill civic duties, and actively

contribute to society as productive participants. Those who have the ability to obtain

and use information have the power to make choices and enhance their opportunities for self-sufficiency. Mandates are critically needed to preserve the extraordinary

gains achieved by more than two decades of Congressional efforts to promote full

telecommunications access. We look forward to working with your Committee to

carry this progress forward into the IP-enabled world.

DESCRIPTION OF ORGANIZATIONS

Testimony Presented on Behalf of:

Communication Services for the Deaf—CSD is a private, non-profit organization

of, by, and for deaf and hard of hearing people that provides direct assistance

through education, counseling, training, communication assistance, and telecommunications relay services, to more than three million people with hearing loss

in more than thirty states across the nation. Established in 1975, CSD’s objective

has always been to increase the communication, independence, productivity, and

self-sufficiency of all individuals who are deaf and hard of hearing.

Alliance for Public Technology—APT is a nonprofit organization of public interest

groups and individuals, working together to foster broad access to affordable, usable

information and communications services and technology, for the purpose of bringing better and more affordable health care to all citizens, expanding educational opportunities for lifelong learning, enabling people with disabilities to function in ways

they otherwise could not, creating opportunities for jobs and economic advancement,

making government more responsive to all citizens and simplifying access to communications technology.

59

Testimony Endorsed by:

American Association of People with Disabilities—AAPD is the largest cross-disability membership organization in the U.S. With more than 110,000 members

across the country, AAPD is a national nonpartisan non-profit organization advocating for the political and economic empowerment of the more than 54 million children and adults with disabilities in America. AAPD promotes policies that support

the goals of the Americans with Disabilities Act: equality of opportunity, full participation, independent living, and economic self-sufficiency.

American Foundation for the Blind—AFB is a national nonprofit whose mission

is to ensure that the ten million Americans who are blind or visually impaired enjoy

the same rights and opportunities as other citizens. AFB promotes wide-ranging,

systemic change by addressing the most critical issues facing the growing blind and

visually impaired population—employment, independent living, literacy, and technology. In addition to its New York City headquarters, the AFC maintains 4 national centers in cities across the U.S. and a governmental relations office in Washington, D.C.

Association of Late-Deafened Adults—Formed in Chicago, Illinois in 1987, ALDA

works collaboratively with other organizations around the world serving the needs

of late-deafened people. Through its chapters and groups around the country, ALDA

promotes public and private programs designed to alleviate the problems of latedeafness and for reintegrating late-deafened adults into all aspects of society.

Deaf and Hard of Hearing Consumer Advocacy Network—Established in 1993,

DHHCAN serves as the national coalition of organizations representing the interests of deaf and/or hard of hearing citizens in public policy and legislative issues

relating to rights, quality of life, equal access, and self-representation. The member

organizations of DHHCAN include the American Association of the Deaf-Blind, the

American Deafness and Rehabilitation Association, the Association of Late-Deafened

Adults, the American Society for Deaf Children, the Conference of Educational Administrators of Schools and Programs for the Deaf, Communication Service for the

Deaf, Deaf Seniors of America, Gallaudet University, Gallaudet University Alumni

Association, National Association of the Deaf, National Black Deaf Advocates, National Catholic Office of the Deaf, Registry of Interpreters for the Deaf, Telecommunications for the Deaf, Inc., USA Deaf Sports Federation, and The Caption

Center/WGBH.

National Association of the Deaf—Established in 1880, the NAD is the oldest and

largest consumer-based national advocacy organization safeguarding the civil and

accessibility rights of 28 million deaf and hard of hearing individuals in the U.S.

The mission of the NAD is to promote, protect, and preserve the rights and quality

of life of deaf and hard of hearing individuals in America. Primary areas of focus

include grassroots advocacy and empowerment, captioned media, deafness-related

information and publications, legal rights and technical assistance, policy development and research, and youth leadership development.

Self Help for Hard of Hearing People—SHHH is the nation’s foremost consumer

organization representing people with hearing loss. SHHH’s national support network includes an office in the Washington D.C. area, 13 state organizations, and

250 local chapters. The SHHH mission is to open the world of communication to

people with hearing loss through information, education, advocacy, and support.

SHHH provides cutting edge information to consumers, professionals and family

members through their website, www.hearingloss.org, their award-winning publication, Hearing Loss, and hearing accessible national and regional conventions. SHHH

impacts accessibility, public policy, research, public awareness, and service delivery

related to hearing loss on a national and global level.

Telecommunications for the Deaf, Inc.—Established in 1968, TDI is a national advocacy organization that seeks to promote equal access in telecommunications and

media for the 28 million Americans who are deaf, hard-of-hearing, late-deafened, or

deaf-blind.

Mr. UPTON. Thank you all. Thank you all for your testimony.

At this point, we will do questions from members of the subcommittee, under the 5-minute rule as well.

Any idea how many different franchises there might be out there,

Mr. Fellman? I have a guess, but I don’t know if anybody really

knows.

Mr. FELLMAN. Are you talking about cable franchises, Mr. Chairman? You know, I——

Mr. UPTON. Franchise authorities.

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Mr. FELLMAN. Oh, franchising authorities. You know, I know

that there are 36,000 units of local government in this country, approximately. I know a number of States, I think about 10, franchise

through the State, many of which still give local authorities some

role in the process. But I couldn’t tell you how many actually do

the franchising itself.

Mr. UPTON. My guess is there is probably about 10,000. Might

be a little bit more, might be a little bit less.

What does the average franchise agreement cover? What type of

different arrangements do they have?

Mr. FELLMAN. Average cable franchise, again, you know, I will

tell you some things that I think most cable franchises cover, but

in some ways, they are as different as the community needs that

the address.

Many cable franchises cover right of way access kinds of requirements. Oftentimes, in my experience, those are regulations that

one finds in a local ordinance addressing rights of way, as well as

in the cable franchise. Many will contain access requirements for

public education or government access channels. Some will have requirements for institutional networks that I mentioned briefly in

my testimony. There will be internal uses of that institutional network for various local government-related issues, public safety,

communications internally and otherwise. There are public safety

related concerns in a franchise requirement for emergency alert

systems on the local level. General categories of programming, the

Cable Act, as you know, precludes the requirement of individual

channels, but does allow a local franchising authority to address

community needs by requiring categories of programming. Franchise fees for the use of the public property are covered. Bonding

requirements so that damages costs to public property can be replaced without cost to local taxpayers. Most good franchises will

have some enforcement mechanisms in there. In the last 10 years,

I am very happy to say that many franchises have provisions for

addressing transfers and mergers, so that the local community

knows the company that they are dealing with, because many of

these have turned over a few times.

So a lot of different things, but those are just a few of the major

ones.

Mr. UPTON. Mr. Billings would you expand on that at all, based

on your mayorship in Provo?

Mr. BILLINGS. I would agree that the things he has touched on.

I guess for us, as a community, we look at what are the goals?

What is it we are trying to bring about in our community, and certainly as we have negotiated those kinds of agreements, we have

sought to have universal access. We want everyone in our community to be able to be serviced. We have talked about what is important in public safety kinds of settings, and what needs to be done

to serve those needs. And then we have talked about other things

we want to accomplish, and have tried to factor those in. And I

think that our focus of legislation, perhaps even at the Federal

level a lot of focus on those broader goals in trying to do things

that allow those goals to be fulfilled as we do whatever it is we do.

I just think we have to remember that it is going to be a little

bit different in every community. Those subsets of undergoals will

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be a little bit different in every community, and we need to accommodate that.

Mr. UPTON. It is different. I am aware of one community, not in

my district, by the way, or even in my State, that is currently negotiating an agreement, and they are trying to look at a number of

different channels. I think they are actually looking at 2 or 3 of the

public education governmental channels. They are looking for

equipment that they can, themselves, use to broadcast. They actually are also trying to get a calling center located within the jurisdiction of the community, and it is just difficult for—help me

through this argument. If you have got a wireless provider that is

going to compete with that same cable company that is not going

to use the same right of way. They are not going to need poles or

dig up streets, yet they want to compete, offering the same services. What are your thoughts as to whether they will have to comport with the same types of arrangements that that cable company

will be for that particular village, in terms of the services that

Brecken-Morter Building personnel, a whole host of things that

otherwise they, frankly, wouldn’t need as they look to expand their

services and actually compete to bring down some of the costs of

the services that they would otherwise provide?

And I am out of time, so I will let you answer before I pass to

Mr. Markey.

Mr. BILLINGS. I am sure that—there is a long answer and a short

answer, and my attempt to the short answer would be that it is

true that they are different. But even those wireless providers still

have to have access to our rights of way to connect up that equipment that provides that wireless connectivity.

And so while there are differences, there are some very similar

components to that as well.

Mr. UPTON. Mr. Fellman.

Mr. FELLMAN. Mr. Chairman, if I could add to that.

I think the particular specific rights of way obligations, obviously, you couldn’t apply to a company that doesn’t use the rights

of way, at least on the same level. But the social obligations of providing government, public, and educational access, there already

are set-aside requirements for the satellite companies. I think Congress ought to extend the public, educational, government access

requirement to satellite, so like you say, they are all playing by the

same set of rules, and the community can get the benefit of that

local programming, regardless of whether they are a satellite subscriber or a cable subscriber.

Mr. UPTON. Mr. Markey.

Mr. MARKEY. Thank you.

Ms. Strauss, in closed captioning, back in the early 1990’s, the

industry opposed closed captioning. They said it would be too much

of a burden on them. We said well, we need it to help out those

10 or 20 million people who are hard of hearing in America who

use the TV as to—so we mandated it out of this committee, and

the television industry did its best. Who would have thought the

greatest use for it is people in bar rooms just watching basketball

or football games?

But unintended consequences of sometimes Congress acting, and

in fact, it turns out that most immigrant families turn on the TV

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with closed captioning so that their children can see the language,

because the parents can’t speak it. So there are tens of millions of

others that use it in different ways. So it is a real burden. We had

to mandate that. And then there is others where we created a readily achievable standard for the industry to meet in different areas.

What would you recommend for the IP services? Which approach

should we take?

Ms. PELTZ STRAUSS. Well, I would recommend the approach of an

undue burden standard, which is the standard that is used with

closed captioning. And the reason for this is that we are now at the

outset. We are at the beginning of a new technology, and with the

new technology, it is much easier to incorporate access, rather than

retrofitting it later on.

The readily achievable standard was originally created in the

Americans With Disabilities Act to make it easier for mom and pop

in small stores not to have to retrofit with their—to put in elevators, to put in stairs. Not to have to incur great expenditures in

retrofitting small establishments.

The undue burden standard, which basically says that an accessibility feature has to be incorporated, unless it is undue burden,

is easier to meet when you are at the outset of a technology. And

here, we have software-based technologies that are very easy to incorporate access.

Mr. MARKEY. Thank you. With the municipalities, back in 1992

when this subcommittee—we actually had to pass a law because

cable companies were coming to communities and saying, you have

got to give us an exclusive contract. If you want us to come to your

community, the promise is you will never have another cable company in town but us. And so 95 percent of all municipalities had

guaranteed a monopoly in perpetuity to the cable companies. So

our subcommittee had to void all of those monopolies so that we

could have some competition.

Now, we come to 2005, and a lot of people are now saying, well,

maybe we should pass a law prohibiting the local communities

from actually providing telecommunications services to their own

community, in competition with the cable company, the telephone

company, or whomever.

Can you give us your views on the appropriateness of Congress

telling you that you can not have your own system to compete with

a cable company or telecommunications company, as long as you

provide equal access to everyone that would want to use it?

Mr. BILLINGS. I am a private sector player, came out of the private sector. Believe government shouldn’t go where the private sector will go, and as I have in my testimony said, 8 years ago we set

out to do a number of things. I said we wanted to bring about the

benefits of technology to bless our residents’ lives. And we fully expected and fully intended to use private sector provided

connectivity. We had five franchise agreements in place with fiber

providers. When it came time to hook up our traffic lights and our

scada and our buildings, none would do it.

Mr. UPTON. No.

Mr. BILLINGS. None would do it. None would step up. And so we

did. And I hope——

Mr. UPTON. You did it? The city did it?

63

Mr. BILLINGS. I would hope that you wouldn’t preclude cities, especially small cities, especially rural cities, from being able to do

what they need to do when others are unwilling or unable to do

it.

Mr. MARKEY. I agree with you. Mr. Mayor—Mr. Fellman.

Mr. FELLMAN. Congressman, thank you for asking that question.

Let me talk about a legal issue that piggybacks. I agree with everything that Mayor Billings said. In the existing Telecom Act in 1996,

you have got language in Section 253 that says ‘‘States and localities shall not pass any laws prohibiting any entity from providing

telecommunications services.’’ And a number of States have passed

laws, and in my opinion, in violation of the Act, by prohibiting their

units of local government from providing telecommunication services. The FCC ruled that while municipalities are creatures of the

States, they can do to them what they want, that case, as you

know, got to the U.S. Supreme Court and the United States Supreme Court said that Congress was not clear on what it meant by

any entity. So we thought that it was clear that ‘‘any’’ meant ‘‘any’’,

but the U.S. Supreme Court did not agree, and——

Mr. MARKEY. I drafted, the provision, so you can tell them I

meant ‘‘any’’——

Mr. FELLMAN. Okay.

Mr. MARKEY. [continuing] in its usual use of the term.

Mr. FELLMAN. Had we known that, we would have brought you

to the oral argument, but there is an opportunity this year to fix

that problem, because the court would have ruled the other way if

there was clearer language in the statute and clearer legislative

record that ‘‘any’’ meant ‘‘any’’. So I would encourage Congress to

fix that problem in the next iteration.

Mr. MARKEY. We will pay tribute to all of the municipal light

companies across the country. We will pay tribute to the

Bonneauville Power Company, to the Tennessee Valley Authority.

There is a lot of times when they want to do it, the government

can do it well. But if you don’t do it well, they can vote you out

of office, too. Okay? So you try to do this and it doesn’t work, you

have an accountable, you know, job that the voters can exercise

their right. But I don’t think it should be this Congress that tells

you, our running municipalities that you shouldn’t try to undertake

these endeavors.

I thank you, Mr. Chairman.

Mr. UPTON. Ms.Blackburn.

Ms. BLACKBURN. Thank you, Mr. Chairman, and I want to say

thank you to each of you for taking the time to come and——

Mr. UPTON. Could you just put the mic a little closer? Great.

Ms. BLACKBURN. These chairs are bigger than I am, Mr. Chairman.

Mr. UPTON. You are correct. A lot bigger.

Ms. BLACKBURN. Yes.

And while I do have the microphone, since I was in a meeting

downstairs, I do want to recognize Debbie Tate, who is out of Tennessee. I think she was recognized a little earlier by my colleague

from across the way, but she does a great job and I am proud to

have her here.

64

I have got a series of questions. I am going to try to clip through

these as quickly as I possibly can.

I think, Mr. Perkins, I am going to start with you. Or let me ask

all of you this by Mr. Perkins’ testimony. And I am on page four

of his testimony. This is what he says. ‘‘Most people now agree the

Internet is truly an interstate phenomenon, and individual States

should not be in the business of regulating the rates charged for

Internet services.’’ Do any of you disagree with that statement, and

if so, why? Go ahead.

Mr. FELLMAN. I will jump in.

Ms. BLACKBURN. Thank you.

Mr. FELLMAN. Congresswoman, I think that when you say Internet services, I am not clear on exactly what that means. Cable

services today are regulated in a very limited way for basic cable.

If video programming is provided over Internet protocol, I would

take the position that it is a cable service, and therefore, would be

subject to regulations.

Ms. BLACKBURN. All right. I am reading from his testimony, and

that is why I wanted to see where you all stand on this, you know.

Internet service is anything that is going to come over the Internet,

and as we look at the Telecom Act, one of the things I look in terms

of is we talk voice-over IP. We also know that everything is going

to come over IP, and I just wanted to see if you all were in agreement or disagreement. It sounds like looking at your faces in the

response—and knowing we are short on time now, that you probably would rather respond to that later. Am I reading that right

from you all? And that maybe you would like to give me a written

response? Am I reading that right from you all?

Mr. DAVIDSON. I will jump in, Charles Davidson with the Florida

Commission.

I agree with the statement that States should not be in the business of regulating the rates charged for Internet service——

Ms. BLACKBURN. Okay.

Mr. DAVIDSON. [continuing] so I would agree wholeheartedly with

that statement.

Ms. BLACKBURN. Okay. Thank you. Mr. Perkins also—in the

same paragraph a little bit further down, you—to allow the

rates——

Mr. PERKINS. Clearly, offers made about the technology of why

a person should switch to VoIP and get rid of their wire line, you

hare going to have VoIP providers coming in with the new technology advertising and saying you should chuck your old wire line.

You should have voice-over Internet. It is the new wave of the future. There will be advertisements for that. People who are unfamiliar with the technology, you may end up with the tragedy that

you had in Houston, Texas.

Ms. BLACKBURN. Okay.

Mr. PERKINS. They simply didn’t realize the limitations. Consumer protection laws are needed—are in place and can cover this

new technology to make sure that those ads are not promising

more or less than they should.

Ms. BLACKBURN. Okay, excellent.

And Mr. Chairman, with that, I will yield back since we are in

the middle of a vote.

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Mr. STEARNS [presiding]. Gentlelady yields back.

Mr. Stupak.

Mr. STUPAK. Thanks.

Mr. STEARNS. I think what we are going to do, my colleagues are

just going to continue here, and if Chairman Upton comes back, he

will take it. So if you want to come vote and come right back, we

would like to seamlessly go through.

Mr. STUPAK. Very good.

The two mayors there, you talked about local governments providing broadband services you have, and we do it in my district

quite a bit, because we are the only ones who will do it.

But do you have any opinions on a private public partnership for

broadband deployment, and where a local unit government would

give rights of way to private companies to offer broadband? Have

you been approached with anything like that or any opinions on

that? Mr. Fellman.

Mr. FELLMAN. Congressman, I think that happens all the time,

and again, that is one of those areas that there is as many different

variations of that as the creativity of cities and the private sector

can come up with.

I have a client in Colorado, a municipality, who is negotiating

presently with a wireless provider to put wireless broadband

throughout a very large city, many square miles. The city council

is fairly conservative. They believe the city should not be in the

business of providing service, but the city clearly wants to find a

partner in the private sector to come in and get the city wired for

wireless broadband. They are doing it in such a way where it is not

exclusive. Anybody else can come in. They have looked at competing companies to see who they could get the best deal with.

They have regular rights of way regulations so the next company

that comes in will still have access to the poles. So it is not, by any

stretch of the imagination, putting a stop to future competition, but

it is a city that is saying we don’t want to be in the business, but

we want to find an industry partner who can come in and provide

these additional broadband services to our community.

Mr. STUPAK. Anything you want to add, Mr. Billings?

Mr. BILLINGS. I was just going to say, in Utah, our State legislature has not caused it to be so that municipalities can not be in

the business of deploying broadband, but we are not allowed to deploy the retail service ourselves. We provide the pipe, and then we

enter into retail provider partner contracts. And so while it is a little different——

Mr. STUPAK. Right.

Mr. BILLINGS. [continuing] I think we are specifically touching

on—that is how it is currently being done in Utah.

Mr. STUPAK. Okay.

Ms. Munns, what do you think would be the role of the States

in a universal service reform? Can you speak to that a little bit

about what role USF funds and a need for Congress to take those

funds into account?

Ms. MUNNS. Yes, I think that there are things, again, that we

have particular capabilities. We know the networks in our States,

we are pretty good at knowing who needs what. We are good at accountability and doing auditing and that kind of thing. We recogVerDate 11-MAY-2000 06:28 Jun 10, 2005 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 20750.TXT HCOM1 PsN: HCOM1
66

nize the issues with the universal service funds and we want to be

a part of giving them out where they need to be.

Mr. STUPAK. Do you think VoIP and broadband should be part

of the USF?

Ms. MUNNS. I think, you know, that is something you are going

to have to struggle with as you look at the size of the fund.

Mr. STUPAK. Just thought I would ask.

Can anyone give me a real world example of why it may be necessary for there to be State consumer protection laws until there

is a Federal law? I am talking about, you know, the States have

over VoIP or anything else to deploy that. Do you think States

should be getting involved in this until there is a Federal law to

sort of smooth this thing all out or mark it up even more?

Ms. MUNNS. I will take that.

You are talking with respect to——

Mr. STUPAK. Yes.

Ms. MUNNS. [continuing] consumer protection——

Mr. STUPAK. Yes.

Ms. MUNNS. [continuing] issues, and that gets back to what I

was talking about before, which is when consumers are harmed

when their expectations are not met, we find out about that first.

They come to us for relief. To have to say we need to forward that

to Washington so they can look at it, to the FCC or whoever to

fashion a remedy for this. A lot of the experimentation, a lot of

dealing with it, trying to find something that works is done first

at the State level, and then the Federal Government acts. I don’t

think you want to take away the capability to address those things

and find a solution that works. It may be something that you want

to Federalize, but to say that you can’t do that and that it has to

start at the Federal Government, I think is backwards.

Mr. STUPAK. Okay.

Mr. FELLMAN. Congressman, there is a great example of that

today that is pending that consumers are hanging out there, and

that is do customer service standards and privacy protections apply

to a cable modem service? And when the FCC decided a few years

ago that cable modem service was not a cable service, but was an

information service, one of the questions was ‘‘What about our customer service standards?’’ And at first, the FCC said well, we said

it was an information service, so send your complaints to us. They

quickly realized they didn’t have the staff to deal with consumer

complaints at the FCC, so they said no, continue sending them to

your local governments, but it was not clear.

They have had a pending proceeding at the Commission for, I believe, it is over 2 years to determine whether customer service

standards, either of the Federal standards that the FCC adopts, or

local customer service standards, apply to consumer protection and

privacy rights on cable modem service. It has been open for 2

years. Now, some communities have taken the issue into their own

hands. Montgomery County, Maryland, is working on it, the city of

Seattle has very robust standards that protect the privacy of their

consumers on cable modems. But the industry, the cable industry,

is fighting it, and they are saying you have got to wait for Washington to come up with an answer. We don’t think you have legal

67

authority. So consumers are hanging out there on privacy protection related to cable modem.

Ms. PELTZ STRAUSS. If I can add for disability issues, States have

been very responsive to the needs of their specific communities, especially on relay services and designing services specifically for

people with speech disabilities and people who are deaf who use

sign language interpreters.

And that is not to say that the Federal Government shouldn’t

have a role in setting some standards. Right now, we have a dual

system where States are allowed to set standards that exceed Federal minimums, and that would be the best result.

Mr. STEARNS. I thank the gentleman. I think we have about 6

minutes left. I will take the liberty to ask a few questions here. If

the chairman doesn’t come back, then we will adjourn temporarily

the subcommittee.

Mr. Davidson, we appreciate you being here. You have been kind

enough to work with myself and my staff, and of course, from Florida, we appreciate your input. You have some very good ideas.

I noticed in your statement, you said ‘‘Efforts to pigeonhole new

technologies into regulatory constructs will service primarily to

delay the development and deployment of these technologies for the

consumer.’’ I think that is something I wouldn’t mind you elaborating on. You know, I think it has been reported the United States

has dropped from 13th to 16th in broadband penetration, and one

of the main reasons was lack of competition, vibrant competition.

But the term ‘‘pigeonhole technology’’ might just elaborate, if you

could.

Mr. DAVIDSON. Well, I will. That new statistic is troubling. I

sometimes think, though, as a country we are not as bad as sometimes it is portrayed. We have an absolute sort of high level of penetration in terms of people, and when you compare the U.S. to

China, they have got a lot more people, so the percentages are

going to be off.

When I said ‘‘pigeonhole’’, the regime that exists was designed

around telecommunications, and it distinguished between telecom

and just everything else. And everything else includes, according to

some, cable modem service. Some will argue that as a telecommunications component, it would include the VoIP service that

I use at home. I don’t have a telephone; haven’t for a year. And

when you tell sort of these new entrants, whether it be Vonage or

someone else, that you are going to have to comply with the telecommunications obligations, the regime that exists now, I think

they are not going to be able to raise the capital. They are not

going to offer the service. It won’t come to market. There may be

some providers, really large, established providers, who may vary

an offer and say you know what? We can comply with the telecommunications regulations and we will do that. But we want sort

of the dynamism that we see with a lot of folks out there competing

with their services and offerings in the market. And we need to

somehow encourage that and we need to empower the consumers

to be able to make the choices they want for their new technologies.

I, as a consumer, made a choice. I do not want a telephone, so

I made a choice to go with VoIP service. I might not have had that

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option. I might have had such a really low bill for my voice service

at home had the company been pigeonholed into the telecom box.

Mr. STEARNS. I think I am going to have to go vote, so I think

I will temporarily suspend the committee, and the chairman should

be here and we will resume. So I appreciate your patience here.

[Brief recess.]

Mr. UPTON. When we left, there were going to be two votes, and

they changed it to one. So if it is two, we are going to be running

pretty fast, so I told the other members that, but in order to keep

going, we will go a little bit out of turn, I guess, and go to Mr. Bass

for questions.

Mr. BASS. Thank you, Mr. Chairman, and I want to first apologize for—I assume obviously everybody has given their testimony.

I am not familiar with everything that you have said, but I understand the gist of the subject matter here today. And I just want to

ask one question.

I think that there were some that talked about the issue of core

social obligations. Maybe it was you, Mr. Fellman. And I guess the

question is core social obligation or economic redlining, I think you

mentioned—I don’t know whether you mentioned it or not, but 911

consumer advocacy, and so on. Local PUC’s and local communities

have traditionally had the responsibility of monitoring these functions. Is there any problem with having that responsibility handled

on the Federal level? Universal service might be another issue, I

think, because 911 in community A is no different from 911 in community B or in State A versus State B and so forth. Is that a—

do you understand that question?

Mr. FELLMAN. I understand the question and I think for each of

the core social values, you have to look at them differently. Some

may make more sense to be dealt with on the State level, and I

am not an expert in telling you whether 911 would be negatively

impacted if it was all Federal versus all State. I would tell you,

particularly with respect to the access channels, which is a core social obligation, in my opinion, there is no way that the needs of Detroit are the same as the needs of Kalamazoo or the needs of some

small community in the upper peninsula of Michigan. And to have

a Federal rule that says here is what the local needs are and here

is what the obligation of a video provider is going to be, there is

just no way to have that work on the Federal level.

Customer service standards, which I mentioned briefly while you

were out of the hearing room, again are something that some communities are active in the way they enforce them. Others have a

much lighter touch. In large part, they are a function of the history

of the service providers in the community and what kinds of problems they have had, which is why I think the system we have

today with cable and customer service works. We have Federal

standards that communities can adopt and in fact, most do. They

just adopt the Federal standards. But they also have the ability,

if there are particular problems in particular communities, to adopt

different, and in some cases, more stringent local standards that

can be enforced at the local level.

Mr. BASS. Make it quick, because I want to ask one more question before—go ahead.

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Ms. MUNNS. Well, I think, you know, who should be subject to

e911 is certainly a Federal decision, because you don’t want that

to differ from State to State. But it is something that should be

clarified is of these services, who has to provide e911, so that we

all know.

With respect to complaints, we did a quick survey of 20 States

who processed over 200,000 complaints in 2004. That was 20

States, not including California. This is something that I don’t

think the Federal Government really has the capability to do.

Mr. BASS. Different question.

What is your—what are your observations concerning government action, if any, when the day comes that non-cable providers

start providing cable services in communities without paying franchises, if that happens? Franchise fees.

Mr. FELLMAN. Well, I guess that can’t happen unless Congress

changes the law, because the way video programming is defined in

Title VI of the Communications Act right now, when non-cable providers begin providing video programming over facilities that are

located in the rights of way by statutory definition, that becomes

a cable system and they are prohibited from providing those services unless they have a cable franchise. So clearly, Congress could,

if it chooses, change that system and eliminate cable franchising.

I think that would be a terrible mistake, again, for the reasons that

I went into in great detail in my written testimony, because there

are so many elements of cable which are purely local, and community needs on a local level will not be met if cable franchising is

taken away or general national rules are imposed at the Federal

level.

Mr. BASS. Okay. Chairman, I don’t have any other questions.

Thank you.

Mr. UPTON. Mr. Boucher.

Mr. BOUCHER. Thank you very much, Mr. Chairman. I want to

extend thanks to our witnesses for their illuminating testimony

today.

I was particularly pleased to hear the comments of Mr. Fellman

and Mr. Billings concerning the appropriateness of community networks, just as electric utility service was provided by municipal

utilities beginning in the 1880s, because the commercial providers

bypassed a lot of communities.

We have a parallel situation today with regard to broadband. We

saw a disturbing report this week that says that the United States

has now dropped two more positions from 13th to 15th in ranking

internationally among nations in broadband penetration, measured

as a percent of the population using broadband. We stand at 11

point something percent of our population currently using

broadband, and we are now 15th in the world. And I think local

governments have a role to play, particularly as you suggested, Mr.

Fellman, in rural areas and in some cities which have small populations in offering a service that the commercial sector either has

not provided or only provides at such a high price that it is effectively unavailable for residents and much of the business community.

I have two municipalities that I represent that have deployed

fiber optic networks, and these are very popular services with my

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constituents. One of those only provides broadband high speed

Internet access. The other one provides comprehensive telecommunications services. And both are treasured in the communities where they are located. And the penetration rates for

broadband there are higher than the national average. So I think

there is a role to play. I was glad to hear your testimony.

I want to follow up on the inquiry that I believe Mr. Bass was

opening. I didn’t hear all of what he said, but we need to have a

delicate and serious conversation about franchising. And let me

sort of state a couple of principles.

First of all, there are a lot more franchising authorities than I

think we are acknowledging. In the Verizon service territory alone,

I am told there are 10,000.

And so the real number nationally is some multiple of that. And

Mr. Fellman, I think you suggested 36,000 local franchising authorities across the country. That is probably a more accurate figure. Let us say 40,000 for sake of conversation. If a company like

Verizon, that has to get 10,000 franchises in order to offer video,

whether it is IP-based or whether it is just digital cable, is able to

average one franchise a day, it would take about 40 years in order

to get them all. This is every business day of the week getting one.

Now maybe they could do a little better than that, but I kind of

doubt it, given the necessity of devoting a lot of manpower to the

effort, and whatever the cost of that might be.

And I think, you know, to the extent we have delays, consumers

in these communities are denied the benefits of competition, more

varied services, the pricing competition that inevitably comes when

you bring new providers into the market. And that is an undeniable benefit for residents across the Nation.

In addition to that, the local governments are denied that second

or third or fourth franchise fee, which would multiply by orders of

magnitude the amount of revenue that you get from your franchise.

And I am just wondering if we can’t embark on a conversation. I

don’t have a fully formed view of this. If I did, I would announce

it and tell you what it is. But I am persuaded that we need to do

something different than what we are doing. The opportunity for

telephone companies to get into the market, for fixed wireless providers to get into the market, I think really argues for a new construct.

So let me just try out on you a set of principles, and I would like

your response to this potential.

Let us suppose that we had a national franchise, and it contained certain elements to be discussed and agreed upon. But

among those elements would be that you get paid, that whenever

a multi-channel video provider offers a service in your community,

you get an amount of money tantamount to the existing franchise

fee. So we take money off the table; you get paid, and you get paid

every time another provider comes in.

Let us also assume that one of the elements of this national franchise is public access channels. So public educational, governmental access would be afforded by the new entrants just as it is

by existing cable.

Now if we do this, I mean, first of all, you get a lot more money

real fast. The companies are able to roll out their services very fast.

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Your consumers get a lot of advantages very quickly, in terms of

competition, new kinds of video being offered, better pricing.

What would you think about that, just for starters. What is your

response?

Mr. Fellman.

Mr. FELLMAN. Thank you, Congressman.

You had said that you don’t have a fully formed opinion. I have

a partially formed opinion.

Mr. BOUCHER. Okay. That is better than fully formed. Partially

formed on both sides is good.

Mr. FELLMAN. You know, I think it is a conversation worth having. I am not in a position today to say this is a great idea, or this

is a lousy idea. I think the conversation would have to try to define

what are those elements that are purely local. What are the local

police powers? But I think if there is a way to streamline the process, it is absolutely appropriate to be talking about it.

There is an analogy that is taking place right now, which is an

initiative started by the National Governors Association. It talks

about telecommunications taxation where the Governors and the

State legislators and local mayors and the telecommunications industry are talking about telecom tax reform. I think that has been

a good process yet, and I hope it will be successful at some point.

On the issue of franchising, however, I think there is a lot of people that need to be at the table and discussing it. And I want to

make one clarification when I said 36,000. It is units of local government. Not all of those are franchising authorities, so I am not

sure that I would agree with you that we have got 40,000

franchising——

Mr. BOUCHER. I don’t know either. I am just taking a number I

know to be reasonably accurate in the Verizon territory and extrapolating from that.

Mr. FELLMAN. You have mentioned two key issues, the compensation for the public rights of way and the PEG channels, and

if those were guaranteed to address local issues or local needs in

some way, you know, that is a great start. I think there is—the

only problem with public access issue that you mentioned that

jumps right out at me, that when you say it would be guaranteed

at the Federal level. Again, what is necessary in a small municipality that you represent may not be the same thing that is needed

in a larger municipality. So somehow, there has got to be that local

negotiation for what community needs are. Otherwise, in order to

protect local franchising authorities, you have to error on the high

side. And that is something that is not fair to the industry.

Mr. BOUCHER. Well, this is open for discussion. I mean, obviously

we would have to learn a lot more than we know today before we

go forward. But I am encouraged by your response. I mean, it

sounds like this is a conversation we might be able to have, and

I look forward to working with you.

Mr. Chairman, with your indulgence, let me just ask Mr. Billings, and then I see Mr. Davidson wants to respond, too.

Mr. BILLINGS. Thank you very much. I believe it is a conversation that if you do have it, we want to be a part of it. I guess I

am sitting here in my mind wondering if there isn’t sufficient manpower commitment to come into my community and negotiate a

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franchise agreement with me, is there going to be sufficient H.R.

commitment to put in a system and service that system once it is

franchised and be responsive to my customers.

So I see your point and I know what you are driving at, but I

think it is one we would thoughtfully want to reflect upon and be

a part of the conversation as well.

Mr. BOUCHER. Let me just add one more element to this. This

could go on until dark, and I am not going to carry it on until dark,

but it wouldn’t upset me at all if you came back with a proposition

that said we love being paid, we love the idea of PEG channels, but

clarify our authority to offer community networks at the same time

and now we might have a deal.

And so if you came back with that kind of response, you wouldn’t

upset me in the slightest.

Mr. Davidson.

Mr. DAVIDSON. Thank you, Congressman.

Conversation is a great idea that has to occur. I also think that

national rules would provide certainty to a whole host of new entrants who are wondering what is going to happen in various

States. The government getting paid is a good thing. State and

local governments need money.

My concern is if right now in a region, hypothetically, a franchise

fee revenue is $1 million. If new entrants come in to offer services,

any sort of extension in franchising fee payment obligations, in my

view, ought not reflect the new tax. The revenue ought not go up

to $2 million; rather, it ought to be some allocation of that $1 million across a pool of similarly situated participants, unless the actual cost of local government goes up.

Another sort of challenging area is you have got traditional cable,

video-over IP, which has a capacity to compete with cable, and you

have video-over fiber to the home or fiber to the node, which cable

will say is closer to cable. What do we do, for example, when turn

key programming—and it is out there, sort of full programming

comes just over the IP network and it is not based upon any sort

of location of facilities in an area, and there is just a company that

is providing programming over the Internet.

Mr. BOUCHER. I think we impose the same rules. I mean, that

is my initial response to you.

And by the way, let me add, I believe that whatever we do for

telephone companies, we also have to do for cable. We have to be

even handed about this.

So there are real challenges in this subject matter. This may

prove to be one of the most interesting and challenging aspects of

our reform effort, but it is one I am sure we are up to, particularly

with your participation.

Mr. Chairman, my time expired a long time ago.

Mr. UPTON. Yes.

Mr. BOUCHER. Thank you very much.

Mr. UPTON. And for a little while you were safe, because the

other members hadn’t returned, but they now have. And I would

recognize Mr. Inslee for 5 minutes.

Mr. INSLEE. Thank you.

Mr. Fellman, I just came in the last part of your answer to Mr.

Boucher’s question. I just wonder if you can flesh out a little bit

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for me, if we were going to go to, let us say, you knew today there

was going to be a statewide or national kind of franchise standard.

What are the parameters of where you would put in how many access channels, how many hours, how many, you know, build-outs,

how many miles—I mean, what parameters would you have to

have to meet sort of the menu item of where you are right now?

Mr. FELLMAN. Congressman Inslee, your question, I think, discloses why this would be so hard to accomplish. Because the answer is different in every different community, so I don’t know.

Congressman Boucher asked if we can start that discussion, and

I think I am always willing to talk about anything, you know. ‘‘No’’

is always an appropriate answer in any kind of debate or discussion, but I think it is inherently difficult, extremely difficult to

come up with a national rule on how to meet the local needs of

every municipality and county in this Nation.

Mr. INSLEE. So I am trying to get a flavor of how far the spread

is, like in your State, what is the smallest number of—let us start

with number of access channels in a franchise——

Mr. FELLMAN. That is easy, zero.

Mr. INSLEE. Zero.

Mr. FELLMAN. Right.

Mr. INSLEE. Okay. So zero in your State? There is no access

channels in——

Mr. FELLMAN. Well, no, the smallest number.

Mr. INSLEE. Smallest number.

Mr. FELLMAN. There are communities in my State that have no

access channels.

Mr. INSLEE. And what is the highest number?

Mr. FELLMAN. Well, I think Denver has eight or nine. Some of

them are used internally for internal communications. It is somewhere in that range, maybe a few more or maybe a few less.

Mr. INSLEE. If you went around the country—I am just brainstorming here. I haven’t thought through this. It doesn’t mean I

have bought any of this Kool-Aid at all, but I mean, if you were

to go through and say well, if you looked at communities based on

population size, when you get over a million you have—I wonder

if you would find sort of fairly consistent patterns between population bases and number of access channels. Do you think you

would, or not?

Mr. FELLMAN. I don’t think you would, and here is why: because

it is not simply a function of population. And the example that I

can give you from my State is the city of Durango in southwestern

Colorado. A stand alone city, about 40,000 people. They are out

there by themselves. They are the big metropolitan area in southwestern Colorado. They have an incredibly robust government access and public access broadcast operation. They get private donations as well as city money and cable money that promotes this

kind of programming, and it is widely watched in that community.

The city of Lewisville, Colorado, same population, about, in metropolitan Denver. A very different community; part of a much,

much larger metro area of 2 to 3 million people and growing, and

the needs in that community are different. So the number of channels, the amount of money that you would want for equipment, the

type of programming that you would want to be producing, you

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know, you can say that all councils are going to want to broadcast

their city council meetings and their planning commission meetings, but beyond that, it changes dramatically from community to

community, regardless of the population.

Mr. INSLEE. In the States, I am told that some States have statewide franchising protocols now. How would you characterize the

differences there than other States that have really local decisionmaking? Is there any way to generalize there or not?

Mr. FELLMAN. A little bit. But now, we are getting a little bit out

of my area of expertise. I know some States have more control in

their local franchising. Others, like New York and New Jersey, the

State will approve the franchise but the local government is allowed to and does, indeed, do the community needs assessment and

negotiate based upon their local needs and ultimately, it just is

given to the State to be adopted in accordance with State rules. So

there are some heavy State control operations, and there are some

partnerships where the local governments have a lot more control.

So it just varies from State to State.

Mr. INSLEE. Does anyone else want to add to that at all?

Ms. MUNNS. I will just add. I have a list of the States that do

that. I know that they have varying models, and we would happy,

if it would help the subcommittee, to try to provide that information.

Mr. INSLEE. That would be interesting. Thank you.

Mr. UPTON. Mr. Gonzalez is recognized for 8 minutes.

Mr. GONZALEZ. Thank you very much, Mr. Chairman.

Let us see if I can try to make sense of it all. Well, that is kind

of impossible in Congress, but technology moves forward. Old technology is replaced or augmented or whatever by the new technology, and that is what we are really facing here.

In the old days, what was a telephone company, what was a Bell,

what was a cable company, and they call this—they had all these

fancy names about convergences and such. But we have to find

some answers working with the States and localities that have very

legitimate interests.

My concern is it really a monetary interest, the fees in any kind

of form, or is it really what you all have referred to, public requirements, social needs, social regulations. And some of it can be very

reasonable and legitimate, and others can really be quite burdensome and really interfere with what we have to do in this country

in order to utilize that technology to its fullest and its greatest advantages.

So I guess my question—and Mr. Fellman and Mr. Davidson in

particular, because I was reading your testimony. I think you all

touched on it more than anyone else. Is it—when you say local

needs, social needs, social requirements, is that really the main

consideration, or is it really one of fees? In other words, revenue

sources. Because it is—I don’t know how we reconcile some things,

to be real honest with you. So that is the first question.

And the second one, because what happens is time gets all used

up, except I did get 8 minutes here. Second question would be to

Mr. Fellman. You said something that was really interesting, and

I believe before we broke for votes, something to the effect that, I

guess, if it is video coming in on IP, then it is cable. In other words,

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what is the final product that is being delivered or whatever it is,

determines its nature, not the means or the method or whatever.

And so when you all get through the first question about not the

competing, but what weight do you put on fees, revenue sources,

than these other needs, social needs and requirements?

Mr. FELLMAN. Congressman Gonzalez, thank you.

You know, I could be flippant and say the answer to your first

question is yes, because they are both important. Clearly, if my city

were to lose the franchise fees that we generate from cable, basically the rent that we charge private entities who use public property in order to generate a profit, it would be a huge hit on our

general fund. It translates into police officers, it translates into library hours and rec centers and it would be a real hit on the local

essential services that we provide. And frankly, I think it would be

analogous, too, if the Congress said, you know, if it is all just about

money, maybe we shouldn’t option spectrum anymore. We want

these services, maybe we should just give it away to the companies.

It is the same thing. We are talking about our local public property; you are talking about Federal public property that the Congress has responsibility for. So the money is very, very important.

But the social obligations are, as well, and I am intrigued by

your comment that there are some that are very, very burdensome,

and I think if we are going to have a discussion, a conversation

going forward, I would be interested in if you have more specific

questions of what those are and how they work, we would be happy

to follow up with you and get you and the subcommittee more additional information.

I think cable has been very successful. There is more broadband

through cable systems than any other method, and they are the

ones that have been following and abiding by these social obligations for many years, and yet, they have more penetration than

any other source of broadband, as far as I am aware, in this country. So I don’t think that they are too burdensome in order to allow

our consumers to utilize these technologies.

You have got to remember, cities and counties are some of the

more larger and sophisticated users of these technologies as well.

We don’t want to slow down the process. We want the competition

and the new technologies in as quickly as we can get them, but we

think it is also important to maintain these social obligations. And

I think they are all equally important, but would be happy to get

more details to you if you have questions about specific ones.

Mr. GONZALEZ. Mr. Davidson.

Mr. DAVIDSON. Thank you.

On the social requirements, my answer too would be yes to the

question. But on the social requirements, I think what Congress

has to ask itself is okay, what is the social pact that we are engaging into? Certainly, a 911 obligation or certain consumer protection

regime wouldn’t necessarily apply to a sky technology that you and

I might just download on our computers to chat. But society has

determined aside from the fact that telecommunications was provided by monopolies, that 911 service is important. It is an important component of our society, so going forward, for those providers

that may engage in a social contract may use North American

numbers or do something else that is utilizing a public resource, it

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is fair to say, you know what, you probably need to come with a

way to comply with a 911 standard.

I think the money issue is very important, and I look at that

from two angles. One angle, in Florida, State and local governments—local governments are scared to death that as these new

technologies emerge and as customers move to these new technologies, they are going to lose revenue. They want—many want to

be able to tax VoIP that is a substitute for plain old telephone service, because they are afraid they are going to lose the revenue from

that. Cable franchising authorities are really concerned about losing the franchising-free revenue as video over IP rolls out. If I disconnected my cable, and lots of folks in my area disconnected their

cable because they could get the programming they want, whether

it is all sports, all entertainment, whatever, over their IP network,

that scares folks because cable is going to have a hard time competing. And if these new providers aren’t paying the funds, government loses.

But I look at the money issue from another angle as well. That,

to me, is one compelling reason why we need a national policy on

these issues.

California just went through what, in my view, is a failed experiment with their California Bill of Rights. With all the best intentions, they came up with this regime that went all the way down

to the detail of saying you must put your contract in 12 point

Times Roman font. If every State engages in that type of regulation, well intentioned, you are going to have millions, if not billions,

of additional costs that in a competitive market will get passed on

to the consumer. It is going to come out of our pockets. I don’t want

my bills to go up because States have lots of good ideas. If we have

good ideas, let us nationalize those. Let us have the conversation,

talk about what the good ideas are, move forward with those, and

perhaps have a safety valve so that when unanticipated situations

come up, States do have the flexibility to address those issues.

Mr. GONZALEZ. Thank you. It is only 1 minute, and I can talk

to Mr. Fellman later about the cable and voice and such, but I

think I have other witnesses that wish to respond.

Ms. MUNNS. I would just like to respond to what Commissioner

Davidson just said about the failed experiment in California with

the Bill of Rights.

California began looking at a Bill of Rights for wireless because

of the significant increase in complaints that they had. Their customer expectation was not being met, and they started looking at

a Bill of Rights in order address this. As a result of that, the industry came forward and said let us take a crack at getting this solved

voluntarily, and made significant strides to addressing some of the

issues that had been raised. That Bill of Rights, that idea I don’t

think is going forward in California. And to that extent, I think

that, you know, you can call it a failed experiment, but it did have

a good result, and we didn’t have to go to national standards to get

some voluntary compliance on behalf of the industry.

Mr. GONZALEZ. Thank you all very much.

Mr. UPTON. Mr. Engel.

Mr. ENGEL. Thank you, Mr. Chairman. Before I ask my question,

I would like to acknowledge that Tom Dunlevey of the New York

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State Public Service Commission is in the room. I would like to

welcome him.

Obviously, we are soon moving to draft legislation to update our

telecommunications laws, and as new technologies have made older

ones obsolete, the rules and regulations that govern this industry

need to be updated as well.

The introduction of VoIP has really made a profound change in

the industry and it is introducing rapidly a new level of competition to the voice market. Now soon, we will have a new level of

competition in the video services market as well, and I am committed to personally getting this new competition swiftly into the

market. But I believe that we need to ensure that there is a level

playing field, a fair and level regulatory playing field, such as must

carry public access channels and franchise fees and rates. I believe

very strongly that consumers will benefit when there are multiple

entrants into the market for communications services, whether it

is voice or video. Cable is the dominant provider of video, and telephone companies are the dominant power of voice.

So in line with that, I have a question I would like as many people who would like to answer it as possible to answer.

So any of you see where we can streamline the process for getting more competitors into the voice and video markets, and specifically, what steps are your States or organizations taking, and what

should we and the FCC—we meaning Congress and the FCC

should be doing? If anybody would care to answer that, I would be

grateful.

Mr. DAVIDSON. I will jump in just briefly on Florida’s approach.

Florida has taken the approach that if we remove some of these

regulatory hurdles that market conditions will be created and folks

will be encouraged to enter. So Florida has deregulated VoIP as

provided that broadband, regardless of the provider platform is not

subject to local government control. Recent legislation that is sort

of making its way through both chambers makes clear that both of

those platforms, however, remain subject to the State’s generally

applicable deceptive trade practices, consumer business protection,

statutes, fraud statutes, so that customers sort of are protected and

have a remedy.

But what we have seen with that now is that the State is a target market for Verizon to come in and build out fiber to the home

to deliver video. It is one of the largest markets for Vonage. We

have numerous cable companies offering telephony, so we are trying to just sort of as a market principle, remove some of those hurdles to competition, and we are seeing in Florida that that competition is, in fact, occurring. And I know everyone would like to have

it all here immediately, but there are clearly progressive steps that

are occurring in Florida, and the competition is coming.

Mr. ENGEL. Thank you.

Mr. PERKINS. Congressman. I am sorry.

Mr. ENGEL. Go ahead.

Mr. PERKINS. I think as we pursue that area, we need to keep

in mind that there are large rural areas in this country, including

Iowa, where it is not economically feasible for cable providers or

telephone providers to come in and put in DSL. In Iowa, we recently—our legislature passed legislation that deregulated over

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time the rates that Quest could charge for its residential phone

rates, but as a quid pro quo, Quest was told you have to get DSL

into a lot of different exchanges where you don’t have it. Quest

wouldn’t go in there. It wasn’t economically feasible.

So while it is great to say in some of these areas, large metropolitan areas where everybody wants in, there are a number of areas

where nobody wants in. The cable provider doesn’t want to extend

its cable out for four customers out in the countryside. DSL has

limitations on how far it can go. I live in the city of Des Moines

and I can’t get DSL because I am more than 3 miles from a switch,

but I am not certainly out in rural Iowa.

So I think as the committee looks—the subcommittee looks at

legislation, it is important to keep in mind that there are economies that these providers look at that dictate how much they want

to do, and there needs to be incentives, I think, such as the Iowa

legislature just provided to Quest, if you want this extra money,

you better get your DSL in all of the exchanges in Iowa, rather

than just the ones that you think you can make a lot of money at.

Mr. ENGEL. Thank you.

Mr. Fellman.

Mr. FELLMAN. Congressman, I would like to give you an anecdotal example of what doesn’t work, and then give you—reiterate

something that I said earlier that I think will.

In Colorado in 1996, the same year that the Telecom Act was

passed, our general assembly passed legislation that prohibited

local governments in Colorado from being in the franchise business,

if you will, with respect to any communications service other than

cable television. No franchises on any kind of communications service other than cable, no charges for permit fees, other than the actual cost of administering the permit process. No requirements.

Companies had the right to be basically on public property for free.

Do we have more broadband in Colorado today than you have in

New York or that you have in Iowa? Of course not, we don’t. The

market is going to dictate where these services are deployed, and

rural Colorado ain’t the market where they are being deployed

first. Even outside of the highly concentrated metro area, that is

not where they are. So to simply say we have got to make franchising go away is not going to solve the problem, because the companies are going to go where they can make a profit.

And that brings me back to what Mayor Billings talked about,

what I mentioned earlier. One way to encourage more deployment

and more competition is for Congress to make absolutely clear in

the next piece of legislation that comes out of this city that no legislation shall be passed that prohibits States or their political subdivisions from participating in a provision of telecommunications

infrastructure and services. And when smaller rural communities

start getting into the business and showing that it can be done and

it can be done profitably, then the industry will follow.

Mr. ENGEL. Thank you.

Unless there is anybody else who cares to do——

Mr. UPTON. If you have another question, go ahead.

Mr. ENGEL. Well, let me ask Mr. Quam.

In your testimony, you mentioned the 911 systems and the need

for new services to work with them. We all agree. I don’t think

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there is anyone on this subcommittee or committee who wouldn’t

agree.

But I want to ask you about the allowing the States to impose

a fee on these services to support the 911 services. We had a situation in New York, you know, Congress has passed legislation to

clean up the abusive 911 funds, but States can opt out if they forego Federal funding.

So I would like to know, what are the States doing to ensure that

taxes collected on these existing technologies are actually going to

upgrade the 911 networks? Has the National Governors Association

undertaken any kind of creating a transparent audit process for

States to use? There was an instance in New York, actually, where

I am from in the Bronx where there were four young boys who

drowned off City Island. They called 911 on their cell phones, but

they got through to 911 but the center couldn’t locate them because

the 911 funds weren’t used for their intended purpose. And so that

is why I am asking this question. Have there been any studies or

anything you can care to shed some light on this?

Mr. QUAM. The 911 services are absolutely critical to Governors

and States and having systems that work so when a consumer

calls, they actually find an emergency provider that can find them.

I think it is a priority issue for all Governors.

The National Governors Association, although we haven’t taken

on anything like auditing authority or that type of oversight, because these really are State programs, we have partnered with the

FCC to try to help build some best practices and have e911 operators and implementers really talking to each other and see if we

can’t get these programs going.

With regard to some of the issues regarding the fees that are collected, because they are State issues, really those decisions for the

levels and the fees need to be made by the State. I do know that

several States have made attempts to streamline that process or

simplify those systems to make sure the money that they are collecting is the money that is needed to implement those systems.

But from a national Governor’s perspective, the most important

thing is actually getting systems up and running that work. And

that is where most of the focus is.

I think last year’s legislation sent an important message from

Congress regarding the use of those 911 fees. I think Governors are

on board with that being a real priority to have a system that is

up and running, and that works.

Mr. ENGEL. Thank you. Thank you, Mr. Chairman.

Mr. UPTON. Mr. Bass, you don’t have further questions?

Mr. BASS. Can I ask one more?

Mr. UPTON. Yes, you can.

Mr. BASS. This may be pretty fundamental.

Why do we need franchising for new cable services when we don’t

seem to need it for anything else that we provide, for example,

wireless voice data? Anybody have some observation? What is the

difference?

Mr. FELLMAN. Congressman, the primary difference in at least

some of the examples you just—comparison examples you mentioned are the use of public rights of way. We need to remember

that the facilities that most of the cable systems are located on

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public property whose primary purpose is to safely and efficiently

move traffic of all kinds. And when streets are dug up and not repaired properly, there is a whole host of problems from the surface

problems with traffic safety issues to the problems caused by cuts

in electric lines and gas and water pipes. So there is a whole lot

of regulatory oversight inherent in the use of public rights of way

for a private company to operate its business, when that clearly is

not the primary use that that property was intended for.

The other issues—and we have talked about them, so I don’t

want to be redundant——

Mr. BASS. Yes.

Mr. FELLMAN. [continuing] but the 5 percent franchise fee is not

the only compensation for the use of that rights of way. I think

Congress has, for a long time, recognized whether it be broadcasting where there were public interest obligations in return for

use of the public airwaves, or the public set asides for satellites

now, or the social obligations I have talked about and some of the

other witnesses have talked about. With cable, a part of this is

compensation and a recognition and a policy in this Nation that

these media are essential tools for the use of our democracy by our

citizenry. And I think that is an important concept to remember

and to ensure that it continues with the new technologies we are

going to be utilizing in the future.

Mr. BASS. Okay.

Mr. UPTON. Well thank you. Thank you all for your testimony.

We have had a number of hearings on this issue, as you and certainly those in the press know, but others that have watched. I

think we have had four lengthy hearings over the last 2 months.

I think that the record is a good one. Our goal is to have a bipartisan effort for sure, and continues that we will try to get this legislation to the House floor by our August break. I am committed to

seeing that we do that in a timely manner. And we appreciate your

thoughts and interests, and the participation of all the members of

this subcommittee.

And with that, we stand adjourned.

[Whereupon, at 4:19 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

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