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IMPROVING INTERNET ACCESS TO HELP SMALL

BUSINESS COMPETE IN A GLOBAL ECONOMY

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 26, 2007

Printed for the use of the Committee on Small Business and Entrepreneurship

(

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

(II)

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JOHN F. KERRY, Massachusetts, Chairman

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

MARY LANDRIEU, Louisiana

MARIA CANTWELL, Washington

EVAN BAYH, Indiana

MARK PRYOR, Arkansas

BENJAMIN L. CARDIN, Maryland

JON TESTER, Montana

OLYMPIA J. SNOWE, Maine,

CHRISTOPHER S. BOND, Missouri

NORMAN COLEMAN, Minnesota

DAVID VITTER, Louisiana

ELIZABETH DOLE, North Carolina

JOHN THUNE, South Dakota

BOB CORKER, Tennessee

MICHAEL B. ENZI, Wyoming

JOHNNY ISAKSON, Georgia

NAOMI BAUM, Democratic Staff Director

WALLACE HSUEH, Republican Staff Director

(III)

CONTENTS

Page

OPENING STATEMENTS

Kerry, The Honorable John F., Chairman, Committee on Small Business

and Entrepreneurship, and a United States Senator from Massachusetts .... 1

Snowe, The Honorable Olympia J., a United States Senator from Maine ......... 3

TESTIMONY

Copps, The Honorable Michael J., Commissioner, Federal Communications

Commission, Washington, DC ............................................................................. 5

Adelstein, The Honorable Jonathan Steven, Commissioner, Federal Communications Commission, Washington, DC ............................................................ 11

Scott, Ben, policy Director, Free Press, Washington, DC ..................................... 31

Mefford, Brian, president and chief executive officer, Connected Nation, Bowling Green, Kentucky ............................................................................................ 50

Levin, Douglas A., president and chief executive officer, Black Duck Software,

Inc., Waltham, Massachusetts ............................................................................ 58

Wallsten, Dr. Scott, senior fellow and director of Communications Policy

Studies, the Progress and Freedom Foundation, Washington, DC .................. 66

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Adelstein, The Honorable Jonathan Steven

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 14

Response to post-hearing questions from Senator Snowe ............................. 98

Copps, The Honorable Michael J.

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 8

Response to post-hearing questions from Senator Snowe ............................. 88

Kerry, The Honorable John F.

Opening statement ........................................................................................... 1

Public response from a guest blog post wherein Senator Kerry ask the

question: How can we connect America? ..................................................... 137

Levin, Douglas A.

Testimony .......................................................................................................... 58

Prepared statement .......................................................................................... 60

Mefford, Brian

Testimony .......................................................................................................... 50

Prepared statement .......................................................................................... 53

Response to post-hearing questions from Senator Snowe ............................. 119

Scott, Ben

Testimony .......................................................................................................... 31

Prepared statement .......................................................................................... 34

Response to post-hearing questions from Senator Snowe ............................. 112

Snowe, The Honorable Olympia J.

Post-hearing questions posed to Commissioner Copps and subsequent

responses ....................................................................................................... 88

Post-hearing questions posed to Commissioner Adelstein and subsequent

responses ....................................................................................................... 98

Post-hearing questions posed to Brian Mefford and subsequent responses 119

Post-hearing questions posed to Ben Scott and subsequent responses ........ 112

Page

IV

—Continued

Post-hearing questions posed to Dr. Scott Wallsten and subsequent responses ........................................................................................................... 127

Wallsten, Dr. Scott

Testimony .......................................................................................................... 66

Prepared statement .......................................................................................... 69

Response to post-hearing questions from Senator Snowe ............................. 127

COMMENTS FOR THE RECORD

The Computing Technology Industry Association (CompTIA), Roger J.

Cochetti, group director-U.S. policy .................................................................... 170

Cunningham, William Michael and Creative Investment Research, Inc.,

Washington, DC ................................................................................................... 177

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IMPROVING INTERNET ACCESS TO HELP

SMALL BUSINESS COMPETE IN THE GLOBAL ECONOMY

WEDNESDAY, SEPTEMBER 26, 2007

UNITED STATES SENATE,

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP,

Washington, DC.

The Committee met, pursuant to notice, at 10 a.m., in room 428–

A, Russell Senate Office Building, the Honorable John F. Kerry

(Chairman of the Committee) presiding.

Present: Senators Kerry, Snowe, and Corker.

OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY,

CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS AND

ENTREPRENEURSHIP, AND A UNITED STATES SENATOR

FROM MASSACHUSETTS

Chairman KERRY. The hearing will come to order. Thank you all

very much for joining us this morning to discuss how we are going

to improve Internet access for small businesses in the country and

the importance of being able to be online for business in today’s

world.

I would just direct you quickly to today’s New York Times and

the Business Section, ‘‘Strategies to Succeed Online.’’ In the middle

of the article it says the old ways of hiring a public relations firm

and putting out press releases just don’t cut it anymore. Today’s

businesses have to be more hands-on, grassroots, interactive, and

maintain this flow of continuous communications.

That is what this hearing is all about.

Today, the Committee is exploring the pivotal, critical question

of access for small businesses to the Internet. We want to look at

the question of whether the prices are affordable, to what degree

there is penetration, are the speeds adequate, and what do we do

in order to make improvements?

Most people don’t disagree that high-speed Internet access is critical to economic competitiveness. You hear it talked about all the

time and everybody in public life has it in their speeches. But they

don’t necessarily have it in their policies, and for small business,

increasingly, it is becoming critical in order to track inventory, create jobs, monitor consumer relations, forecast product sales—any

number of different things. The Internet is not a luxury, it is a necessity. It is imperative in maintaining our growing economy.

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In March of 2004, President Bush appeared to understand that

by setting forth the Universal Broadband Access Goal by 2007.

Well, we are in 2007, but we have yet to put in place the policies

that will actually realize that goal. So as a result, we are lagging

behind the rest of the world now, which is pretty incredible when

you consider I remember sitting in the Commerce Committee in

1996 when we wrote the Telecommunications Act, mostly thinking

about telephony; within months, it was blown away and almost obsolete because it was all data transformation and data transmittal

that really was at stake. And here we are now, just a little more

than 10 years later, and the United States is lagging behind.

When the Organization for Economic Cooperation and Development, the OECD, began surveying and ranking broadband use, the

United States was ranked fourth among the 30 nations surveyed,

behind Korea, Sweden, and Canada. Since 2000, the United States

has plummeted in the OECD rankings to 15th place, and another

ranking of access to high technology lists the United States 21st,

behind Estonia and tied with Slovenia.

We can do better than this and we have to do better than this.

It is almost shameful, folks. It is inexplicable. It is essential for

America to have a national broadband strategy that encourages

competition and expands broadband access, or we are going to continue to be left behind.

Today, from rural areas to big cities, nearly 60 percent of the

country does not subscribe to broadband service, in part because

they simply don’t have access to the service or they can’t afford it.

Even a nationwide leader in technological innovation like my home

State of Massachusetts had a 45.9 percent broadband penetration

rate at the beginning of 2006, and that was the fourth best rate

in the country.

While small businesses are the backbone of our growing economy, the power of the tools that they use to compete both domestically and globally are shrinking dramatically. With America’s

Internet speeds severely lagging behind universal standards, it is

surprising that small businesses can compete at all. Americans in

rural communities face especially difficult challenges in overcoming

problems with broadband deployment, since many lack even basic

access.

The outcome is clear. We place a technological ceiling on job

growth, innovation, and economic production. We cannot expect

small businesses to fairly compete against more technologically advanced competitors unless we change what is happening today.

Some experts estimate that universal broadband would add $500

billion to the U.S. economy and create 1.2 million jobs. With numbers like those beckoning us, we need to focus on reestablishing our

technological edge.

I am delighted that we have two FCC Commissioners here today

on the first panel, Michael Copps and Jonathan Adelstein, to tell

us what they feel needs to be done to develop a national broadband

strategy. And on our second panel, we are pleased to welcome Ben

Scott, who is a recognized leader in broadband deployment and

media issues; Doug Levin, the CEO of Black Duck Software, who

will give us a unique perspective as a technology business leader;

Mr. Mefford will talk about innovative approaches to broadband

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being pursued in Kentucky; and Mr. Wallsten with the Progress

and Freedom Foundation offers additional ideas on the current

state of Internet penetration. We look forward to hearing their testimony.

A few things are certain here. We need better information in the

development of these policies. We are broadly lacking broadband

data for small business itself. I plan to ask the Small Business Administration and the FCC to conduct a robust effort to gather data

about small business and broadband usage.

We also need a strong regulatory framework to encourage competition. Competition spurs innovation, enhances services andd reduces prices. I have advanced and supported a series of measures

designed to increase competition. For example, I have worked to

make better use of spectrum, which is a valuable public asset.

Much of our spectrum is underutilized, shelved, and hoarded by incumbent companies. We can maximize this valuable asset, including the use of the white spaces, by creating 700 megahertz auction

rules that encourage new market entrants; in fact, we are dealing

with some of that on the Commerce Committee.

Lastly, we need to think creatively about Internet access. We

ought to look at reforms of the Universal Service Program and innovative public-private partnerships for additional ideas. I hope we

can draw these and other issues out in the hearing. I look forward

to hearing from our witnesses.

Senator Snowe, good morning and thanks for being with us.

OPENING STATEMENT OF THE HONORABLE OLYMPIA J.

SNOWE, A UNITED STATES SENATOR FROM MAINE

Senator SNOWE. Good morning. Thank you, Mr. Chairman, for

holding a hearing on this vital issue. I hope our combined membership on both the Commerce and Small Business Committee can

help us work together and develop a policy with respect to

broadband deployment.

I want to thank Commissioners Copps and Adelstein from the

FCC for their tremendous stewardship and public service. I have

the highest respect for both of these Commissioners and I want to

thank them for recently holding a hearing in Portland, Maine, to

solicit testimony from various segments of the population regarding

key telecommunications issues and preserving localism in the

media marketplace.

I have known Commissioner Copps for some time now and I applaud his unwavering leadership on the Federal-State Joint Board

on Universal Service and in particular the E-rate program and his

efforts to expand the Universal Service Fund to include broadband

deployment. Commissioner Adelstein’s understanding and experience with rural broadband deployment is highly essential and key

voice in the FCC and I want to thank you, as well, for your steadfast dedication and commitment to expanding broadband across

America.

I look forward to a productive and constructive dialogue with the

Commissioners and other expert witnesses on ways in which the

Federal Government can encourage more robust broadband deployment, specifically to rural America and businesses.

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The President announced his priority 3 years ago for broadband

deployment by 2007. We have a goal, but not the tactics to realize

this initiative. Fulfilling this charge is imperative as small businesses who rely on broadband connections, specifically in rural

areas such as Maine, need affordable access to technologies of the

future and, as well as the ability to compete in the global marketplace where other countries and our international counterparts

have a national broadband strategy.

One of the issues associated with universal broadband deployment is, of course, the FCC’s lack of a comprehensive broadband

data gathering methodology. I know both Commissioners have been

an advocate of making improvements in this area. The GAO agreed

in November of 2006, indicating that without more reliable data,

the FCC is unable to determine whether its regulatory policies are

achieving their goals.

I would like to explore the FCC’s adherence to the Regulatory

Flexibility Act, which requires the Federal agencies to consider the

effect of these proposals on small businesses. Commissioners Copps

and Adelstein, you are at the forefront of these issues and I welcome your input on how small businesses can work with the FCC

to reap the benefits of broadband services.

As Ranking Member of this Committee, I firmly believe that Federal policy should promote a universal broadband market that deploys competitive and affordable broadband. Today, the marketplace lacks competition, with 98 percent of Americans receiving

their broadband service either from a cable or phone company. To

encourage growth, we need to promote more competition in the

market.

I am particularly pleased that many States and municipalities

have launched initiatives to bring high-speed Internet services and

economic opportunity to communities the market has overlooked.

One example of this growing trend is Connect Maine, an ambitious

public-private partnership which seeks to provide 90 percent of

Maine’s residents with broadband access by 2010.

As we consider the matter of competitiveness, we must also bear

in mind that affordability is as much a barrier. According to a report by the Small Business Administration’s Office of Advocacy,

rural small businesses do not subscribe to broadband services as

frequently as urban small businesses do, usually because of the

high cost, creating a digital divide. In Maine, for example, even in

the areas where they do have access to broadband, 59 percent

choose not to subscribe because of the high cost. So, we must work

together to address the disparities between those who have this access and those who do not.

As many will mention here today, the United States, ranks very

poorly in broadband penetration, although it raries by ranking the

International Telecommunications Union ranks the United States

15th in terms of global broadband penetration rate. That is an unacceptable ranking, in the 21st century, for the United States globally to be ranked 15th in a category where it has been a pioneer.

In Maine, the statistics are just as bleak. It ranks 31st in the

country for residential broadband penetration, and 14 percent of

households have no access whatsoever. In America, it is 1 in 10

consumers who have no access.

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So, as we can see, broadband deployment in Maine and throughout the country is severely lacking. It continues to be one of the

major concerns among small businesses in my State, and rightfully

so, because broadband investments can have a substantial economic impact.

Everybody agrees that broadband holds the promise of technological innovations, better communication, and connecting vast distances within the States. So the question for this Committee is how

do we engender and promote a robust market, create that policy

that charts a path to successfully deploying broadband to underserved small businesses?

Hopefully, this is just the beginning of this dialogue and we can

chart this policy. I think it is absolutely crucial that we begin the

process in a very efficient and expeditious way, and hopefully it can

be spurred by this Committee hearing this morning.

Mr. Chairman, thank you.

Chairman KERRY. Thank you, Senator Snowe.

I would like to try to go right to the witnesses. Are you amenable?

Senator CORKER. Yes.

Chairman KERRY. Great. Gentlemen, thank you for being with

us. We look forward to your testimony. Your full statement will be

placed in the record, as if read in full. If you could summarize in

about 5 minutes, we would appreciate it.

Commissioner Copps.

STATEMENT OF THE HONORABLE MICHAEL J. COPPS, COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION,

WASHINGTON, DC

Commissioner COPPS. Chairman Kerry, Ranking Member Snowe,

Senator Corker, thank you for holding this hearing. Time is short,

so I will be blunt.

America’s lack of a coordinated broadband strategy is imposing

huge costs on small businesses all across the land. As the front

page of the Washington Post recently stated, ‘‘Americans invented

the Internet, but the Japanese are running away with it.’’ The most

recent broadband rankings by a variety of organizations have the

United States at anywhere from 11th all the way to 25th, and all

of them have us falling. This is not where your country and mine

is supposed to be.

It is not just a matter of national pride that we are talking

about, it is a business issue. Small businesses everywhere are increasingly relying on broadband Internet access. It is as essential

as running water, electricity, or phone service. Some small businesses in rural America cannot get an Internet connection at all,

and even when they can, they typically pay too much for service

that is too slow. It isn’t that much better in the Nation’s metropolitan areas. Prices are high for service that is by global standards

uncompetitive.

The Internet is supposed to be our great equalizer, leveling the

playing field between urban and rural, large and small, and domestic and global businesses. The broadband system we have today

makes a mockery of this great promise by creating greater disparity.

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How do we turn things around? We need a comprehensive national strategy and a strong commitment from the very top that

broadband is our national infrastructure priority. We need all the

departments of Government cooperating to encourage broadband

deployment using whatever mix of grants and incentives Congress

may choose.

There is an important role for the FCC. The Commission owes

Congress and the country more than they are getting. First, better

data. The Commission still unbelievably defines broadband as 200

kilobits per second. How 1997 that sounds. The Commission still

assumes that if one person in a ZIP code has broadband, ergo, everybody has it. So let us get better definitions of speed and deployment and granular data on prices, and let us study also what other

nations are doing, because there are some lessons to be learned

there.

Second, the FCC needs to become a clearinghouse for all the

broadband innovation and experimentation that are occurring outside the beltway. I have attended broadband summits and met

with local experts and small business owners in Cambridge, Massachusetts; Portland, Maine, and all around the country. I have

learned that our diverse and varied Nation has immense reserves

of local creativity. It is time to start sharing and encouraging that

creativity.

Third, the FCC needs to bring competition back into its telecom

policies. For example, the GAO has demonstrated that the FCC’s

deregulatory policies and our approval of one big merger after another have saddled small businesses with increased costs, like special access prices. The Commission is scheduled to act on special

access soon, and I hope Commissioner Adelstein and I can find a

majority willing to stand up for entrepreneurs and consumers, not

just incumbent phone companies.

Fourth, we need to support broadband with the Universal Service Fund. It worked for plain old telephone service, and it will work

here. I am delighted that the Federal-State Joint Board recently

agreed with me that broadband must be the mission of the USF

for the 21st century. We need to make that happen soon. Congress

gave the FCC considerable authority to get broadband out to our

people, and we need to start using that authority aggressively.

You know, throughout our Nation’s history, we have always

found ways in this country to work together, business and government and communities, to build our physical infrastructure, whether it were roads or turnpikes or canals way back when, as well as

railroads, and highways. Why can’t we tackle this infrastructure

challenge the same way, pulling together to get the job done instead of assuming that it is somehow just going to magically happen all by itself. It is not happening, and it needs to.

I want to mention one more issue, not in my prepared statement,

but I talk about it wherever I go, and it has real small business

implications. It appears that the FCC may be asked to vote on

media ownership issues soon, perhaps by the end of the year. Last

time we did that, in 2003, it was a disaster from which we were

rescued by the Senate and the courts. Media is not just another industry, it is the most potent social, political, and cultural influence

in the country. It is how we communicate, inform, debate, and deVerDate 11-MAY-2000 09:14 Jun 03, 2008 Jkt 040810 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\40810.TXT DianeA PsN: DianeA
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cide. Arthur Miller once said that a good newspaper is a nation

talking to itself, and that is really what media is.

Increasingly, media has become the province of a few mighty conglomerates who have sacrificed much of the localism and diversity

and small business competition that are supposed to be the bedrock

of our TV and radio, and the FCC has aided and abetted that at

every step of the way. This has been nothing short of a disaster,

not only for small businesses, but for our culture as a whole. The

rise of big media has encouraged the homogenization of local journalism, arts, and culture and led to the degeneration of America’s

civic dialogue.

It has been a special disaster for minority businesses. People of

color are 30 percent of our country’s population, but they own 3.26

percent of all full-power commercial television stations. Is it any

wonder that TV is so full of caricatures and distortions?

As you, Mr. Chairman, and Senator Obama pointed out in a letter to us, the FCC has had an open proceeding for years on how

to increase media ownership by small businesses, women, and minorities. You called upon the FCC to complete this proceeding and

make headway on the appalling situation we face today before we

make further changes to our rules. I support your call 100 percent.

I know my colleague, Jonathan Adelstein, feels strongly about this.

It is time to draw a line in the sand, be honest about what is at

stake, and not proceed on media ownership until we figure out how

to get a seat at the table for women, minorities, and small businesses.

My time is up, but I did want to get on the record that whether

it is broadband or broadcast, small businesses are up against challenges not of their own making, and they are suffering and suffering badly as a result. We can do better. We must do better.

Thank you.

[The prepared statement of Commissioner Copps follows:]

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Chairman KERRY. Thank you very much. I appreciate the direct

and important testimony that you just gave.

Commissioner. Adelstein.

STATEMENT OF THE HONORABLE JONATHAN STEVEN

ADELSTEIN, COMMISSIONER, FEDERAL COMMUNICATIONS

COMMISSION, WASHINGTON, DC

Commissioner ADELSTEIN. Thank you, Mr. Chairman, Senator

Snowe, and Senator Corker. Thanks for inviting me.

Mr. Chairman and Senator Snowe, I have certainly long admired

your leadership on technology issues. You well understand that

broadband is one of the best tools for promoting economic growth

that we have ever seen in this country. It is a key factor in the success of so many of our small businesses.

Small businesses drive job creation, economic development, and

new technologies, as hearing after hearing has demonstrated. They

also purchase a massive amount of telecommunications services,

$25 billion a year. So I am deeply concerned about the problems

with prices, speeds, and availability of broadband services.

Unfortunately, as the GAO recently noted, the FCC collects very

little reliable data about the availability of broadband to small

business. We can’t fix what we don’t understand.

The good news is that businesses are quickly integrating new

telecom services into their business plans. Broadband connects entrepreneurs to millions to distant customers, facilitates telecommuting, and increases productivity in so many ways. As we know,

much of our economic growth is attributable to productivity increases arising from telecommunications advances.

Given that 52 percent of our small businesses are homebased,

broadband capability is critical. Just as the Pilgrims used the

Mayflower to reach new opportunities in Plymouth Harbor, entrepreneurs are using broadband to reach beyond their current horizons.

Now, the bad news is that the little data we have suggests that

small businesses are starved for telecommunications competition.

Many small businesses have only one choice of broadband provider.

This deprives them of innovative alternatives and can force them

to pay higher prices. Even where there are competitive options, alternative providers rely heavily on inputs from incumbents, highlighting the importance of pro-competitive policies, as we have in

the Telecommunications Act.

Our businesses now compete on a global stage, so we have got

to tap the potential of all their citizens, no matter where they live.

We need to prevent the outsourcing of jobs overseas by promoting

the insourcing of jobs here within our own borders. While we have

made some progress, I am very concerned that we are failing to

keep pace with our global competitors, as you noted. Every year,

we slip further down the international rankings. The bottom line

is, citizens of other countries are simply getting more megabits for

less money.

I am concerned that lack of a broadband plan is one reason we

are falling behind. We need a comprehensive national broadband

strategy, and to lay out some elements of it, it should incorporate

benchmarks, deployment time tables, and measurable thresholds to

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gauge progress. We need to set ambitious goals, magnitudes higher

than the 200 kilobits we now count as broadband. We should gather better data, including better mapping of broadband availability,

as you have up there for Massachusetts. We don’t have good data

for much of the rest of the country that was done by the private

sector. The Government has little idea where broadband is truly

available.

The FCC should be able to give Congress and consumers a clearer sense of the price per megabit, just as we look to the price of

a gallon of gas as an indicator of consumer welfare. We must also

increase incentives to invest, because the private sector will drive

deployment. And we must promote competition, which is the best

way to foster innovation and lower prices.

We must also ensure that universal service evolves to support

broadband so that our hardest-to-serve areas are covered. As you

noted, Mr. Chairman, spectrum-based services offer some of the

best opportunities for promoting broadband. We must get

broadband spectrum into the hands of operators ready to serve at

the local level, including small businesses. One way is through auctioning smaller license areas that are affordable to communitybased providers.

With the upcoming massive 700 megahertz auction, we have an

historic opportunity to facilitate the emergence of a third

broadband platform. I hope that companies will look at the rules

that we made and we developed as a compromise to provide opportunities for a diverse group of licensees. We set up aggressive

build-out requirements that will benefit consumers and small businesses everywhere. But I think we fell short on getting the rules

right for small so-called designated entities, to give them a boost

in the auction, and I hope we will reconsider some of the restrictions that we placed on them.

Unlicensed broadband services can also cover many underserved

areas and hold promise for small providers. Unlicensed spectrum is

free. It can be accessed immediately and equipment is relatively

cheap. We are working to make more unlicensed spectrum available at higher-power levels.

There is also a lot more than Congress can do outside the purview of the FCC, such as providing adequate funding for RUS

broadband loans and grants and properly targeting those loans and

grants, providing tax incentives for companies that invest in

broadband in underserved areas, promoting broadband in public

housing, investing in basic science R&D, improving math and

science education, and, of course, making sure that all of our children have affordable access to their own computer, because without

a computer, broadband doesn’t help.

We sorely need leadership like this Committee is showing today

at all levels of government. It is time for a series of national

broadband summits mediated by the Federal Government in partnership with the private sector to restore our place as the world

leader in telecommunications. I look forward to working with you

to maximize the availability of affordable, truly high-speed

broadband services.

Finally, I would like to highlight an issue that Commissioner

Copps mentioned. I know you both have expressed a lot of concern

13

about the deplorable state of minority and female ownership of

media assets. That is why I am encouraging the Commission to create an independent bipartisan panel to address these concerns. It

is my hope that with your support and leadership, the Commission

will do just that.

Thank you for inviting me to testify today.

[The prepared statement of Mr. Adelstein follows:]

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Chairman KERRY. Well, thank you both for important testimony.

We now have four statements today, mine, the Ranking Members, and both of yours, that describe the problem, and both of you

have described it succinctly, eloquently, forcefully, and compellingly. So the question is, I mean, who is supposed to do this? Why

is this not happening? What is the problem here?

Commissioner COPPS. Well, I think first of all is the lack of a

strategy. Number two is the lack of good information so people can

understand the problem. But I think as important as anything has

been the mindset that we have been working under for the last

several years—not to worry about it. The marketplace will take

care of this. The market is going to provide ubiquitous broadband.

It is going to protect the public interest in media, too. Nothing else

is needed.

While we all revere the marketplace, which is the locomotive of

our system and should always be in the lead, there are some things

that are not getting done, cannot get done by themselves. You can

go back, as I said, to our early history, building the infrastructure

that we needed to places where it had to go but the private sector

didn’t see an immediate profit by going there.

So we need to cooperate. We need to innovate. We need to learn

what municipalities are——

Chairman KERRY. What do you think the most significant step

would be, legislative structure, executive order, or an economic incentive? What is going to have the biggest return here in terms of

people saying, wow, now we can go do this?

Commissioner COPPS. I think a committment from on high saying that this is the infrastructure challenge of the first part of the

21st century. We have always built America and kept it great by

keeping up with infrastructure. We have to do that with our physical infrastructure, and broadband is the highway and the byway

and the ports and the canals and the railroads of the 21st century.

Without it we are going to be left behind. Then people will pay attention and then we can come in and do all this——

Chairman KERRY. Didn’t we set that goal? Didn’t the President

set that goal in 2004?

Commissioner COPPS. Well, a goal is always welcome, but a goal

has to be accompanied by a strategy and a strategy has to be informed by tactics, and that is where we have fallen down.

Chairman KERRY. Again, let me re-ask it. What tactic do you

think would have the greatest impact? I mean, do we need to create some huge tax credit or incentive for rural investment? Do we

need to create grants for rural investment?

Mr. ADELSTEIN. I think we need a comprehensive plan. I laid out

today a comprehensive plan which involves both legislation and

leadership on the national level, as well as action by the FCC. The

Telecommunications Act did envision this. It talks about advanced

services five times in Section 254.

Chairman KERRY. The Telecommunications Act envisioned that

we were going to have local Bell Telephone Companies competing

in the marketplace and frankly, the regulators didn’t regulate.

Mr. ADELSTEIN. That is right. We basically gave up on it.

Chairman KERRY. Absent some enforcement, nothing happened.

22

Mr. ADELSTEIN. We gave up on competition. Competition drives

deployment like nothing else. The vision of the Act was competition. Now, it is not Congress’s fault that the FCC gave up on the

job and the marketplace didn’t work very well. Now we have consolidation and lack of competition, and as Free Press’s testimony

indicates, competition should be the biggest driver of prices. Prices

are shooting up. There are no alternatives for these small businesses. We need a coordinated plan from the highest levels.

I mean, one way to start is a national summit on broadband.

Why don’t we have this kind of leadership where we all gather, private sector, public sector, Congress, the Executive branch agencies

including us, NTIA, all the way down the line. That brings everybody together. I also laid out a comprehensive plan here today—

tax credits. You need grants. You need universal service. But you

also need the FCC to promote competition policies and create the

incentives to invest.

Chairman KERRY. You talked about more megabits for less

money in Europe. What were you referring to?

Mr. ADELSTEIN. In Europe and Japan, all around the world, the

OECD data shows that we are paying more for less. In Japan, you

get——

Chairman KERRY. Why are we paying more for less, is that because of lack of competition?

Mr. ADELSTEIN. Well, it is lack of competition. In some cases in

these countries, actually, have regulated monopolies which are resulted in faster speeds at lower prices. We pay seven times as

much as Japanese consumers for lower speeds, and they have a

more regulated environment. So we have this duopoly here, but apparently a duopoly isn’t sufficient. A lot of small businesses don’t

have access to a cable provider at all, so they only have one choice

because cable doesn’t go to the business areas. We see that they

are trying to compete, but there has been an attempt to squeeze

and destroy the CLECs and they are in need of protection to have

regulatory stability.

Chairman KERRY. Who do you believe could be the critical players at that summit?

Mr. ADELSTEIN. Well, I think it has to come from the top on

down. I think that leaders from the Executive branch to the Congress, the leaders of the committees, yourself included, of course,

and this Committee as well as the Commerce Committee. I think

that the private sector, all of the major leaders from the very small

providers and the CLECs to the very largest national providers

need to all come together to talk about making this a national priority and set goals and benchmarks. It is one thing to say you are

going to get there by a certain date, but what are the exact benchmarks by which you get there? How do you measure that? What

is the data that you need to get there? We need to all come together with that kind of leadership. Knocking heads together could

make a difference.

Commissioner COPPS. But meanwhile, there are concrete things

we can do. We talked about better data gathering and analysis, but

the joint board is talking right now about including broadband specifically in universal service. I think we have the authority to do

that under the Communications Act. We used universal service to

23

get plain old telephone service out to all of our citizens, or most of

them. That was the pots. Now we have got the pans, the pretty

awesome new stuff, and we ought to find a way to get the pans out,

as well as the pots to all Americans and we are not doing it, and

this is a fix that could be made in the near-term future. So we

would be at least taking one fairly significant step.

Chairman KERRY. You talked about the past, we have great examples of this: for example, electricity in America and the TVA and

the effort to say we are going to get electricity out to every home

in America. Is there a sense that the Internet ought to be, at least

until broadband is universal, treated as more of a public commodity?

Mr. ADELSTEIN. I think so. We should make broadband the dial

tone of the 21st century. The Farm Bill in 2001 did take RUS from

being just a telephone system to a broadband system. I talked to

somebody last night from RUS, they are having more applications

coming in than they can fund this year, great applications coming

in. So that is one step. But it has to be like the National Highway

System, as well. If it weren’t for Eisenhower making the commitment, we wouldn’t have the highway system we have today. That

vision back in the 1950s needs to be happening now, I think, for

the Internet system.

Commissioner COPPS. You ask about how we are treating the

internet. We are not even treating it as a telecommunications service here in the 21st century. We have spent all this inordinate

amount of time at the FCC deciding that, oh, this isn’t telecommunications, this is an information service so none of the consumer protections, universal service, privacy obligations apply to it.

Here we go in with all of this wonderful new technology, all of the

awesome opportunities it has for the future of this country in the

21st century and we don’t even apply the simple protections that

applied to plain old telephone service in the last century. That is

a shame and a sham.

Chairman KERRY. Senator Snowe.

Senator SNOWE. Thank you, Mr. Chairman.

I thank both of you for your very powerful statements on these

issues that are clearly are resonating and reverberating across this

country. There are a multiplicity of problems, without a doubt, the

President did set a goal in 2007, and looking back, I remember

thinking we would have plenty of choices when it came to purchasing the broadband carrier. The more choices around, the more

the price will go down. The more the price goes down, the more

users there will be. And with more users, it becomes more likely

that America will stay on the competitive edge of world trade.

Obviously, that hasn’t occurred and it just can’t happen magically. We have to develop complementary remedies between the

Congress, the FCC, and the Administration. I think the idea of a

broadband summit is an excellent way to start crafting a national

strategy where each branch of government understands exactly

what it is required to do. I was asking my staff last night who does

what? It is critically important that each branch of the government

understand their role, and I’m concerned that they don’t. This is

a multifaceted issue, and obviously you have to orchestrate a comprehensive strategy, and if it is important to America’s economy,

24

then clearly there should be a national broadband policy. Everybody has discussed, but it clearly hasn’t happened.

There are several issues that I would like to explore. One is on

the use of the Universal Service Fund for broadband services, the

high-cost fund. Is it clear, Commissioner Copps, as to whether or

not you can use the Universal Service Fund for the support of

broadband deployment, because you have had a reclassification of

broadband services as information rather than telecommunications

service. Is that a legal hindrance to using the fund?

Commissioner COPPS. No, I don’t think it is a legal hindrance.

Certainly it would be doable under the ancillary authority of title

1, if nothing else. But I think clearly we have not only the authority to do it, but the charge from Congress to get advanced telecommunications to all of our citizens.

Senator SNOWE. Last year, Senator Stevens and other Members

of the Commerce Committee worked on the universal service issue.

Five hundred million dollars was included in the Universal Service

Fund to help deployment in rural areas. Do you think that this

funding has had an impact?

Commissioner COPPS. I think that is helpful. I think in the long

run, to get broadband deployed around the country is going to be

a very expensive exercise. We are looking right now at trying to get

a public safety broadband system established through the 700

megahertz auction and that is going to be billions of dollars just

to do that.

Senator SNOWE. Commissioner Adelstein, you made a good point

about tax incentives and grants, could they be supported by

supplementing the Universal Service Fund, and would it help with

respect to this type of deployment?

Mr. ADELSTEIN. I think that is right. I mean, a lot of people say

the reason we are falling behind is we are rural. I am not sure that

is entirely supported by the evidence, but to the extent that is true,

and you know the rural parts of Maine, you look at Western Massachusetts, we do have a problem in rural areas. So if that is the

problem, why don’t we redouble our efforts? Why don’t we focus

broadband on that and the access advanced services in section 254

where we have that authority? We need to do tax credits to encourage areas where the market isn’t serving, and the RUS program is,

I think, really doing a great job of getting broadband out and it

needs to do even more. It needs to be fully funded, as well.

Senator SNOWE. What about the special access issue? Is that a

major factor that will help to promote competition? There are a lot

of small companies that are dependent on the Bells for the infrastructure and access. In many cases it is only one company that

small companies rely on and their prices are high and becoming

even more costly. I know that there is a decision pending before the

FCC, but would that help?

Commissioner COPPS. It is pending. I think if we can get it right,

it would help. We had a GAO study recently that pointed up the

problems that attend special access. There is a lot of money involved in it, $15 or $16 billion charged by the big phone companies,

and about 94 percent of the country’s enterprise buildings are

reached only by the big ILECs. Is that a drain and a hindrance to

small business? The GAO thought so, and I think so, too. So we

25

are under an obligation to get this done, kind of a self-imposed one,

by the first of October. That is 4 days away. I haven’t seen the item

yet.

Mr. ADELSTEIN. Certainly, that is right. Businesses, long-distance providers, and wireless all rely on special access. Customers

say they don’t have any competition, that the earnings by the Bells

are excessive. The GAO report that Commissioner Copps referred

to found that there are competitors in only 6 percent of the market.

Ninety-four percent of buildings are only being served by local incumbents. These are buildings where small businesses are located

and large businesses as well. So this impacts everybody. It ripples

throughout the system. Businesses, hospitals, governments all pay

more than the market might otherwise determine, if it were truly

competitive.

And if you think about a new competitor coming in, like a new

national wireless system we are hoping under the 700 megahertz

auction, every little node they set up, every tower they set up is

going to have to use special access to connect to the network, and

so we have to make sure that we get this right.

Senator SNOWE. What about broadband mapping? Would that be

helpful to pass mapping legislation? Would that help us know exactly where broadband has been deployed and where it hasn’t, and

is this something the FCC is already undertaking?

Commissioner COPPS. No. But it would be immensely helpful. It

is something that FCC should long ago have done and long ago provided to you and provided to companies around the country. Now,

thank goodness we have all of these exercises, Connect Kentucky

and Connect America generally, and a number of States are doing

this and I applaud that. But this is something if we had a national

strategy the FCC would have been charged to complete a long time

ago. We shouldn’t be messing around with this in 2007, finding out

who has got what.

Mr. ADELSTEIN. And we should be mapping—I think Connect

Maine will help, as Connect Kentucky did. I have this map of Massachusetts. You look at the FCC’s data and compare it to that, the

FCC says you have broadband everywhere in Massachusetts, but

you look at all those red areas in Western Massachusetts and that

is not the case at all. So the FCC’s data is clearly inadequate. Our

maps are a disgrace. They are not adequate to give us a real picture of what is happening.

Chairman KERRY. Is that the John Adams Institute or——

Mr. ADELSTEIN. Yes. That John Adams map there shows all

those red areas with no broadband, but the FCC’s map, their different color codes show that you have broadband everywhere in

Massachusetts. So our mapping is completely inadequate.

Now, it is not that hard to do. I was in Chicago last week and

there was a small businessman, Willie Cade, who owns PC Rebuilders and Recyclers. He, on his own, came up with a program,

his little small business, that mapped all of Chicago, everything

that the major providers are providing in Chicago, and you can see,

as a matter of fact, there tends to be more service in the higherincome areas than in the lower-income areas, all mapped out. He

managed to mine the data from publicly available information that

the providers have on their own Web sites. So why can’t we do it?

26

If a small business in Chicago can do it, why can’t the Federal Government do it?

Senator SNOWE. Well, that is a very good question. Why can’t

we?

Mr. ADELSTEIN. I think we can. I think we should. Legislation

would be helpful, but the FCC must undertake, I think, a better

role. I talked to Chairman Martin this morning and I think he

shares the commitment to improving the data that we get. We have

a proceeding that is pending right now. We need to make sure that

we have good mapping as a part of that and make sure that we

ascertain small business and what kind of availability small businesses have.

Senator SNOWE. So that is something that you think that the

FCC will pursue?

Mr. ADELSTEIN. I do think so. We have a pending open proceeding right now. Just this morning we discussed the need to ensuring that we get better data. We are going to work very hard to

make sure that it is as strong as it can be. We would like to work

with you, as well, to get your input.

Senator SNOWE. Thank you.

Chairman KERRY. Remember the old statement, trust but verify.

Senator SNOWE. Yes. Exactly. But I appreciate it, because it is

clear to me that we have a lot to do with those branches and with

the agency. We have to figure out how to corral all of this and just

have a clear strategy for the future and pursue it aggressively.

Thank you very much. Thank you, Mr. Chairman.

Chairman KERRY. Thank you very much, Senator Snowe.

I would like to reference this map for the moment a moment. It

is up in the back here, and Senator Corker, I will recognize you in

just 1 minute. I want to point out that the red areas are the entire

areas and towns that have no access at all, and yet Massachusetts

is ranked number four in the country. This is why this is important. The orange areas represent where broadband is available in

a very limited amounts. The yellow shows areas that have only one

broadband provider. As you can see, it is a complete monopoly—no

competition—therefore pricing is not competitive.

A duopoly is where you have two broadband providers and is

shown in blue. Two is not sufficient in many people’s judgments.

And you have only this tiny area around Boston, the sort of greater

Boston area there, where you actually have three or more

broadband providers and real competition. So most of the State of

Massachusetts doesn’t have real competition (more than three providers) which is an extraordinary statement about where we stand

with broadband penetration.

[The broadband availability map referenced above follows:]

27

28

Senator KERRY. Senator Corker.

Senator CORKER. Mr. Chairman, thank you for pulling together

this hearing. I was in 58 counties of the 95 that we have in our

State during August recess and broadband is a big issue, especially

in the rural areas. In our own State, a lot of the municipalities, I

know when I was mayor we put in a 96–fiber line around our city

to create some competition and I know other cities are doing the

same in our State. Some of the rural areas obviously are applying

for grants to do the same kind of thing. But it is an issue, no doubt.

I do wonder, I hear us talking about Federal mapping and all of

that. I know that States are also engaged in many cases. I know

we have a gentleman, Mr. Mefford, who is actually involved in the

State of Tennessee right now connecting our State and is going to

be part of the second panel which I am going to miss, but what role

do you as Commissioners see at the State and local level?

It seems like that we have a tendency here to want to Federalize

everything and I know there are a number of activities that are

taking place in States across the country and I would love for you

all to make comment on that.

Commissioner COPPS. Well, I think it is an important question

and I think probably we have actually Federalized too much in the

way we have approached telecommunications policies and taken

away authority from the States on a lot of the consumer and other

issues. The franchising exercise that we went through was another

example of that. So we have to get back to the kind of a balance

that I think the Telecommunications Act of 1996 envisioned between Federal and State authorities.

There are some things, I think, that are obviously more efficiently done in one venue than another, and I think getting baseline data on broadband and deployment and knowing who has it

and measuring the speeds and all that is a perfectly legitimate exercise for the Federal Communications Commission and is something we should have done long ago. You know, a lot of States don’t

have the resources to do that and a lot of the States don’t have the

‘‘connect’’ initiatives that many States are developing right now.

This is a national problem. It is a national challenge. It is a global competitive challenge to our small businesses and we have to

treat it that way and use all of the resources we have, Federal,

State, local. We need to innovation and we need to learn from what

various States and localities are doing.

Mr. ADELSTEIN. I think it really is a partnership that we need

to do with our State and local colleagues. I was meeting with the

mayor of Fort Wayne recently who has done an incredible job of

getting Fort Wayne wired, working with providers, but what does

that mean for Gary? What does that mean for South Bend? It’s

great for Fort Wayne, and they are going to get business that other

cities won’t get, but what about having a national system and

working with innovative mayors like that, working with the States

that are doing things like Connect Maine or Connect Kentucky?

Where is Connect South Dakota? Are they going to get left behind

if they don’t get it together? Can’t we all have similar maps so that

we have a uniform national vision of this?

I think we can learn a lot from what the State and local governments are doing. As a matter of fact, when it comes to the national

29

summit, I wanted to say one of the ideas is you really want to include State and local governments in that. If need be, Congress

itself could convene such a national summit—it doesn’t have to

come from the Executive branch—and invite Executive branch

partners to come in along with State and local governments to talk

about what are some of the great things that are going on in places

like Fort Wayne, and why can’t we do that nationally. Those cities

that have good visionary leadership shouldn’t have an unfair advantage over those that, unfortunately, for whatever reason, don’t

have leaders that are so focused on telecommunications.

Senator CORKER. You know, we have had people in our office. I

find the testimony today somewhat interesting. I think, in particular, Mr. Copps is kind of a cranky testimony, if you will, and

you are involved, it seems, the FCC is sort of the centerpiece at the

Federal level being involved in these kind of things.

We have had people in our office talking about the auctioning of

some of these spectrums that you all are talking about that say

that they are perfectly willing to connect every—make sure that

every home in America has access to broadband if they can just get

these spectrums bid appropriately so that they have the opportunity to do that. I would love for you all to comment, because it

sounds like there are some things that you readily have available

to solve some of these problems.

Commissioner COPPS. Well, I am old, and I am cranky, and I

have been in this town for 37 years now and——

Senator CORKER. You wear it well.

Mr. COPPS [continuing]. Dealing with this problem of small and

medium-sized enterprise for much of that time, so that is why I get

a little bit impatient.

Yes, the rules and the procedures we establish for our auctions

are very important. You have to look at each case that comes along.

I mean, some people want to get that spectrum in very unconventional ways that sometimes may be in contravention of the statute

or maybe go around auctions or something like that, so you have

to look at each of those cases, but we have to be innovative. That

is why Jonathan and I were concerned on the 700 megahertz auction that we weren’t more innovative to encourage more participation and have open access, a wholesale model, to allow some competition in at least this one part of this one piece of spectrum. Let

us try something different and see if it works. Yes, we have the authority to do that, and we should be doing a lot more of it than we

are.

Senator CORKER. I mean, here we are testifying before a Senate

Committee. Why don’t you tell us why you are not doing that? It

seems like to me that you have the tools at your disposal at the

FCC truly on these spectrum auctions to solve this problem——

Commissioner COPPS. I think we do. But number one, I just observe that we are two out of five people, so we don’t necessarily

command a majority for everything that we want to do.

Chairman KERRY. They don’t have the votes. The Commission is

appointed——

Senator CORKER. I understand there are five, but I can’t imagine—I would love to get some of the other Commissioners up here

then, Mr. Chairman, and talk about it. But I would sure love for

30

you, since you seem a little perturbed about it, for you to air why

that is not occurring.

Commissioner COPPS. It is not occurring for all of the reasons

that I have tried to explain this morning, beginning with the lack

of a national strategy. We don’t have that charge from on high to

get this job done. We don’t have the charge saying, this is the most

important infrastructure problem our country faces. That charge

would say: go and use the authority you have and get it done, and

if you don’t have the authority, come back here and get some more.

It is either going to be a priority or it is not going to be a priority

and we are not treating it as a priority, and to me, it is the central

infrastructure challenge that we face right now. If we don’t do this,

small business is going to suffer. Minorities are going to suffer.

Rural America is going to suffer. And the country as a whole is

going to suffer. It is a job that is not getting done and——

Senator CORKER. Again, I don’t want to create acrimony here,

but I just have people come in our office representing companies

from around the country that feel like they could solve this problem. You all are two of the five Commissioners apparently that

could affect that and I think that is an area for us to begin——

Commissioner COPPS. I think that is true, but in the deregulated

environment in which we live, which is the environment that a lot

of these companies pushed for, we were told that if we would deregulate the job would get done. We deregulated. The job didn’t get

done.

Mr. ADELSTEIN. I think I know one of the companies you are referring to. You are talking about getting wireless spectrum into

use, and that is something that I talked about. I think you are exactly right on. There are opportunities out there to do it. Now, why

didn’t that happen? It is a very good question. The company perhaps is M2Z that you are talking about. This is a company that

had a proposal for nationwide use of a certain area of spectrum

that is now underutilized. They argued under section 7 of the Act

that says we are supposed to get new services and new technologies approved or decided up or down within a year.

Now, they put forward a proposal, and it was a year before we

even acted on it. We didn’t even have the opportunity to vote on

it or anything because nothing came before us for a whole year. Finally, we just put an NPRM out like the day before the year expired so we wouldn’t be exposed in court, but why didn’t we do it

quicker? What are we waiting for before we even put out a notice

asking what we should do about something?

Here this private company did identify, I think helpfully, that

there was some underutilized spectrum and they wanted to do

something with it. Well, whether you like what they want to do or

not, why don’t we find a way to get that spectrum into use, get

them or somebody else using it, auction if off, get it moving, get

that out for notice and get the auction up and running. I couldn’t

agree with you more. We need to be doing that. We need to look

at every inch of spectrum we have and try to pack more data on

it. Here is an example of where we didn’t do our job well. We didn’t

really comply with the spirit of trying to get things done in a year

and it is frustrating a little bit. It is making me age prematurely.

31

Senator CORKER. I appreciate the time, and Mr. Chairman, I

would just say——

Chairman KERRY. No, that is a very legitimate and very important series of questions. I think it does—clearly it begs the question

that is on the table.

Senator CORKER. And I think that before we get involved in mapping and a Federal initiative and all that, I think there is an entity

here that with some degree of innovation within its own ranks

could go a long way toward solving this problem without—in a way

that, candidly, is not something that would use a lot of Federal resources. I mean, you have spectrum. We have a need. You all have

the ability to auction that spectrum in a way that creates universal

access if you so decide, and I would just urge the Commissioners

to maybe come back and talk with us about ways of making that

happen.

But again, thank you for this, and I had no idea I was going to

ask even these types of questions. It really came because Mr.

Mefford is wiring our State and I wanted to pay tribute to him, but

thank you for this testimony.

Chairman KERRY. No, we appreciate it. It is good to get

everybody’s crankiness out on the table.

[Laughter.]

Chairman KERRY. Thank you, gentlemen. We appreciate it.

We are going to go right to the second panel. We are under a little bit of time pressure here, so if we could just have a seamless

transition, that would be terrific.

And I think, Senator Corker, it would be really worthwhile to get

the other Commissioners in and have this conversation with them.

I will do that. We will do that.

Senator CORKER. Thank you.

Chairman KERRY. Thank you very much. We appreciate it.

So Ben Scott from the Free Press, policy director, Brian Mefford,

Doug Levin, and Scott Wallsten. If you could each summarize your

testimonies in 5 minutes or less, that will help.

Mr. Scott, do you want to start, and we will just run down the

line. Just identify yourself for the record and proceed.

STATEMENT OF BEN SCOTT, POLICY DIRECTOR, FREE PRESS,

WASHINGTON, DC

Mr. SCOTT. Thank you, Mr. Chairman, Senator Snowe. Thank

you for the opportunity to testify today. I am the policy director at

Free Press. We are a public interest organization with over 350,000

members. We are dedicated to public education and consumer advocacy on communications policy.

Many of my members are small businesses and their interest in

broadband could hardly be a higher priority. For them, broadband

is a make or break technology. Many are E-commerce outfits, but

almost all of them use the Internet to place orders, track inventory,

or market products.

Unfortunately, a lack of competition in the broadband market

has led to high prices and slow speeds for these small business connections. This has been going on for quite some time, threatening

to stunt innovation and endangering our global competitiveness, as

32

both of the Commissioners pointed out. I share their view that this

is a very serious problem.

Increasingly, our small businesses are competing with similar enterprises overseas and we stand at significant disadvantage. A recent Small Business Administration study of broadband prices

showed that small businesses in States like Massachusetts and

Maine are likely to pay $40 or more for a six-megabit connection

to a consumer-grade cable modem. Their competitors in Japan are

paying the same price for 100 megabits. This 15-fold speed advantage translates into more goods, better services, and higher efficiency, and it is not just the Japanese that have the edge.

According to a study by the OECD of higher-quality enterpriseclass broadband services, the United States once again pays far

more than other nations for far less. What is available in Denmark

for $350 to small businesses costs $2,500 here at home. Now, I believe as much as the next guy in the power of the American entrepreneurial spirit, but the head start we are giving our global competitors is taking it just a bit too far.

So what do Asia and Europe have that we don’t? They have competitive markets. They have competition that drives prices down

and speeds up and we don’t, and it is not hard to see the results.

In our study of this problem, we noticed how few small businesses actually subscribe to the high-end broadband services that

best suits their interests. Most get by with a lower standard $40

consumer-grade broadband product. Only a fraction subscribe to

enterprise-class services that could supercharge their businesses.

According to the SBA survey from 2004, only 4 percent of small

businesses were buying these high-end connections—4 percent.

Even if we generously assume that since 2004 that number has tripled, that is just over 10 percent of our small businesses that are

getting what they need.

The simple reason is high prices. That same SBA survey showed that these high-quality connections cost over $700 a month. The

kind of competition necessary to bring those costs down is nowhere

on the horizon. Meanwhile, the big phone companies are over at

the FCC using their political muscle to push out these competitors.

Right now, the FCC is considering a number of critically important regulatory choices, including changes in so-called special access and network sharing policies that govern business class

broadband. Wrong decisions could result in even higher prices for

small business.

Another free market policy that is critical to small business is

network neutrality. Small businesses depend on the Internet for Ecommerce and they need net neutrality to protect the free market,

ensuring that no large companies have unfair advantages. One of

my members is a small business owner from Washington State who

wrote me and captured this issue in a nutshell. He wrote, ‘‘I am

the founder and CEO of a Web-based startup, so my life is dramatically affected by net neutrality. We will be competing against many

major companies, so the possibility of a large ISP having the option

of routing my traffic to a second-tier network is chilling, to say the

least.’’

I want to thank both of you, Senator Kerry and Senator Snowe,

for your leadership on this critical issue, because to meet the needs

33

of this CEO and others like him, my recommendation is that this

Committee undertake a sweeping inquiry into broadband policies

that affect small businesses in particular.

To begin, we need to improve our knowledge of the small business market. Currently, no Federal agency is consistently studying

this problem. It seems to me we can’t fix problems we don’t measure, and since the SBA has already begun to conduct surveys of

small business broadband, I think they ought to proceed, in cooperation with the FCC.

But above all, we need competition policy to drive down prices,

accelerate speeds, and deliver better value to American small businesses. That means fostering more competition with innovative

new technologies, like in the spectrum auction, but it also means

forcing entrenched monopolies to open their networks to competitors. That is the key point that is holding up action at the Commission.

In the short term, I recommend moving forward on a variety of

progressive policies which I outlined in detail in my written statement. These include opening the TV white spaces for unlicensed

wireless use; protecting the rights of local government to offer

broadband services; transitioning Universal Service Programs from

dial tone to broadband; safeguarding the Internet’s free market for

goods, services, and speech through net neutrality rules; and finally, opening incumbent networks to unleash competitive forces.

In my view, this is a paradigm shifting moment for American

telecommunications. It is an imperative that we choose wisely.

Thank you for your time and attention, and I do look forward to

your questions.

[The prepared statement of Mr. Scott follows:]

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Chairman KERRY. Ben, thank you very much. A quick comment:

I posted a blog this morning on Free Press and there were very

thoughtful responses. I think there are about 72 at this moment.

I am going to put this in the record, the responses that came in,

and Senator Snowe, I will get a copy to you, but they are really

thoughtful with a lot of folks raising questions about whether or

not you should treat this as a public utility, all of them appalled

by the lack of competition, the lack of access, suggesting ways in

which we might be able to get it. So thank you for the testimony.

It is very important and we appreciate it.

[Response to Senator Kerry’s blog appears in the appendix on

page 137.]

Mr. Mefford, welcome.

STATEMENT OF BRIAN MEFFORD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CONNECTED NATION, BOWLING GREEN,

KENTUCKY

Mr. MEFFORD. Chairman Kerry, Ranking Member Snowe, thank

you for the opportunity to be with you today. I appreciate the invitation.

I want to begin my testimony with a bit of a story that represents what we are seeing in Kentucky and what the types of opportunities are that are all about us as Kentucky has moved close

to ubiquitous broadband coverage. It is the story of an entrepreneur named Kamren Colson who grew up in the ‘‘Burley Belt’’

of Central Kentucky, and like too many Kentuckians, after he graduated from college, couldn’t find opportunities near home, and

moved to a place that was more conducive to the creative class.

He began a graphic design company and operated that company

for a few years and then decided around 2004 or 2005 that he was

going to push the broadband envelope—this whole technology opportunity—and so he said, I have this family farm that I grew up

on in Kentucky and we don’t raise tobacco anymore and it is just

kind of sitting there. And so he said, I am going to relocate my

business to Central Kentucky. And he said, with broadband technology, I can connect to my potential clients—my clients—just as

easy as I can from a downtown business center.

And so he did that. About a year after moving to Kentucky, he

and his business won the account for creating the 2006 Academy

Awards program and all the additional promotional assets for the

Academy Awards. So from a former tobacco field in Central Kentucky, this creative design services firm was operating back and

forth with folks in Los Angeles as if they were down the hall from

the Academy. The Academy reported that it was no different. They

said they didn’t even realize that he was in another State and it

was just like he was down the hall.

That is not an isolated example, but rather an illustration of

what is happening throughout Kentucky as we move closer to 100-

percent broadband coverage. And I will tell you that based on the

broadband that was deployed in 2005 alone, Kentucky has saved

or created 59,000 jobs. In the technology sector, in the last 21⁄2

years, Kentucky has created about 18,400 jobs. In the IT sector,

specifically, that represents a reversal. Previous to these broadband

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cent per year. In the last 2 years, we have seen a 4.1 percent increase.

And so that is something that the State is proud of and something that Connected Nation is proud to be a part of as we take

this model from State to State, as it is highly transferrable, and

we are seeing some early results mirror those Kentucky results in

the other States we are in.

When we started in Kentucky 3 years ago, about 60 percent of

households had the ability to access broadband. Today, right at

about 95 percent of households have the ability to access

broadband. Equally important, I would tell you, Mr. Chairman, and

you point this out in your blog post with Free Press, that on the

demand side—where we need to really pay attention—we have had

an 82 percent increase in folks who are actually using the

broadband once it is available.

And so as we designed the plan that we have put in place in

Kentucky and now in other States like Tennessee and West Virginia, it was with the needs of small business in mind. We looked

at the challenges facing small business, and as we all know, so

many of the challenges that are faced by entrepreneurs and small

businesses are related to isolation. That is so often the reason that

they fail. They are either isolated because of their relative size or

they are isolated because of their location, isolated from capital or

isolated from their potential customers, from market intelligence.

And so we realized that broadband can fix these things, but we

also realized that in rural areas, rural States like Kentucky, that

problem is two-fold. And so we said we have to help our small businesses. We have to equip, or we have to improve our education providers, our health care providers, and so we developed this plan

that was based on a dual approach, a dual focus on both supply

and demand.

And so we started out with a map where all providers cooperated

and gave us their specific service-level data so that we could understand where those gaps existed, and so then we could drill down

into those unserved areas and help providers understand what the

market opportunities were in those unserved areas.

At the same time, we worked at the grassroots level. We do work

now at the grassroots level with communities and helping build

awareness of what are the opportunities related to broadband, why

should we be subscribing, and as you point out, Mr. Chairman, that

is not a hard sell. These rural communities understand the opportunities associated with broadband.

Bringing those two together, we identify those opportunities for

providers. We raise interest, raise awareness, aggregate demand locally. And so we have seen providers recognize those local market

opportunities and invest at a rate over the past 3 years in Kentucky that equates to about $700 million in private sector investment. That is an amount that is unprecedented in Kentucky.

And so as we look at the impact, the impact is certainly profound

across consumers, across businesses. We see in our business sector

when you look at businesses that subscribe to broadband, their revenues are about four times that of businesses that don’t subscribe

to broadband. Consumers report that they are saving literally billions of dollars a year based on their use of broadband.

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And so to your question earlier, as I am wrapping up here, I

would tell you that there are a couple of pieces of legislation that

are on the table right now. I would mention Senator Durbin’s Connect the Nation Act, which also shares many similarities with Senator Inouye’s bill which passed unanimously out of committee, S.

1492, which I appreciate the Chair and the Ranking Member’s support on that bill, particularly.

I would say that one of the best things that the Senate could do

at this point is to make sure that that bill reaches the desk of the

President, and that would enable States to replicate the things that

Connected Nation is doing across the country today.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Mefford follows:]

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Chairman Kerry. Thank you very much for your thoughtful comments.

Mr. Levin.

STATEMENT OF DOUGLAS A. LEVIN, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, BLACK DUCK SOFTWARE, INC., WALTHAM, MASSACHUSETTS

Mr. LEVIN. Thank you, Chairman Kerry and Ranking Member

Snowe. I am the CEO of a Boston area startup company and this

particular issue of Internet access for small businesses is particularly poignant because I believe that small companies are impacted

by this issue. Larger companies are, in effect, small telecommunication companies. Companies that are publicly-held companies

have infrastructure internally, private networks and other means

by which to deliver their own infrastructure to their employees, as

well as their customers and their partners. And so a small company is impacted by this issue and I am going to give you a couple

of examples in my testimony.

I think that the global software industry is changing a great deal

and it is impacting the U.S. software industries significantly because one of the shifts in software delivery is software is a service

which is highly dependent on the Internet and U.S. companies are

operating at somewhat of a disadvantage in offering this new

model of software as a service.

Secondly, startups and small- and medium-sized software companies have problems delivering their software and the data and various other parts of their service offerings through conventional

Internet connections.

And finally, poor Internet connections in suburban areas and

rural areas impact small companies because they can’t encourage

telecommuters, their employees who are living in rural areas and

need to commute in in the eventuality of snow or other issues. Poor

Internet connections discourage this telecommuting.

By way of background, I am a 27-year veteran of the software

industry. I worked at Microsoft for around 9 years. I have been the

CEO of a bunch of Internet startups in the Boston area and I am

the CEO of Black Duck Software today. I also served on the Cable

Monitoring Committee for the town of Brookline, Massachusetts,

where we struggled to introduce two competitors into the marketplace and get Internet access into a community with lots of Ph.D.s,

but also lots of people who just demand the Internet access for

their families as well as themselves.

Black Duck Software was born out of the idea of realizing that

corporations use the Internet as a collaboration medium. Today, we

are backed by seven top-tier VC and we are headquartered in Waltham, Massachusetts, and have five offices across the country, as

well as offices in Amsterdam and the United Kingdom. We employ

81 people and we have 400 customers worldwide.

The idea for Black Duck was born while I was lying on a beach

in Cancun, Mexico, thinking about the problem of exchanging data

across the Internet and getting developers to be highly productive.

And the reason why I mention that is because inspiration can come

in all different ways at different places, and to have universal

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Internet access is a very important thing in the genesis phase of

an entrepreneurial endeavor.

With respect to the changing model of the software industry,

software as a service promises to deliver software applications over

the Internet inexpensively for small businesses, as well as large

businesses and at a fraction of the cost of the conventional applications. It offers a big advantage for small companies and where they

can save money, especially on IT infrastructure. Software as a service, however, is Internet intensive, and in the United States today,

this is holding back the expansion of software as a service because

in some areas of the country, there are people who literally cannot

get these applications through their local pipes.

A second issue for Black Duck is we offer lots and lots of updates

to our software through the Internet and some of those updates

come in the form of software and some of it comes through data.

But in either case, we are constantly updating our software, and

we need high-speed Internet services to deliver them. Our competitors, who do not have as advanced applications as we do, do it over

the Internet. Their applications are smaller. Our applications, because they are so robust, have to be delivered sometimes via the

U.S. mail instead of the Internet. This is sometimes hard to comprehend when we are sitting in meetings, but it is a fundamental

thing that very advanced technology businesses in the United

States are operating at a competitive disadvantage, and you can

see it pragmatically day to day in the business when we talk about

costs and we talk about delivery and customers.

Chairman KERRY. Is that because of the speed or the volume and

size?

Mr. LEVIN. It is both.

Chairman KERRY. Both?

Mr. LEVIN. The pipes are not big enough and the speed is an

issue. And by contrast, I could do this in Denmark [snapping of fingers] like that—in the middle of a field. In fact, they have an advertisement where they talk about in rural areas of Denmark you

can get 10 gigabytes downloaded to you in the middle of a field.

Poor Internet capabilities in suburban and rural areas make it

very difficult for American companies also for this telecommuting

issue. It is interesting to note that when I drive by Boston College—I live on Beacon Hill downtown—when I drive by Boston College, which is only a couple of miles away from downtown Boston,

my services are not there. They are not available. When I go to the

Berkshires for strategic offsites, which are 21⁄2 hours away from

Boston, I don’t have Internet access. And this is in Boston, and

Massachusetts is supposed one of the most advanced States in the

country.

Do we work around it? Absolutely, because we are entrepreneurs.

However, it makes things more difficult and costly.

So I would urge you to create a national broadband strategy that

encourages the creation of a new generation of information superhighway for the new millennium. Thank you very much.

[The prepared statement of Mr. Levin follows:]

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Chairman KERRY. Very helpful. Congratulations on what you are

doing.

That is a very interesting perspective for us to hear.

Dr. Wallsten.

STATEMENT OF DR. SCOTT WALLSTEN, SENIOR FELLOW AND

DIRECTOR OF COMMUNICATIONS POLICY STUDIES, THE

PROGRESS AND FREEDOM FOUNDATION, WASHINGTON, DC

Dr. WALLSTEN. Mr. Chairman and Senator Snowe, thank you for

inviting me here and giving me the opportunity to testify. I will

make three points.

First, there is not an overall U.S. broadband problem. Telephone,

cable, and wireless companies are investing billions in new highspeed infrastructure. Consumers and businesses are adopting

broadband at remarkable rates.

Second, those who believe there is a problem advance proposals

that sound appealing, but they don’t demonstrate that their proposals would actually benefit consumers and businesses.

Third, despite substantial current investment, policies can still

affect broadband’s growth. In particular, we need to collect better

data that would allow us to rigorously analyze proposed policies

and to remove arbitrary barriers to entry that continue to prevent

the market from reaching its full competitive potential. Government could help achieve both goals. I will elaborate on those points.

First, the sky isn’t falling. There is scant evidence of a U.S.

broadband problem. Nearly half of all American households subscribe to high-speed Internet connections, more than twice as many

as just a few years ago, and about 60 percent of businesses with

fewer than 100 employees have broadband connections.

Earlier this month, the National Federation of Independent Businesses reported the results of a survey that asked members to state

their most important problem. Broadband didn’t make that list.

Internet service providers are investing in broadband infrastructure at unprecedented rates. Cable countries are expected to invest

about $15 billion this year upgrading their networks. Verizon alone

is planning to spend $23 billion on its fiber optic network by 2010.

By the second quarter of 2007, its fiber services were available to

nearly 8 million homes and are expected to reach 9 million by the

end of the year. Cellular mobile companies continue to upgrade and

build high-speed networks while other firms are building out new

wireless networks that offer coverage ranging from very local to national.

But supply is not the only factor that affects the state of

broadband. Demand is also crucial in determining broadband penetration and speeds. I understand that some advocates think faster

is always better. Like them, I live online and place a high value

on a very fast connection. But not everyone has the same preferences that we do. Few small businesses, for example, download

multiple movies every day or engage in bandwidth-intensive online

gaming. Many people in small businesses are simply unwilling to

pay more for higher speeds. That is why not everybody signs up for

the fastest speed they can get.

Those who believe the United States has a broadband problem

claim that broadband speeds in the United States are much slower

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than elsewhere. These claims are simply wrong. They are based on

comparisons of advertised, not actual, speeds. According to

speedtest.net, which has data from nearly 200 million unique speed

tests of actual broadband connections around the world, the average U.S. speed ranks about third or fourth globally.

In short, the evidence contradicts the argument that there is too

little investment in broadband infrastructure or that most consumers and small businesses are desperate for more. The important question is whether market failures or other obstacles hinder

broadband investment, competition, and adoption by consumers

and businesses. Because investment dollars are scarce and because

policies have costs as well as benefits, we should analyze policies

carefully and rigorously to ensure that their expected benefits exceed their expected costs. Unfortunately, few proposals are accompanied by analysis.

For example, many who believe the United States has a

broadband problem argue that France and Japan are doing well because they require their biggest telecom companies to open their

infrastructure to competing broadband providers. This regulation is

known as unbundling, which is sort of like making Starbucks lease

space and equipment to any free-lance barrista who stops by. But

the truth is more subtle. France does not apply unbundling regulations to fiber optic lines, and in Japan, the regulated price for a

firm to use the fiber is so high that essentially no company takes

advantage of that regulation. Instead, the incumbent telephone

company and the electric power utilities are building and operating

fiber themselves. In other words, unbundling proponents point to

Japan and France as models to emulate, but those countries have,

for all practical purposes, not applied unbundling to the very type

of infrastructure those proponents want to see here.

As another example, some argue that expanding the Universal

Service Fund to include broadband services might benefit small

businesses. But expanding that fund is more likely to harm small

businesses since they, like all other consumers, pay for universal

expenditures through taxes on their own telecom services. That is

why the National Federation of Independent Businesses argues

strongly against increasing the fund.

I do not, however, intend to imply that the market is perfect. We

know that the overall positive picture of broadband in the United

States can mask underserved geographic areas and socioeconomic

groups. Data collection efforts should be targeted at identifying potential problems and at gathering the information necessary to

evaluate whether proposed policies are likely to address them effectively. That is why models like Connect Kentucky are successful.

They carefully identify areas where there might be a problem and

help tailor specific solutions.

In addition, certain regulations continue to make it more expensive than necessary for new companies to enter the market. For example, there is no economic justification for requiring a special license or franchise to offer cable television services over broadband

lines.

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mains unavailable for high-value use represents a tremendous opportunity cost, a significant loss to our economy.

To conclude, let me reiterate that the key to good broadband policy is careful analysis that attempts to identify market failures or

artificial barriers suppressing broadband investment and adoption,

followed by rigorous evaluation of whether proposed interventions

are likely to yield net benefits. And precisely because the Internet

is so important, Congress should be cautious and consider carefully

interventions in this fast-changing industry to ensure that they do

not unintentionally reduce incentives to invest in the very infrastructure we all believe is so important. Thank you.

[The prepared statement of Dr. Wallsten follows:]

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Chairman KERRY. Thank you. Well, we seem to have not just a

disconnect out in the country at large, but we also have a disconnect between you and Mr. Levin right here, so let me feel this

out a bit. Are you satisfied with the United States going backwards

in terms of other countries?

Dr. WALLSTEN. Well, I think that the rankings are actually not

very useful at all and there are many reasons not to pay attention

to simply just rankings and not use them as a basis to make policy.

First of all, the data that the OECD puts out themselves are very

problematic. They——

Chairman KERRY. You use that data in your own charts.

Dr. WALLSTEN. The data in the chart in this figure is from

speedtest.net. But——

Chairman KERRY. No. In addition to that, don’t you have some

other—I thought you had some additional data there.

Dr. WALLSTEN. I don’t believe I used data from the OECD in this

paper, but I actually have used the data from the OECD in papers

and the way that I use the data and the way that I think the data

should be used is to control carefully—control for things that policy

can’t affect, like population density. That is not offered as an excuse, it is simply an empirical fact. Every single empirical study on

broadband penetration finds that population density is correlated

with it. Control for things like that and test for the effects of factors that policies can affect. Then you are not looking simply at

rankings, you are controlling for lots of things.

I mean, it doesn’t make sense, for example, to compare the

United States to Iceland, which ranks third in the OECD rankings,

since Iceland has a population of 300,000, which might compare to

Buffalo.

Chairman KERRY. Dr. Wallsten, it is a relative deal if some countries are bigger than other countries. But if the country’s population as a whole has access and they are all able to use it, that

is one measurement, isn’t it?

Dr. WALLSTEN. Well, that is right, and that is why I think it is

important also to look very carefully——

Chairman KERRY. Dr. Wallsten, this is your chart here, and

broadband subscriptions per capita by technology, it says, Scott

Wallsten——

Dr. WALLSTEN. That is right, and what else is on there?

Chairman KERRY. OECD.

[The chart being referenced follows:]

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Dr. WALLSTEN. Umm-hmm, and what is the heading on the

chart?

Chairman KERRY. Broadband subscriptions per capita by technology. So you are using, I guess, the OECD——

Dr. WALLSTEN. That is true, but the point in that one is to show

the mix——

Chairman KERRY. So it is selective. You use it where you want

to and——

Dr. WALLSTEN. No. Senator Kerry, I am sorry, that is not correct.

I try to use that data appropriately, and the data themselves—I am

not trying to make excuses for the United States. I interested in

using the data appropriately. The data——

Chairman KERRY. Just help me understand it. Mr. Levin, who is

in business, has described a situation where he can’t achieve his

business goal because we don’t have adequate capacity. But he can

achieve it in another country. Isn’t that an incentive to go and operate out of the other country?

Dr. WALLSTEN. Well, I would prefer not actually to use anecdotes

as basis for making policy.

Chairman KERRY. But that is real life.

Dr. WALLSTEN. No, Senator Kerry, the OECD data omits, for example, all university connections. It omits most——

Chairman KERRY. I am not talking about OECD now. I am talking about the practical reality of speed and access——

Dr. WALLSTEN. The question for any policy is whether its expected benefits exceed its expected costs, and it is possible you

could pass a law that would mandate, for example, a minimum

speed for broadband that would be very high and that might aid

his company. The cost for that might be very high, and that is a

question you want to ask. What are the costs of a proposed policy

expected to be? Right now, we don’t even have the data to be able

to answer that question well.

And I do have—I mean, there are other suggestions of things

that we can do. I think there are things we can do right now to

improve the broadband situation——

Chairman KERRY. What are you suggesting? There is something

I don’t understand here. I mean, a community ought to have access

to broadband and be able to make the choice within the community

of whether you want to buy, at what speed you want to buy, et

cetera.

Dr. WALLSTEN. Exactly. People should be able to choose the

speed they want to buy.

Chairman KERRY. But you have to have that availability to be

able to do it and right now we don’t have that availability.

Dr. WALLSTEN. But that doesn’t mean that everybody should invest, every community should automatically invest in 100 megabit

per second availability. They have other priorities, I am sure.

Chairman KERRY. Mr. Levin, what do you say to that?

Mr. LEVIN. I disagree with a lot of the points that he has made

during the course of his testimony. I think even in the most concentrated areas of technology, like for example, the Silicon Valley,

and also Massachusetts, it is difficult sometimes to find wireless

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sive broadband to a small business is challenging in the United

States today.

Dr. WALLSTEN. If I could just—could I just follow up for 1 second? There are things that Congress could do right now. The AWS

spectrum auction concluded more than a year ago. Companies

spent billions of dollars on spectrum. For example, T–Mobile, Leap

Wireless, Metro PCS, Comcast all bought spectrum hoping to build

out broadband networks. Many of them are having trouble because

the government agencies that were on that spectrum are not moving away.

That is something that Congress could do right now to open up

more wireless space for broadband. That doesn’t require a summit,

a broadband summit. There are wireless opportunities that we

could be doing right now, and those would be great for improving

competition.

Chairman KERRY. So you disagree with the President’s goal that

we ought to have ubiquitous broadband——

Dr. WALLSTEN. I think we ought to make sure that we do everything we can to make sure that the market is competitive.

Chairman KERRY. Do you think we have done everything we can

to make it competitive?

Dr. WALLSTEN. I think there are things that we should be doing.

I think franchise regulations are serious impediments to firms investing. One thing that we don’t pay very much attention to is demand. One of the reasons that consumers in France and Japan, for

example, would buy higher-speed connections is because companies

have always been allowed to offer video—television video—over

broadband lines. Here, you can’t do that without a franchise and

there is not—I mean, I understand there are fiscal reasons why cities need those franchise rules, but there is not an economic reason

for that and without being able to purchase cable television services over broadband, that reduces demand.

Chairman KERRY. Mr. Scott, what is your reaction to this?

Mr. SCOTT. Well, I have no doubt that Dr. Wallsten comes by his

opinions honestly and some of his critiques in his academic papers

I find interesting. I disagree with most of them, but I think his

analysis is worthy.

I look at the debate over the broadband problem over the last few

years and it reminds me somewhat of the global warming debate.

The overwhelming amount of evidence is on one side, as far as I

can see, and the telephone companies, like the oil companies, can

make a really nifty PowerPoint presentation to provide the opposite, but it doesn’t make it so. And if we have got evidence from

the OECD, the ITU, and Point Topic, and the FCC and numerous

other data sources, as well as every foreign telecommunications

service provider that is, I think, not lying about the advertised

rates of service, I just have to say the broadband problem is very

real. It is both about a lack of availability and a lack of competition. That means lower speeds and higher prices. And if we don’t

do something about it, we are going to suffer economically over the

next 10 to 20 years.

Chairman KERRY. Speaking of global climate change, I am

Chairing the Foreign Relations Committee meeting with foreign

ministers on that subject in about 5 minutes, so I have got to run

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and do that. But let me just say from our own experience—Dr.

Wallsten, you need to sort of know this and then maybe you can

respond afterwards for the record—in the Berkshires in Massachusetts, we have a very thoughtful, well-educated economic base

which has been handicapped by virtue of the lack of access to

broadband. We had to create something called Berkshire Connect

to create a consortium to pull various people together in order to

create the economic clout to even get people to bid, because they

wouldn’t bid. They just didn’t think there were enough folks there.

There wasn’t enough money to be made. They wanted to hook up

all the big buildings in downtown Boston and other communities

first. So there is a race to the easy money, not necessarily a race

to where it has social impact.

So this question of utility, of public utility and which comes first,

the chicken or the egg here, is a critical one from a public policy

point of view. Those schools need access. Kids need access. People

need access. We need to educate people about why access is, in fact,

good. If you just leave it out there and nobody is aware of what

the benefits may be, they may not demand it. But as they become

more aware of the benefits and the economic upside in some of the

ways that Mr. Levin and others have described, there are all kinds

of benefits.

It is hard to ignore a study that says we are leaving 1.2 million jobs and $500 billion off the table because we are not getting that

kind of access to high-speed Internet.

Dr. WALLSTEN. And that is why I believe that models like Connect Kentucky are good, because they identify very specific problems. Also, those studies that you cite, the $500 billion one from

about 4 years ago, I believe, and the more recent one from Brookings, don’t advocate any of the policies that some here have recommended. And I am—all my work is empirical, data-driven, and

that is why I think the data is important.

Chairman KERRY. Listen, I am not trying to fight with you, I am

just disagreeing with some of your conclusions. But I think it is important to have the testimony. It is important to have the discussion. We wouldn’t have invited you here if we didn’t think it was

important. I think there is a very powerful argument for why, in

fact, this access and the competition is so critical.

I am sure that Senator Snowe will further examine that, so why

don’t I turn it over to her and you can close it out. Thank you.

Senator SNOWE. [presiding.] Thank you, Mr. Chairman.

Dr. Wallsten, so you don’t think that there should be any national policy with respect to the broadband deployment, is that

right?

Dr. WALLSTEN. Well, I think we need to be careful about what

exactly that means. I mean, our data collection right now is very

poor. I think everybody has agreed with that. And that is certainly

a good place to start.

Senator SNOWE. So if the FCC changes its methodology and the

type of data it acquires, which needs to be done soon, and it reaffirms the dramatic problem that we are facing in this country,

would you feel differently?

Dr. WALLSTEN. Absolutely.

Senator SNOWE. You would?

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Dr. WALLSTEN. I would like to see studies—I would like to see

proposed policies and analyses of the expected costs and benefits of

those proposals and then we would go from there. I mean, what is

sort of amazing to me is that in almost every other area of policy—

you think of labor policy, for example, or environmental policy, for

example—those agencies collect tremendous amounts of data and

policies are based on extensive, careful analyses. And here, for

broadband policy, an industry that affects so much of our economy,

we want to make policy based on simple rankings that don’t provide any sources, that don’t tell you what their methodology is, that

leave out huge categories of connections. To me, that is simply irresponsible.

Senator SNOWE. And the FCC has acknowledged that their methodology is wrong, correct?

Dr. WALLSTEN. Oh, yes, and——

Senator SNOWE. And that was affirmed by the GAO——

Dr. WALLSTEN. Right. And even the FCC staff know this, too,

and would like to work on that problem.

Senator SNOWE. Right. Exactly. Better data is obviously critical,

to get our arms around the data and study exactly what the picture

of America looks like. But I think the real question is whether or

not you can give impetus to the deployment of broadband and what

role the Federal Government plays.

I am impressed with Mr. Mefford and what is happening with

Connected Nation and Connect Kentucky. Maine has a Connect

Maine initiative and I hope it will share the same success. But they

have undertaken it because there is a huge vacuum in leadership,

even at the national level. These are programs undertaken by local

governments that otherwise could not afford to do them, but they

recognize it is an economic imperative, especially in rural America.

I mean, that is the real issue here, how we are going to rebuild

rural America at a time in which we are dramatically losing manufacturing jobs. In our State, we have lost 17 percent of the manufacturing jobs since 2000. It keeps happening. It happened again

recently. We keep losing major companies in rural America. How

do you rebuild it? You rebuild it by giving them access to the technology so that they can conduct their small enterprises in these

rural economies. You shouldn’t have to be in urban America. I

think that is one of the real issues that we have to confront in this

country today is what we are going to do to assist small towns to

rebuild their economies and this is one dimension of that.

I don’t know—Mr. Mefford, maybe you can add to this debate

about what pace you would expect to happen in other places as

compared to Connect Kentucky. The President set a goal in 2004

that by the end of 2007, we would have broadband deployment.

That hasn’t happened. So what would it take to apply your model

across this Nation? How long would it take?

Mr. MEFFORD. Well, first of all, it requires something like S.

1492 or Senator Durbin’s Connect the Nation Act. That is what enables States, that will empower States to replicate this model.

Senator SNOWE. You need the broadband mapping.

Mr. MEFFORD. Well, that is the starting point. Somebody said the

mapping is sort of like putting on your clothes to go to work. I

mean, that is what gets us started. That is what starts this marVerDate 11-MAY-2000 09:14 Jun 03, 2008 Jkt 040810 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 C:\DOCS\40810.TXT DianeA PsN: DianeA
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ket-based approach that embraces all providers. When I say market-based, I mean that it is this dual focus on both supply and demand, but it is inclusive of all types of providers. And so in Kentucky, when I say we have gone from 68 percent to 95 percent, that

includes cable and DSL and fixed wireless and municipal wireless

and municipal cable, all these different types of services.

So to answer your question, once that empowering piece of legislation is passed, then the process can begin immediately. We are

engaged with about a dozen different States on different levels, so

the interest is there and we certainly have the capacity to engage

additional States. But once the funding is in place, that certainly,

like most things, is the largest impediment.

Senator SNOWE. Do you see that as an appropriate role for the

Federal Government?

Dr. WALLSTEN. I think what Connect Kentucky—I think that

general approach seems to be exactly right. I mean, they carefully

identify where there are problems and then figure out ways to

solve them.

Senator SNOWE. But the broadband mapping legislation, for example—Dr. Wallsten. I think that is worth considering.

Senator SNOWE. Would that be enough once that was concluded,

how long would it take to have that ripple effect across America?

Mr. MEFFORD. We are talking a matter of months. I mean, if we

can establish a single clearinghouse where that data is placed, then

it is a matter of processing data and distributing that throughout

the country.

Senator SNOWE. Mr. Scott, what is your reaction to that?

Mr. SCOTT. I agree with all these guys that data is an important

step. The better data we have, the better policies we can make. I

think the partnership between Federal data collection, where you

have got a baseline standard that makes tools for organizations

like Connect Kentucky to use at the State and local level is the

right approach. I think S. 1492 is a good bill. We supported it from

its inception.

But I think having the data begs the question that we have

issues we need to look at, and in my written statement I have laid

out a number of pieces of policy which we think will go toward solving the problem, some small, some large, some that the Commission will do, some that the Congress should do, and I think that

we have an opportunity now in the next 12 months to really think

carefully about what steps we want to take and what goals we

want to reach, because ultimately all policy is made to reach some

big picture goal, and if our big picture goal is just to incrementally

improve our broadband market, that is one set of policies. If our

big picture goal is to produce a world-class infrastructure and duplicate the same kinds of successes we had with electrification and

the highway programs, well, that is a different set of policies. I

think there is honest disagreement about what you want to do, but

you have got to make those choices.

Senator SNOWE. This is why we wrote the Telecommunications

Act of 1934. We thought it was in the national interest to extend

telephone service to all parts of America. That is why Senator

Rockefeller and I created the E-rate program.

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Mr. SCOTT. That reminds me of a statement that Congressman

Ed Markey, the Chairman of the Telecom Subcommittee in the

House of Representatives, said to me once. He said the 1996 Telecommunications Act was a great idea. I sure wish somebody would

try to implement it.

[Laughter.]

Senator SNOWE. Good point. And look at where we are today visa-vis that policy and how much has dramatically changed. I think

it just tells you what the landscape looks like and that is why

small enterprises and rural America are struggling with the current market plan. We didn’t even factor in wireless at that point.

Even with respect to the E-rate program, it was just on the cusp

of being discussed and wireless wasn’t really part of the picture at

that point when we rewrote the Act in 1996.

Mr. Mefford.

Mr. MEFFORD. Senator Snowe, I would say that that point just

provides more additional merit for this approach to empower

States. I think where States have been active in engaging providers

in the context of telecommunications reform, I think we have seen

some positive results. Certainly and obviously that hasn’t been

complete and total or we wouldn’t be here today, but again, as we

have employed this market-based approach in the States that we

are engaged with, and I will reference Kentucky specifically, we

have seen that increase and that has been primarily by private sector providers, not totally, but that investment has been made in

large part by private sector providers.

In the remaining 5 percent that we have to cover—Kentucky will

be at 100 percent broadband coverage by the end of this year. That

has required a more entrepreneurial approach and so that does get

us to the point where we have to look at things like public-private

partnerships that incent investment. And so we may have local

governments partnering with private sector providers to build out

infrastructure and sharing revenue. But that, again, has been the

minority part of our approach.

Senator SNOWE. But there would be a public commitment. Is

there a public commitment currently on the Connect Kentucky.

Mr. MEFFORD. Yes, ma’am.

Senator SNOWE. Do the State and local government participate

financially?

Mr. MEFFORD. They do. The largest commitment comes from the

State, and so generally in our States, about 80 percent of the commitment comes from State government and the remaining 20 percent comes from the private sector, and not just telecommunications providers, but companies in general that have a vested interest in the growth of technology. So we have health care companies and automobile companies and banks and so forth.

Dr. WALLSTEN. If I could just jump in for 1 second, I just wanted

to add that I think one of the great things that has come out of

their initiatives is a tremendous amount of data that actually will

begin to allow us to test the effects of different policies. I know I

am very much looking forward to using it.

I would also just like to sort of add on a personal note that that

presentation of mine that Senator Kerry was referring to is available on the Web site of the Progress and Freedom Foundation, and

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I hope that people will look at it to realize how I am analyzing the

data and not using data where it seems it helps my case and not.

Senator SNOWE. We won’t. We appreciate that.

Dr. WALLSTEN. I hope people look at it.

Senator SNOWE. Do you think that there is competition in the

market now? Do you think that that is the essence of the problem,

as well?

Dr. WALLSTEN. I think it depends where you look. I believe, overall, there is competition. So, for example, there was an article in

the Wall Street Journal two or 3 days ago noting that broadband

satellite services are becoming faster and cheaper and that is available everywhere in the United States. Verizon and Sprint both

offer wireless broadband services. That is generally slower than

wired services, but is getting faster.

Senator SNOWE. But isn’t it a question of cost?

Dr. WALLSTEN. None of those are reflected on that map. I am

sorry.

Senator SNOWE. Isn’t it the question of cost?

Dr. WALLSTEN. And those costs are coming down. But you are

right. It is a question of cost, and also as we move more spectrum

into the market and as there are more options, I would expect

those prices to continue to come down.

Senator SNOWE. And the special access decision that will be

made by the FCC, do you think that would help to promote growth

in competition?

Dr. WALLSTEN. Special access is another complicated question

where also the GAO—actually, we would probably be having a very

similar discussion if it were just on special access because the

GAO’s main conclusion was that there wasn’t enough data to do an

analysis. I would hope that all the various players would come to

the table and show their data, because none of the CLECs make

their data available, for understandable reasons, and the incumbents don’t want to make more available than they are required to

and it is very hard to make decision under those circumstances.

Senator SNOWE. And unbundling, do you think that it has helped

to open markets, because there has really been a lot of problems

with incumbents pulling out of the residential broadband market.

Dr. WALLSTEN. Right. Well, that is slightly a little bit different

from unbundling policies. I am actually working on a paper right

now, or revising a paper right now, on bundling policies across

OECD countries and it didn’t work here. Like I mentioned, in

France and Japan, unbundling doesn’t apply to the fiber lines and

so companies are investing in their own fiber optic lines.

One question I have, for example, in Japan, one of the main providers of high-speed service is the electric utilities, not through

broadband over power lines, which seems to be next year’s technology and always will be, but actual fiber optic connections. Why

aren’t companies like that doing it here? Why don’t electric utilities

do it here? Maybe it is a bad business decision. Maybe regulations

don’t easily allow them to enter other electricity markets—I am

sorry, markets other than electricity. I think things like that are

worth looking at. I don’t know the answer.

Senator SNOWE. Mr. Scott.

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Mr. SCOTT. I think both the points you raised are critically important. I will start with the current proceedings at the Commission. It is not just special access. It is also forbearance petitions

and copper retirement. These are technocratic issues that are very

complicated in the regulatory proceedings, but their outcomes will

be hugely important in determining the prices and choices that

small businesses have, particularly as they grow, and I think we

would do well to pay close attention to what the Commission is

going to do on those issues.

As far as unbundling goes, I shared Congressman Markey’s comment in jest, but I think his point is very valid here. You know,

unbundling was never properly implemented in the United States

for a variety of reasons, which we can debate at length at another

time. But I think if you look at the way unbundling policies have

been executed, if you just as a tourist stroll around in any European capital, you will find half-a-dozen or more storefront shops

trying to sell you DSL. It is a competitive market the likes of which

is impossible to imagine in the United States, and I think that disparity is something that we have got to address. I am not saying

that I have the answer chapter and verse today, but I think taking

unbundling and putting it back on the table for serious consideration is a very wise move.

Senator SNOWE. I appreciate that. Any other comments? Mr.

Levin, do you think we should have a national policy?

Mr. LEVIN. Absolutely. The national policy may address these

issues of have and have nots and I would encourage my colleague

over here to go out and see some of these disparities that you see

in different markets. I travel extensively. I go to South Korea and

Japan and I have been all over Europe and I feel like I may not

have second-class services, but I certainly don’t have first-class

services. That affects my business. It affects lots of other businesses. And I can think of my kids in school or people in hospitals.

Those are two areas, schools and hospitals, where I think Internet

service would actually lower the cost of operating those entities and

also offer much more data to people and applications that need

data.

Senator SNOWE. I appreciate it. Mr. Mefford, you have the last

word.

Mr. MEFFORD. Senator Snowe, thank you again for the invitation

today. I would just end by reiterating the fact that America’s

broadband challenge is as much about demand as it is supply in

my mind, and I think Senator Kerry has affirmed this today, affirmed it yesterday in his blog post, to note that we have to acknowledge that the number of people actually using the technology

that has already been deployed is extremely low from the household standpoint, and what our model and the data that we have

generated after the fact has revealed is that as we can increase

those numbers of people actually subscribing to broadband, then

providers are obviously more interested in deploying further and

further and further out into those developing markets.

The things that can be done at the very grassroots level are basic

in nature, but it is about generating awareness and helping households and small businesses understand and appreciate better the

value of broadband. We have recently gathered some data where

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we asked, what are the factors that caused you to become a new

subscriber to broadband? The top reasons are things like, well I realized that broadband was worth the extra money. Then there is,

I learned that broadband became available in my area. So you can

see these are awareness building issues. And the third is, I got a

computer in my home, and so we know that is an obstacle that we

have to address. On down the list is the point that, well, I decided

that broadband became affordable.

So contrary to some conventional wisdom that is out there, our

biggest challenge to adoption is not price. It is in raising awareness

and improving the value proposition that allows individuals, families, and businesses to make the decision to spend the money on

broadband.

Senator SNOWE. But you wouldn’t disagree that price is a barrier

in many cases?

Mr. MEFFORD. Price is absolutely a barrier for some segments of

the population——

Senator SNOWE. Such as those that only depend on one provider

right?

Mr. MEFFORD. That is right, but Senator, what we have seen in

Kentucky is that what we do, in effect, is lower the cost of entry

for new providers or for existing providers to extend their networks. As that has happened, we have seen that now the majority

of Kentuckians have a choice between at least two providers. Many

have a choice between three and four and five providers, and as

that has happened, we have seen the effects of competition and

prices have come down.

Far and away, price is not the top reason given that people aren’t

investing in broadband, but absolutely, to your point, we are focused on addressing price, and we don’t consider a broadband solution an option worthy of mapping until it is affordable.

To the point of computers being an obstacle, we have developed

programs, again, that are State-specific, one that we called ‘‘No

Child Left Offline’’ that actually uses donations from companies

like Microsoft and Lexmark and CA and Intel and we put computers in the homes of identified families, underprivileged families,

and that addresses that barrier of computer ownership and allows

them then to become a broadband subscriber.

Senator SNOWE. Well, I appreciate it. I thank you all very much.

It has been very helpful and very critical to this issue, and I thank

you for your excellent testimony.

Before we adjourn, we will leave the hearing record open for 2

weeks for additional questions and testimony.

With that, the hearing is adjourned.

[Whereupon, at 11:48 a.m., the Committee was adjourned.]

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